Only 10 GRA officials inspect Guyana’s billion-dollar oil sector
Kaieteur News – The 2019 Auditor General’s report has revealed that only ten officials from the Petroleum Revenue Division of the Guyana Finance Authority (GRA) in 2019 are involved in examining costs borne by the oil sector, even as the billions in bills continue to pile up.
The AG’s report outlined that since the initial establishment of the unit back in September 2019, it boasted fifteen officers but noted that only ten of them were directly involved in carrying out the audits.
It was explained that GRA employed a strategy of training officers from various audit functions to build a repository of the necessary skills and competencies that would be used and influenced by industry requirements.
It was reported that those audit officers had benefited from multiple training sessions conducted by the Technical Assistance Office and the International Monetary Fund (IMF) to build capacity to ‘Administer domestic taxes in the Oil and Gas Sector’ and ‘carry out Cost Recovery Audits’ from March 2017 to July 2019.
But such a small team may not be enough. Only recently, Vice President Bharrat Jagdeo revealed that Guyana has more than US $ 6 billion in oil-related expenses for exploration by partners, affiliates and subcontractors ExxonMobil and Stabroek Block.
The Coalition’s previous regime had allowed years to go by before a company – IHS Markit – was contracted to examine Exxon’s expenses but this was only US $ 460 million in pre-contract costs. The country has a long way to go with little window to conduct their investigations. Per the Guyana Production Sharing Agreement (PSA) with ExxonMobil in 2016, the Minister with responsibility for the oil sector has only two years to examine the expenses incurred by a senior US official at the end of each financial year.
That is, the Minister would only have had until 2017 to examine expenses incurred in 2015. And not only that, the government would have to pay the bill for all expenses incurred. related to that exact audit.
Guyana had received warnings from the IMF to ensure it was building capacity to examine the number of bills Exxon would produce. The IMF would also have highlighted the need for these audits to be conducted in a timely manner, as its failure to do so would leave Guyana incurring whatever cost Exxon reports.
And in light of Guyana’s failure to set up a Local Content Committee to review costs borne by Exxon, it would have to accept as true, whatever expenses the company incurred for the years 2015 to 2018. The that figure is US $ 95 million.
Other nations that have been producing oil years before Guyana stepped into the game have struggled to examine the billions of costs from their oil industry.
One great example is Indonesia, the country that was said to birthed the PSA. Like Guyana, the Indonesian Government wrote a PSA arrangement that states that the host country will receive its profits after the oil company deducts its operating costs.
But as the years went by, he soon noticed that his cut of the spoils had diminished, taxes from the oil sector began to shrink and operators’ claims of deductible expenses increased by the millions who later to claims that oil companies are inflating costs.
In fact, Indonesia’s Supreme Audit Agency found that several oil and gas production sharing contractors had inflated their operating cost claims to US $ 300M.
Reports by Indonesian media revealed that SKK Migas, a government-owned entity that manages the oil sector, has a staff of 750 professionals. It was reported that approximately 80% of those staff were involved in the onerous task of ensuring that the company’s breakeven claims were fair and accurate.
But even with such a tremendous team of auditors, the country couldn’t keep up and later opted to abandon PSAs and adopt the Gross Spill approach, which rules make contractors shoulder the all costs in turn for a higher proportion of output.
Antitrust advocates in Indonesia firmly believe that, given its limited audit resources and benchmarks to evaluate cost claims, the Government’s response to moving away from cost recovery as a basis for production sharing is perhaps a move sensible.