Introduction<\/p>\n\n\n\n
This column has had an extensive\nrest \u2013 more than half the year while more and more of the defects and\ninadequacies of the infamous \u201cExxonMobil\u201d Petroleum Agreement have been\nexposed. Paradoxically, it seems that it is the Government which has been the\none to make the admission by way of its engagement with the IMF while Minister\nof Natural Resources Mr. Raphael Trotman has blamed the Guyana Geology and\nMines Commission for the Agreement which he claims he signed \u201con the advice and\ndirection of the GGMC.\u201d It must be only in Guyana can a senior Minister sign an\nAgreement mortgaging the future of this country without sanction or\nconsequence. <\/p>\n\n\n\n
The admission came in the wake of\nan IMF country report critical of the absence of ring-fencing in the in Petroleum\nAgreement, a point made by several commentators on the PA but ignored by the\nsame Minister and his Government. Indeed Column # 67 referred to\nnon-ring-fenced cost but not a word was uttered by Trotman or the Agreement\u2019s\ndefenders. I therefore think this is a good point for the reappearance of the\nColumn which it is hoped will run for the rest of the year. <\/p>\n\n\n\n
Ring-fencing <\/p>\n\n\n\n
This Column begins by a\ndefinition and description of the term and proceeds to consider, in the\ncircumstances of the Agreement as a whole, whether ring-fencing really matters.\nI hope to show that it does and does not matter, paying particular attention to\nthe experiences of Ghana which started oil production only in the last decade. Ring-fencing\nis neither a legal nor a technical term and different bodies have sought to\ndefine it in their own way. The Natural Resource Governance Institute describes\nit broadly to mean a \u201climitation on consolidation of income and deductions for\ntax purposes across different activities, or different projects, undertaken by\nthe same taxpayer.\u201d<\/p>\n\n\n\n
In practice it means that in\ncomputing the profits of an enterprise, in this case one oil activity, only the\nexpenses directly referable to that enterprise or oil activity can be deducted\nfrom the income earned from that field. Where there is no ring-fencing the oil\noperator can use the profit\/surplus from a profitable operation to carry out\nexploration activities elsewhere thus reducing the distributable profit\/surplus.\nLet us look at an example of a hypothetical profitable field with a surplus of\nsay $1000. In such a case, the Government and the Oil Company each receives\n$500 each (payable in oil). <\/p>\n\n\n\n
Let us reflect the fear that in\norder not to share such a high surplus with the Government, the Oil Company\ndecides to expend $400 on exploration activities unrelated to the productive\nwell but within the Contracted Area. If that sum can be charged against the\n$1,000, the profit is reduced to $600 leaving $300 for the Government and $300\nfor the Oil Company. On the face, ring-fencing could have prevented the\nexpenditure being charged and the Government would still receive its half share\nof $1,000, i.e. $500. <\/p>\n\n\n\n
The wrong issue <\/p>\n\n\n\n
I believe the IMF is worried\nabout the wrong issue. The more serious and dangerous problem is that Trotman\nhas given complete tax exemption to Esso and its partners for the eternity of\nEsso\u2019s operation in the Stabroek Block. What Trotman has done is that he has crippled\nsucceeding Parliaments and generations by a stability clause which will take expensive\nand heavyweight legal action to unshackle. Like Trotman sought to do with the\n2016 Agreement he signed but which the Government hid from the public until the\nembarrassment of the paltry Signing Bonus he and the Government have again\nfailed to share with the people of this country the Production Licence under\nwhich First Oil will flow early next year. <\/p>\n\n\n\n
While there is nothing about\nTrotman\u2019s competence that can shock the public any further, that can be no\nexcuse for the Government hiding the Production Licence. Not only must this Licence\nbe released immediately but Trotman ought to tell the public whether it was the\nGGMC that advised on the Production Licence. The Petroleum Exploration and Production\nAct and Regulations allow for conditions to be imposed on both exploration and\nproduction licences, conditions such as local content and activities permitted\nto be undertaken by the Oil Companies. In my view, there should be far more\nintensive efforts and pressure on David Granger who seems to have abdicated all\nresponsibility for the give-away of the Millennium by his Administration. <\/p>\n\n\n\n
Those who seek to protect Granger\nfrom this crippling Agreement are doing a disservice to this country and\ngenerations to come. If the Granger Administration were to spend a quarter of\nthe time and effort on rectifying the weaknesses of this Agreement as they have\nspent on frustrating the National Assembly and the Courts on the question of\nelections, our country would have been in a stronger position by now in\nrelation to Esso. \n\n\n\nMy view is that the Government can easily\ncontrol the adverse impact of ring-fencing by imposing conditions in each Petroleum\nProduction Licence issued by the Minister under section 35 of the Petroleum\nExploration and Production Act. I say each because in my view, the Operators\ncannot use the single, secret licence issued by Minister Trotman to carry out\nproduction in the entirety of the 6.6 million acres in the Stabroek Block. In\nfurther support of my contention, there is nothing in the Petroleum Agreement,\nno matter how liberally construed, which requires Government\u2019s funds to be\napplied to Exploration Activities. That would be the effect if the Oil\nCompanies were to seek to divert such funds and would be in violation of the\nAct and the Agreement. Hopefully Trotman has not sold us out on that avenue in\nrelation to the Production Licences. \n\n\n\n<\/p>\n","protected":false},"excerpt":{"rendered":"
Introduction This column has had an extensive rest \u2013 more than half the year while more and more of the defects and inadequacies of the infamous \u201cExxonMobil\u201d Petroleum Agreement have been exposed. Paradoxically, it seems that it is the Government which has been the one to make the admission by way of its engagement with … <\/p>\n