Column 180 – Of Windfalls, Unwelcome Interventions and Waning Sovereignty
With President Trump’s Israeli-led War on Iran triggering a dramatic rise in oil price, there have been calls for a windfall tax on the American led consortium that owns the hugely profitable Stabroek Block. The formerly silent US ambassador to Guyana Nicole Theriot, would have none of it. She warned – delicately, unmistakably and improperly – that any move to revisit the 2016 Petroleum Agreement could send the wrong signal to investors.
Her intervention comes at a time when public discussion in Guyana is rightly turning to whether the existing fiscal terms still deliver a fair outcome in the face of high prices and sustained profitability. But that intervention is neither isolated nor accidental. It must be seen against a broader pattern in which Guyana President Irfaan Ali has, with increasing visibility, aligned Guyana more closely with the United States, in a manner that risks placing the country at some distance from its traditional CARICOM partners.
Encouraged, perhaps, by figures such as the outspoken Marco Rubio, the Ali Administration has recalibrated aspects of its regional relationships, including a noticeable cooling of ties with Cuba, while simultaneously embracing high-profile engagements with United States political figures, among them the discredited Kristi Noem and, most strikingly, President Donald Trump. These are not merely ceremonial encounters: they signal a deliberate geopolitical posture, the implications of which are now beginning to surface.
The difficulty, however, lies not in engagement with powerful hemispheric partners – such exchanges are part and parcel of diplomacy – and are helpful at a time when concerns about territorial integrity persist. But there is a growing concern among Guyanese that these initiatives are being pursued without sufficient consultation, discussion, or reporting, thereby limiting public scrutiny of actions that carry significant national implications. It is understandable for Guyanese to believe that personal interest is being elevated above established processes, and that private relationships risk being seen as taking precedence over considerations of national sovereignty and the wider public interest.
At this time when Guyana is in a position to benefit from the windfall in oil prices – and even as we mourn the deaths and destruction in Gaza and Iran – we need to seize every opportunity to maximise our earnings from a finite resource which will be gone before this generation expires.
We must therefore reject any interference by the US Ambassador in what is a commercial, sovereign issue. We must reject too, her suggestion that Guyana is breaching the 2016 Agreement when all we are doing is calling for justice and fairness – like every other country ought to do. And that we are putting Guyana first, just like her President does for America.
There is a myth peddled by Exxon that the 2016 Agreement provides for equal benefits. That narrative fails to acknowledge the economic reality when one looks behind the numbers. It totally disregards the royalty structure, the cost recovery ceiling, the payment of corporation tax by the Government on behalf of the companies, or the absence of withholding tax on distributions.
Applying the Agreement, when the 75% cost ceiling is utilised, the Government’s share of every hundred barrels is approximately 12%, rising only to about 24% when costs fall to 40%. Over the same range, the companies’ profit-related benefit increases from about 20% to 41%, consistently and significantly exceeding the State’s share. This outcome is driven not by risk, but by a fiscal structure under which Guyana pays the companies’ taxes and collects no withholding tax on the profits they take abroad.
Meanwhile, the wider economy bears the substantial external costs of a dominant extractive sub-sector.
In a contract in which Exxon applied maximum duress – and Granger and Trotman were clearly not up to the task at hand – this outcome cannot be justified. Exploration risk which was minimal on the signing of the Agreement has largely disappeared, reserves have been proven well beyond initial expectations, and production has entered a phase of sustained expansion.
Even under less favourable conditions, many resource-producing countries revisit their fiscal regimes. Not as a breach of faith, as the Ambassador would have Guyanese believe, or worse, hostility towards investors, but as a recognition that long-term agreements must retain a measure of flexibility if they are to remain justifiable economically and legitimate politically.
What Guyanese are seeking therefore are neither radical nor unprecedented. They range from requiring the oil companies to bear their own corporation tax liabilities, be willing to pay withholding tax on profits, and introducing a modest mechanism that allows the State to participate more fully in periods of exceptionally high prices. No unilateral action is called for, and importantly, any or all of these can be pursued within the existing contractual framework without undermining the viability of the Block, or the attractiveness of the investment climate.
Since there is no intention of unilaterally amending the Agreement – which Exxon would in any case successfully challenge – the Ambassador’s comments are, at best, uninformed and must be rejected outright, and at the other end nothing less than an unwelcome interference in our country’s sovereign affairs. As our guest, the Ambassador must respect our country’s permanent sovereignty over its petroleum resources. A State that refuses to revisit arrangements that no longer reflect current realities convey weakness, while one that engages constructively and within the bounds of its agreements to secure a more equitable outcome, signals both maturity and confidence.
In the final analysis, the issue is not whether Guyana should send a signal to investors, but the kind of signal it should send. And that is not for the USA to decide or dictate.