Every Man, Woman and Child in Guyana Must Become Oil-Minded – Part 106 – March 25, 2023

The 2016 Petroleum Agreement and Foreign Currency – Part 2

Introduction

In Guyana’s fast changing news cycle, the issue of whether or not there is a shortage of foreign currency appears to have receded into the background. That of course does not mean that the temporary problem has been permanently solved. Official sources maintain the line that there was never a general shortage, that if anything, the problem was restricted to a few of the commercial banks. The rest have their foreign exchange niches – Scotia from petroleum, Demerara Bank from DDL and Agriculture, and GBTI from Agriculture and Gold. That’s from the supply side. The shortage, if any, comes from several factors on the demand side, including what is perceived in some quarters as Guyana becoming the Cambio and main source of foreign currency for our Caribbean partners, to borrow from a claim made by Ms. Kamala Persad-Bissessar as Prime Minister of Trinidad and Tobago in respect of her own country.

The Petroleum Sector

As column # 105 showed, the paradox of any shortage in the midst of a petroleum boom is partly explained by the liberal Foreign Exchange Control provisions of the 2016 Petroleum Agreement which allows the oil companies to run their own exchange regime, outside of the national framework. And here it is worth noting that the regime is enjoyed not only by Exxon’s indirect subsidiary, Esso Exploration and Production Limited (EEPGL) but also by Hess and CNOOC which have a 55% share in the oil consortium with Esso the remaining 45%.

Apart from being the Operator of the Stabroek Block, EEGPL appears to have taken on the role of representative and spokesperson for the other two. It is a member of the Private Sector Commission, represented at the meeting between the PSC and the Bank of Guyana. EEPGL’s representative however, made no admission, suggestion or undertaking to contributing to any solution. Indeed, the representative was totally silent, taking in all that was said, no doubt relaying the discussions to his principals. We need to remind ourselves that EEPGL holds a minority interest (45%) in the Stabroek Block with Hess owning 30% and CNOOC the remaining 25%.

Government failure

Guyanese should note that the much-vaunted Model PSA put out recently for discussion and comments within a brief 14-day period, essentially retains the old foreign exchange framework. So much for a progressive, nationalistic model promised by the Government. While I intend to address the Model over the coming weeks, I urge the Government not only to extend the 14-day consultation period but to engage the public in a public forum for broad, general consultations. The draft does have some positive features but repeats some of the major weaknesses of the existing regime.

In returning to the foreign exchange issue, we must not make the mistake that it is all down to the oil companies, that the Agreement is the sole cause of the problem or that any fixing of the Agreement would solve all the problem. Rather, if the Model PSA is a signal, it is safe to assume that the Government does not intend to address the issue of foreign exchange – surplus or shortage – but to leave it to the Bank of Guyana and the so-called market. Perhaps the Government has to be reminded that the Bank of Guyana is a statutory creation, bound to act within the policies set by the Government. The central bank does not make policy but only carries out policies set by the Government. Since neither the Governor of the Bank nor the Government has indicated any change in policy on foreign exchange in response to oil, one has to assume that the Government is comfortable with the status quo.

Such continued inaction on the part of the Government has grave consequences. It has become the victim of the Cambios, the tax evaders, the money launderers and the illegal export of the country’s foreign exchange resources, transfer (under)pricing and the faithful adherence to the foreign exchange rules, already limited as they are.

Dr. King’s prediction of the resource curse

This Government has to get around to managing the economy and to address the problems with the economy and the country. Unless it acts soon, the condition can potentially become totally unmanageable and insoluble. Maybe the Government fears that necessary action will not be welcome by their friends and supporters but it must surely realise that it has to act in the best interest of the country rather than in the Party’s electoral interest. The Government is right to be offended by the dire predictions of Dr. Damien King, the Jamaican economist. The paradox is that by its delay or unwillingness to act responsibly and decisively, the Government is actually sowing the seed of the resource curse threatened by Dr. King.

Here are some matters requiring immediate attention, outside of the increasing and self-serving weaknesses in public financial management.

Repeal of the Dealers in Foreign Currency (Licensing) Act by excluding the non-bank cambios which are almost universally personal cambios, impervious to audit or adequate supervision and regulation. These were created for a different era and purpose and have no place in this society.

The Issue of more banking licences, thereby increasing competition among the banks.

The need for strengthening and enforcing the only semblance of transfer pricing rules under the Income Tax Act.

Rigorous enforcement of the laws against those communities of foreigners – regional and international – that rob the revenue of taxes, underpay our workers and take out foreign currency under all forms of guises. We must not hesitate to place the law breakers before the Courts and to apply our extradition laws in appropriate cases.

Addressing the large scale smuggling across the extractive sector and not hesitating to make it possible to revoke leases and licences.

Dealing with the gaping weaknesses in the Local Content Act.

The review and amendment of the Bank of Guyana Act and the Immigration Act.

Strengthening and depoliticising of the Financial Intelligent Unit and the SOCU.

Ensuring that foreign investment means what it says. Afterall, if the local economy finances the investment, directly or indirectly, allowing the investor to repatriate both capital and profits, the gains to the economy are significantly reduced.

Liberalising the rules for foreign borrowings but subject to thin capitalisation rules.

Conclusion

To state the obvious, managing an economy cannot be only about big spending, sometimes without regard for the Procurement Act, the Appropriation Act or the Fiscal Management and Accountability Act, responsible and accountable spending, and good governance. What kind of democracy is it that the National Assembly has not met since the passage of the 2023 Budget? Is it that the Government is waiting until it needs parliamentary Supplementary cover for unauthorised spending? Despite all the evidence, I remain optimistic that the government will carry out its functions and duties to address the grave problems and threats facing the country. I would hate ever to have to concede that Dr. King’s predictions were more prescience than theory.

April 11, 2023June 9, 2025

Every Man, Woman and Child in Guyana Must Become Oil-Minded – Part 105 – March 17, 2023

The 2016 Petroleum Agreement and Foreign Currency

Introduction

It is surely a contradiction that even as Guyana has the fastest growing economy in the world, and amid a phenomenal expansion in oil production and export, the issue of the availability of foreign exchange is now a major topic, a running debate on facts among the Government, the Bank of Guyana, segments of the Private Sector Commission and of the banking sector and privately owned businesses.

Keeping to a promise in last week’s column, this Column looks at the foreign exchange issue in the context of the 2016 Petroleum Agreement, the only such agreement which has yielded oil, vast quantities of it. A separate and comprehensive Article of that Agreement deals with Foreign Exchange which unsurprisingly, is as permissive and generous to the oil companies as are the provisions on taxation, the number of blocks, relinquishments and royalties. Before examining that Article, a look at the legislative framework for foreign exchange controls in Guyana.

The laws on foreign exchange

Contrary to popular belief and while the Exchange Control Act was repealed in 1996 under the Cheddi Jagan presidency, there still exist some exchange controls under the Customs Act, the Foreign Exchange Miscellaneous Provisions Act and tangentially, the Bank of Guyana Act which finds itself at the centre of a problem not of its own making. And for the record, the Bank of Guyana does not set exchange rate policies: it simply acts “[w]ithin the context of the economic policy of the Government”.

On the exchange rate, the Bank is required to act in accordance with the country’s commitment to the IMF that the rate should be market determined. Economists prefer the description of a “managed rate”, pointing to the Bank’s prescription of a G$3 cap in the spread between the rate at which commercial banks buy and sell the US Dollar, and an artificial official exchange rate of G$208.5 to US$1. The Bank of Guyana Act prescribes the Guyana Dollar as the country’s currency, and that, except with the approval of the Bank of Guyana after consultation with the Minister of Finance, all transactions in Guyana must be expressed, recorded and settled in Guyana Dollars, a requirement which is openly and routinely violated with complete immunity.

The Customs Act requires a declaration by passengers of currency in excess of ten thousand US Dollars, or its equivalent, being taken out of or brought into Guyana, a provision which is at best, self-regulated and generally ignored, to the detriment of the country’s money laundering reputation.

The Foreign Exchange Miscellaneous Provisions Act which repealed the Exchange Control Act, seeks to regulate foreign borrowings by requiring the permission of the Bank of Guyana for foreign borrowings by domestic operators, or borrowings in Guyana by companies controlled by non-resident companies. Our weak Local Content Act also means that those companies which have paid their way into buying Guyanese status, have as a direct consequence, also bought their way around this Act as well. It is mind-boggling that the Government has not moved to address this glaring deficiency.

It only gets worse.

Exchange rate and the oil contract

The above represents the statutory framework regarding foreign currency within which the Minister responsible for petroleum may enter into petroleum agreements. That framework was completely ignored in the 1999 Agreement signed by Janet Jagan, the 2005 and 2012 Model Agreements under then Presidents Jagdeo and Ramotar respectively, and of course, the universally maligned 2016 Agreement signed by Raphael Trotman. A review of the Foreign Exchange provisions in each of the four documents (all framed as Article 22) shows an abominable lack of understanding of or interest in ensuring compliance with the law.

Here are the benefits enjoyed by the oil companies and their expatriate employees.

The right to retain abroad all foreign exchange obtained from the export sales of Contractor’s Petroleum and to remit and retain abroad all foreign exchange earned from sales of Petroleum or assets in Guyana.

The right to open and maintain bank accounts in any foreign currency outside Guyana and to dispose of any sums deposited therein without any obligation to convert into Guyana currency any part of the said amounts.

The right to finance Petroleum Operations in any currency through any combination of equity, inter-affiliate or third-party loans, inter-company open accounts, or production payments.

The right to place foreign currency into both Guyanese and United States dollars bank accounts in Guyana and to dispose of the sums deposited therein without any restriction.

With the approval of the Bank of Guyana, the right to purchase and to sell Guyanese currency through local banks, obviously for foreign currency.

The right of expatriate Employees of the oil companies, Affiliated Companies Sub-Contractors engaged in Petroleum Operations to remit anywhere any portion of their salaries paid in Guyana and investment income earned in Guyana or to be paid their entire salary in their home countries.

The 2016 Agreement stipulates that the oil companies can maintain accounts in Guyana and United States Dollars and that the US Dollar accounts “will prevail in case of conflict”.

Agreement trumps Guyana’s laws

It is a well-established principle, that an agreement made under any law must comply with that law. Yet, the 2016 Agreement violates this principle in providing that any conflict is resolved in favour of the Agreement rather than the law.

The generous tax provisions mean that no foreign currency must be brought back to pay any taxes for the oil companies, branch profit tax of subcontractors or the personal income tax of expatriates of the oil companies, their affiliates and their subcontractors working in Guyana for less than 183 days.

For good measure, the total revenue earned by the oil companies in 2021 was G$545,086 Mn. while the taxes which we the Guyanese people paid for them is $78,638 Mn. CNOOC immorally benefitted to the tune of $21,118 Mn. of that sum, and now generously donates $4 million of that to assist Christ Church Secondary School. It is like giving back to Guyana $1 out of every few thousands of dollars of the taxes we pay for them. What a deal!

CNOOC may be cut from a different cloth from Exxon and Hess but there is clearly no difference when it comes to exploiting the vulnerability of poor countries or their attempts at salving their bleeding conscience.

Next week: We return to the Head Office business.

March 29, 2023March 29, 2023

New oil PSA repeats major weaknesses in old contract

Amid calls from the Opposition and other stakeholders for an extension in the time for scrutiny of the new model Production Sharing Agreement released by government recently, Chartered Accountant, Christopher Ram said there should be a public forum for broad and general consultations.

Writing in his weekly Oil and Gas column in the Stabroek News last Friday, Ram mocked the new agreement which he said retains the old foreign exchange framework. “So much for a progressive, nationalistic model promised by the Government. While I intend to address the Model over the coming weeks, I urge the Government not only to extend the 14-day consultation period but to engage the public in a public forum for broad, general consultations. The draft does have some positive features but repeats some of the major weaknesses of the existing regime,” Ram said.

Meanwhile, only last week this newspaper reported that the Government of Guyana (GoG) has so far ignored the calls from both civil society and the Opposition for the review period on the new draft Production Sharing Agreements (PSA) to be extended. Two drafts, for the deep and shallow water areas, were released two Tuesdays ago marking the commencement of a 14-day consultation. Several members of the public had recommended that the consultation period be extended to cater for a thorough review of the agreements.

This newspaper had reached out to Minister of Natural Resources, Vickram Bharrat on Friday for his position on the calls being made, but received no response. However, Stakeholder Coordinator for the Ministry, Ms. Mikaila Prince had explained, “no change to the timeline has been communicated.” The Opposition at its weekly press conference last week said the contracts should be laid in the National Assembly and be put before a special select committee that allows for the involvement of the Guyanese citizenry in the national conversation. Similarly, environment and democracy advocate, Simone Mangal-Joly in a letter to Natural Resources Minister, Vickram Bharrat underlined the need for an extension to the consultation period.

She said, “Unlike government officials, citizens are not paid employees of the State and can only read such documents during their after-work hours. Fourteen days is also prohibitive when it comes to procuring qualified specialists to provide advice so that citizens and civil society organisations can make informed representation to government.”

Mangal-Joly had also suggested among other things that mechanisms be put in place for all comments on the new draft agreements be made public and for government to produce a plan to report on how public feedback was addressed in the development of the final model agreement. Alfred Bhulai had also made a similar request to the administration. The agreements that will govern the 14 oil blocks presently on auction, has significantly improved terms for the country. In the new oil contract, government has preserved the right to review and approve the budgets for the exploration and development programmes of the oil companies. Such powers are not enshrined in the Stabroek Block PSA or any other existing PSA.

Equally important is the insertion of a new provision that ensures the country is not left on the hook for any of the oil companies’ bills. A new arrangement or demand rather, is that oil companies must also ensure their subcontractors have adequate insurance coverage too. Importantly, the draft agreements state that oil companies will not be allowed to acquire the blocks and sit on their hands for decades. Unlike what obtains in the Stabroek Block PSA, the new draft agreements stipulate that the “contractor, affiliated companies, sub-contractors and individuals who are expatriates shall be subject to the income tax laws of Guyana, including, the Income Tax Act of Guyana (Cap. 81:01) and the Corporation Tax Act of Guyana (Cap. 81:03) and shall separately comply with the requirements of those laws, in particular with respect to filing returns, assessment of tax, and keeping and showing of books and records.” The new PSA has proposed that cost recovery be capped at 65 percent and introduces an increased royalty of 10 percent. In announcing the release of the new model contracts, the Natural Resources Ministry explained that to ensure new investments are governed by a comprehensive framework of international best practices, there will be an overhaul of the 1986 Petroleum Act and Regulations.

March 29, 2023March 29, 2023

New PSA fails to fix source of foreign currency shortage

Chartered Accountant, Christopher Ram has reiterated his position that the current foreign currency shortage is a fallout from the 2016 Production Sharing Agreement for the Stabroek Block and he said Guyanese should note that the much vaunted Model PSA has essentially retained the old foreign exchange framework, which is the source of the problem.

Writing in his weekly article which appeared in the Stabroek News on Friday last, Ram observed that in Guyana’s fast changing news cycle, the issue of whether or not there is a shortage of foreign currency appears to have receded into the background. That of course, he said does not mean that the temporary problem has been permanently solved. “Official sources maintain the line that there was never a general shortage, that if anything, the problem was restricted to a few of the commercial banks. The rest have their foreign exchange niches – Scotia from petroleum, Demerara Bank from DDL and Agriculture, and GBTI from Agriculture and Gold. That’s from the supply side. The shortage, if any, comes from several factors on the demand side, including what is perceived in some quarters as Guyana becoming the Cambio and main source of foreign currency for our Caribbean partners, to borrow from a claim made by Ms. Kamla Persad-Bissessar as Prime Minister of Trinidad and Tobago in respect of her own country,” Ram, wrote.

He said the paradox of any shortage in the midst of a petroleum boom is partly explained by the liberal Foreign Exchange Control provisions of the 2016 Petroleum Agreement which allows the oil companies to run their own exchange regime, outside of the national framework. “And here it is worth noting that the regime is enjoyed not only by Exxon’s indirect subsidiary, Esso Exploration and Production Guyana Limited (EEPGL) but also by Hess and CNOOC which have a 55% share in the oil consortium with Esso the remaining 45%,” Ram stated.

He said apart from being the Operator of the Stabroek Block, EEGPL appears to have taken on the role of representative and spokesperson for the other two. He noted that EEGPL is a member of the Private Sector Commission and was represented at the meeting between the PSC and the Bank of Guyana. EEPGL’s representative however, Ram said made no admission, suggestion or undertaking to contributing to any solution. “Indeed, the representative was totally silent, taking in all that was said, no doubt relaying the discussions to his principals. We need to remind ourselves that EEPGL holds a minority interest (45%) in the Stabroek Block with Hess owning 30% and CNOOC the remaining 25%,” the chartered accountant said.

Ram said that, Guyanese must not make the mistake “that it is all down to the oil companies, that the Agreement is the sole cause of the problem or that any fixing of the Agreement would solve all the problems. Rather, if the Model PSA is a signal, it is safe to assume that the Government does not intend to address the issue of foreign exchange – surplus or shortage – but to leave it to the Bank of Guyana and the so-called market. Perhaps the Government has to be reminded that the Bank of Guyana is a statutory creation, bound to act within the policies set by the Government. The central bank does not make policy but only carries out policies set by the Government. Since neither the Governor of the Bank nor the Government has indicated any change in policy on foreign exchange in response to oil, one has to assume that the Government is comfortable with the status quo.”

He said such continued inaction on the part of the Government has grave consequences. “It has become the victim of the Cambios, the tax evaders, the money launderers and the illegal export of the country’s foreign exchange resources, transfer (under)pricing and the faithful adherence to the foreign exchange rules, already limited as they are.”

Take action

Mr. Ram said Government has to get around to managing the economy and to addressing the problems with the economy and the country. He said unless it acts soon, the condition can potentially become totally unmanageable and insoluble. “Maybe the Government fears that necessary action will not be welcome by their friends and supporters but it must surely realise that it has to act in the best interest of the country rather than in the Party’s electoral interest,” Ram stated.

Offering solutions to some of the problems related to foreign currency issue, Ram called for the repeal of the Dealers in Foreign Currency (Licensing) Act by excluding the non-bank cambios which are almost universally personal cambios, impervious to audit or adequate supervision and regulation. These were created for a different era and purpose and have no place in this society. He also called the Issuing of more banking licences, thereby increasing competition among the banks. Ram said too that there is need for strengthening and enforcing the only semblance of transfer pricing rules under the Income Tax Act. “Rigorous enforcement of the laws against those communities of foreigners – regional and international – that rob the revenue of taxes, underpay our workers and take out foreign currency under all forms of guises. We must not hesitate to place the law breakers before the Courts and to apply our extradition laws in appropriate cases. Addressing the large scale smuggling across the extractive sector and not hesitating to make it possible to revoke leases and licences,” he added.

He also called on government to dealing with the gaping weaknesses in the Local Content Act, the review and amendment of the Bank of Guyana Act, and the Immigration Act, strengthen and depoliticise the Financial Intelligence Unit and SOCU, and ensure that foreign investment means what it says. “After all, if the local economy finances the investment, directly or indirectly, allowing the investor to repatriate both capital and profits, the gains to the economy are significantly reduced. Liberalising the rules for foreign borrowings but subject to thin capitalisation rules,” Ram concluded.

March 29, 2023March 29, 2023

Govt. now siding with ExxonMobil to avoid renegotiating oil deal

Though Guyana’s blossoming petroleum sector is in desperate need of pruning to ensure the fruits satisfy the needs of the local populace, the country’s leaders have not been hearkening to their respective roles.

This much can be said, particularly about Vice President (VP) Bharrat Jagdeo, who is tasked with management of the local petroleum, according to Attorney-at-Law and Chartered Accountant, Christopher Ram.

Ram in an invited comment on Sunday said he believes the Vice President has been shirking his responsibilities in numerous instances.

He pointed out that only recently the VP told the media that the Environmental Protection Agency (EPA) has been charged with ensuring ExxonMobil supplies a parent company guarantee.

According to Ram, “That is bulls**t. The EPA has nothing to do with insurance. He is refusing to exercise the significant rights and powers that Guyana does still enjoy.”

The Attorney argued, “I think the entire team of people responsible for the oil and gas sector is doing a very poor job. They are not paying enough attention to what the law and what the agreement requires; even the inadequate provisions of the 2016 agreement are not being sufficiently enforced.”

He explained that the 2016 Production Sharing Agreement (PSA) allows for a renegotiation of the oil contract, yet the government seems more inclined to serve the oil companies, rather than the people of Guyana.

“I know the contract and that is why I am so peeved that our representatives are betraying our trust. They prefer to covert with the Americans now than serve the interest of the people of Guyana,” Ram argued.

The Lawyer also dismissed the Vice President’s claim that the People’s Progressive Party (PPP) said it promised to review the oil contracts rather than engage in renegotiating the Stabroek Block deal.

“That is absolute nonsense. Guyanese are not stupid; we know what Jagdeo said and know what he meant. I also know what he told me in private conversation,” Ram challenged.

When it comes to the government using its discretion where permitted in the oil contract, Ram said the judgment of the leaders is completely off. He said the leaders could have inserted a ring-fencing provision; even without bringing Exxon to the table by simply adding a clause to the production licenses granted to the company.

VP Jagdeo is on record saying that this was a sore issue that the PPP would address. His position has however now changed, as the VP argues the need for ‘sanctity of contracts’.

The Attorney said, “I have made this point Ad nauseam that we did not necessarily need a ring-fencing provision [in the contract]. All they [government] have to do is to say that the revenue under any production license cannot be used to exploration purposes. It’s as simple as that. I really do believe that they are not applying themselves.”

Meanwhile, as it regards conducting audits of ExxonMobil, it was recently reported that Jagdeo directed this publication to the Minister of Natural Resources, Vickram Bharrat.

The Minister has never held a press conference and is usually not the first to address such issues. In fact, when Kaieteur News reached out to the Minister, he explained that the VP had already addressed the audits. The Minister was told that Jagdeo directed the question of the audits to him, but he never responded.

On the other hand, Ram believes that the government is not ensuring the oil companies’ financial statements are being prepared to reflect the nature of the expenses to develop the resources.

He said, “I don’t think that the oil companies’ financial statements are provided in the manner in which they ought to be prepared and that’s a blatant and glaring weakness that is being exploited by the oil company. Annex C sets out the order, nature and presentation of expenses and what the government is doing is allowing Exxon and its two partners to get away with all kinds of improper accounting.”

Ram added, “It all began with the pre-contract costs which were grossly inflated. I am really getting aggravated to see how they are screwing up this entire arrangement.”

The Chartered Accountant pointed out that Annex C identifies how expenses are organized and this is how the company should have been reporting their expenses. None of the reports meet the requirement of Annex C he said. Moreover the reports themselves are inconsistent with each other, according to Ram. Due to this, he said Exxon can bill Guyana for items that should not be recovered through Guyana’s oil.

The Attorney observed, “The manner of oversight is so weak that Exxon and the two other companies can probably prepare their accounts however they wish and organize the accounts in such a way that it becomes extremely difficult to carry out an objective and critical review even as the poor oversight allows claims for cost which are not justified in the agreement.