Big discoveries must be managed for the benefit of all – a way forward not a hassle
ExxonMobil Councilor warns Guyana…
Exxonmobil Senior Advisor upstream, Maria Guedez0
Kaieteur News – Last December 20th, Guyana marked its one year anniversary as an oil producing state. And on that occasion, many regional, local and international stakeholders were keen to remind the new oil producer of the herculean task it faces in ensuring it transforms its nine billion barrels of oil-equivalent resources to the benefit of all.
One such person who tried to highlight the importance of this task was Exxonmobil’s upstream Senior Adviser, Maria Guedez.
In his message to Guyana, Guedez emphasized that the nation’s exposure to the world market is changing rapidly. She recalled that before oil, Guyana had a low profile compared to its South American counterparts. The Senior Adviser said that most people who had never heard of the country, had difficulty pronouncing its name and often confused it with Ghana or Guinea. This, he said, has changed since the rapid oil discoveries in the Stabroek Block by ExxonMobil. Guedez was keen to point out that while Guyana may be endowed with natural gifts, it is a country where there may be limited opportunities.
Guedez then stressed, “… The path ahead for Guyana is not without difficulties. Yes, major oil discoveries create opportunities, but only if resources are managed responsibly for the benefit of all … ”
The Senior Adviser is not the first to make this point for Guyana over the past few years.
In fact, the International Monetary Fund (IMF) has, on several occasions, highlighted the many gaps that the government needs to close in its governance framework so that sector revenues can be spent for the benefit of all. But these recommendations have yet to be considered. For example, the IMF has identified that Guyana needs to strengthen its petroleum financial regime by reviewing the Petroleum [Exploration and Production] 1986 Act (PEPA), the Petroleum [Exploration and Production] The 1986 Regulations, as well as tax laws and other sector regulations.
The IMF has been keen to point out that while the PEPA gives government wide powers to issue petroleum exploration and production licenses, and to negotiate oil contracts, it is silent on processing and refining petroleum products, pipelines and methods of petroleum transportation, as well as how petroleum marketing arrangements should be adhered to. Despite this, the country has been pushing ahead with marketing its oil and plans to bring gas to shore.
In addition, with regard to the doped oil deal, the IMF has expressed alarm at the opportunities that Guyana provides Exxon Mobil and its partners to be aggressive in the way they add benefits to its expenses, and all of which would be fully recovered.
Left unchecked, the IMF said this could have a detrimental effect on the oil profits left to share. In its report, the IMF said that it is an established industry norm to have restrictions on the amount of interest that can be charged and deducted on loans from oil companies. He noted that some countries withhold interest expense or limit the amount of debt allowed for cost recovery purposes through caps.
Other countries advised that along the path of prescribing interest can only be deductible on borrowing to finance development costs or a maximum percentage of such costs. Interest on loans to finance exploration is not allowed. Given the dire consequences this gap can have for Guyana, the IMF said it would be appropriate for Guyana to limit the amount of debt for cost recovery purposes or to deny interest expense altogether.
In addition, the IMF has called on Guyana to close other funding gaps in the existing Production Sharing Agreements; conduct a policy review of fiscal terms contained in existing PSAs to ensure that these are properly implemented, and assess areas for improvement for future investment; designing a new financial regime that is generally applicable for upstream petroleum projects that increases government take-up and limits the scope for individual negotiations; the introduction of a revised production sharing mechanism for new PSAs that gives the government a higher share of profit oil as project profitability increases; and issuing a model PSA containing the minimum funding terms accepted by the government for future contracts.
The IMF has also called on Guyana to apply tighter fencing arrangements to contracts so that oil companies would not be able to deduct the costs associated with exploring other wells or developing other projects from another oil producing field.
The above represents only a small proportion of the IMF’s recommendations that the nation’s leaders have failed to implement, yet they continue to tell the nation that all possible measures are being put in place to protect the sector oil.