Go for royalties, taxes; stop profit sharing – Dr. Vincent Adams
Former Director of the Environmental Protection Agency, Vincent Adams.
Kaieteur News – Without argument that the Guyana Production Sharing Agreement (PSA) has signed with ExxonMobil is one of the world’s worst contracts. International and regional stakeholders have supported this through evidence of the unfair provisions that would cost Guyana billions of dollars over the life of the project.
Aware of the lopsidedness of this contract, the former Director of the Environmental Protection Agency (EPA) says Dr. Vincent Adams, that Guyana should abandon PSAs and secure just royalties and taxes from oil companies operating in Guyana.
Dr. Adams made these and other statements last Saturday, during a virtual discussion by the Moray House Trust called Guyana’s Oil: Priorities for 2021. There, he reminded listeners that Guyana currently accounts for more than ⅓ of all funds backup ExxonMobil recovery.
“I think when I last checked, there were about 22 billion barrels. We’ve already put eight billion barrels in the books, and there’s still more to come, ”added the former EPA Director, as he argued his case for renegotiating the 2016 contract.
Having said that, Dr Adams claims that the “most crucial change” that should be made in any renegotiation is to abandon the PSA, and then move to concession-like contracts, “namely royalties and fees in alone, ”he added.
Further in his presentation, he said, “We do not have the capacity to do PSA. Many countries have realized that and are going back to the concession-like contracts. All we need, to put it simply, into a concession type contract is to be able to count barrels to make sure we have the meter running properly, et cetera, and we get our fees and taxes whatever they sell it, or whatever they sell it for. production. ”
A great example of one country that abandoned PSAs is Indonesia, the country that created this kind of agreement. In this arrangement, it states that the host country will receive its profits after the oil company has deducted its operating costs.
At first, the Government of this nation in Southeast Asia thought this was a wise move, but with each passing year, it soon noticed that its cut of the spit was diminishing; taxes from the oil sector began to shrink and activist claims of deductible expenses were increasing by the millions.
This convinced the government that petroleum companies were inflating costs. The government had tried everything it could to keep oil companies from taking advantage of this gap in the PSA, but all accounting or auditing efforts against the oil giants were futile.
In January 2017, the Indonesian Government walked away from the PSA approach, and is now using the “gross split” approach. These gross dividend rules make contractors incur all costs in turn for a higher proportion of output. The base split for oil blocks is 57% to 43% for government and contractors, respectively, and 52% to 48% for natural gas fields.
It is against this background that Dr. Adams concluded that PSAs, and in particular Guyana’s PSAs, were a “nightmare,” and reiterated the need to leave it.
This newspaper would have published, as one of its investigative pieces, a comparative examination of Guyana’s PSA with ExxonMobil against another. Guyana seems to be in a class of its own out of over 130 PSAs examined by this newspaper.
This is the only one, which has more than a dozen odd provisions all in one place. For example, the PSA sees the government paying the contractor’s income tax out of the country’s share of the profits – none of the other 130 PSAs audited shows this arrangement. Further, Guyana’s PSA is the only one out of 130, which has very modest work obligations for contractors vested with offshore licenses.
In addition, Guyana-ExxonMobil’s PSA is the only one out of 130 contracts, which has no set-aside provisions to prevent the costs of unsuccessful wells being carried over to successful wells. There is also no sliding scale for royalty to increase as productivity improves.
Finally, the Guyana PSA is the only one out of 130 that allows full recovery of insurance premiums as well as interest on loans and financing costs incurred by the contractors.