Jagdeo is Exxon’s latest victim
Kaieteur News – Glenn Lall, publisher of the Kaieteur News, has been constantly pointing out the big shortfall in our oil deals on costs. Guyana, he notes, is littered with high pre-contract, field development and oil production costs – all of our share of cost oil must be extracted – without the country having any say in how this money is spent.
Lall has been tireless in pointing out that Exxon is simply throwing bills at the government. The government must pay without having any say in how Exxon spends this money.
Vice President Bharrat Jagdeo was presented with this unsatisfactory position during his appearance on Kaieteur Radio on December 23rd 2020. Here’s what he had to say: “After the expenditure is made, what controls government because they [government] not making the effective spending? Exxon is the operator. So, the spending is being done and the government’s way of seeing that they’re not cooking the books and inflating spending or buying from related parties at inflated prices is to do the audit to check for all those things – that’s where the government collapsed, that is, how you defend the national interest to see that the spending is real and that it is the least cost way to develop the oilfields. “
Jagdeo believes that Guyana must develop the ability to conduct oil exploration. It engenders extreme confidence in post-transaction audits, with no doubts about the limitations of these processes.
However, there are limitations to audits. The accounting auditor’s primary function is to articulate the health of a company’s accounts to determine whether these reflect the true state of the organization. In his 2019 Report, for example, the Auditor General noted that some (not all) Government financial statements fairly and significantly reflect the true state of these accounts.
A factual or retrospective audit of the expenditure incurred by the oil companies does not provide a satisfactory basis for determining whether the country or company was receiving value for money or whether there was cost inflation. Such facts must be determined by forensic or real-time examination.
However, Jagdeo does not undertake to undertake any of these. He insists that the checks are the best way to check spending and that the books are not forged. But it does not require forensic or real-time investigations.
It avoids the core issue that Lall enthusiastically raised – Guyana having a say in the spending. Jagdeo continues to hide behind the excuse that no such provision was made in the agreement signed by the APNU + AFC and the oil companies.
This same Jagdeo who, in giving Liza 1 approval, said the APNU + AFC missed the opportunity for a better deal. He had tagged the Coalition for not having better terms when he approved that license.
Yet, his government is now being hampered for taking away the opportunity presented to him when the Payara Field Development Plan was submitted for approval. The concessions charged by Exxon were insignificant and fell short of what was expected. Some analysts have described government actions as a betrayal.
As such, Jagdeo had indicated in September 2019 that more revenue could be obtained through audits and review of the concessions. Presented with the opportunity to wrestle bigger concessions from Exxon, the PPP / C negotiating team, probably led by Jagdeo, failed.
It sets out its hopes for more revenue on the current audits that have to be completed within a two-year period, a time period that would not allow for the type of accounts search needed to decide whether value for money is being achieved, whether there is massive inflation or corruption.
Post transaction audits will not discover how much ‘cook the books’, price inflation and related party transaction involvement as much as real time audits would. But Jagdeo shows no tendency to pursue real-time audits.
In the negotiations for approving Payara, Jagdeo and the company should have negotiated to have a greater say in the actual spending plan, instead of just relying on audits to make sure Guyana is not changed.
Jagdeo has stood his test, tried and failed. He has become Exxon’s latest victim. Perhaps, it’s time to see if the former school teacher can do better.
(The views expressed in this article are those of the author and do not necessarily reflect the views of this newspaper.)