In our last article, we referred to the US$18 million signing bonus that the Government received from ExxonMobil. When the matter first surfaced in the media, Government officials vehemently denied the existence of such a transaction, with one official considering it “a figment of imagination”. It was only after evidence was produced in the form of a letter from the Finance Secretary dated September 2016 to the Governor of the Bank of Guyana to open a special account to accommodate the payment, that the Government acknowledged the receipt of the money.
We felt that the only compensation the Government is entitled to, for the grant of a petroleum licence, is in relation to licence and other fees, royalty on production, and a share of the profits based on any production sharing agreement. Any payment to the Government outside of these may not be regarded as appropriate and can lead to corrupt behaviour. We therefore suggested that the money be returned to ExxonMobil, notwithstanding that the grant of a signing bonus is not an uncommon industry practice. We believe that it remains the morally right thing to do.
Need for renegotiation of the agreement with ExxonMobil
During the 2018 budget debate, the Minister of Natural Resources stated that the 2% royalty will amount to US$380 million annually at current market prices of crude oil. On 2 June 2017, the Kaieteur News had reported the Ministry of Natural Resources as having stated that:
(a) the royalty would be based 2% percent on gross earnings;
(b) production was expected to commence at a rate of 100,000 barrels of crude oil per day;
(c) Guyana would receive 50% of the profits from the sale of petroleum once production commences;
(d) 75% of the total revenues would be used to repay ExxonMobil for its investment;
(e) the remaining 25 percent profit would be split in half between ExxonMobil and Guyana; and
(f) ExxonMobil’s total investment was expected to be about US$5 billion by 2020 when the first barrel of oil is expected to be pumped.
Assuming that 300 days will be worked for the year and a market price of crude oil of US$50 per barrel, the 2% royalty works out to US$30 million annually (i.e.100,000 x 300 x US$50 x 2%), or a mere 2.3% of our National Budget! Is it a case of the Minister placing the decimal point at the wrong place to arrive more than ten times the figure we arrived at based on our calculation? The extent to which Guyana is likely to benefit from the profit-sharing agreement has been the subject of discussion in previous articles.
We strongly believe that the agreement with ExxonMobil should be renegotiated with a view to Guyana receiving a royalty of at least 7% instead of the current 2%. This is in addition to switching from a profit-sharing arrangement to a revenue-sharing one, the justification for which was dealt with at length also in previous columns. The negotiating team should be a tripartite one, comprising Government, the Political Opposition and Civil Society, each with equal standing.
Minister of Finance’s statement on the signing bonus
According to media reports, the Minister of Finance is adamant that the US$18 million should not go to the Consolidated Fund on the grounds that: (i) the Fund is heavily overdrawn; and (ii) any transfer to it would be “swallowed up” by the overdraft. He further stated that whenever the Government decides to use the money, the necessary transfer would be made to the Consolidated Fund and a request for a Supplementary Estimate made to Parliament for its use. One recalls a similar statement made by former President Bharrat Jagdeo in relation to the Lotto funds. Regrettably, he demitted office without honouring his commitment.
Since 1992, and perhaps earlier, the Government has been operating with deficit budgeting, with expenditures outstripping revenues, resulting in a build-up of overdraft on the Consolidated Fund. As at the end of 1992, the overdraft was $26.823 billion. By the end of 2014, it increased by $67.216 billion to $94.039 billion. This is notwithstanding that over the years Guyana received significant financial benefit through the rescheduling and cancellation of its bilateral and multilateral debts, especially under the Highly Indebted Poor Countries (HIPC) Initiative. During the two-year period 2015-2016, the overdraft on the Consolidated Fund increased further by $38.838 billion to $132.877 billion. In short, we have been living beyond our means, and had it not been for debt relief, budget support and other forms of assistance from the international community, Guyana would have been in a state of bankruptcy. It should be mentioned that the overdraft is financed mainly from local borrowings in the form of Treasury Bills which are kept in the Monetary Sterilisation Account. As at 31 December 2016, this account reflected a positive balance of G$78.351 billion. When all the other Government bank accounts are taken into account, the net cash deficiency was G$20.245 billion.
The fact that the Consolidated Fund is heavily overdrawn is, however, no justification for violating Article 216 of the Constitution. The argument flies in the face, considering that it was from this deficit position that the National Budget for 2017 was financed. And in all probability, the Consolidated Fund will be in greater overdraft by the end of 2017, yet a budget of G$267.1 billion is being proposed. Besides, the signing bonus is a mere 1.4% of the National Budget. The Minister’s explanation also ignores Section 38 of the FMA Act which requires all public moneys raised or received by the Government to be credited fully and promptly to the Consolidated Fund (Emphasis mine)
The President’s statement on the signing bonus
Stabroek News reported that the President as having stated that he was responsible for signing bonus being placed into a special account instead of the Consolidated Fund. He justified his decision and its non-disclosure on the grounds of national security, and insisted that the arrangement is a legitimate one. The President further stated that, with this arrangement in place, (i) there is access to funds in the event of a national security emergency; (ii) non-disclosure does not mean an attempt at deception; and (iii) that there was no need to make the transaction public.
The Minister of Natural Resources, had earlier indicated to legislators that the signing bonus was intended to be used for legal fees pertaining to the preservation of Guyana’s territorial integrity in the event the border controversy with Venezuela is taken to the World Court. Both the President’s statement and that of the Minister, however, overlooked the fact that the Contingencies Fund has been specifically established by the Constitution to deal with emergency funding situations. At last Friday’s press conference, the President continued to insist that there has been no illegality, but there is a glimmer of hope in that he stated that if advised otherwise, he is prepared to take corrective action.
As it now stands, the Government has itself to blame for the imbroglio. It has caused irreparable damage to its credibility as well its efforts to securing good governance, transparency and accountability. Its candidate membership of the Extractive Industry Transparency Initiative (EITI) is now in jeopardy. The EITI has promulgated standards to which participating countries are required to observe, including the publication of timely and accurate information on key aspects of their natural resource management, how licences are allocated, how much tax and social contributions companies are paying and where this money ends up in the government. Those standards have been breached in respect of the signing bonus from ExxonMobil.
Way forward to end the imbroglio
We had argued for the return of the signing bonus to ExxonMobil on moral grounds. However, given that this is unlikely to happen and because there is no constitutional or legal obligation to do so, the Government must now transfer the money to the Consolidated Fund. This will enable Parliament via the National Budget to decide how it should be used, not the Executive. If the Government fails to do so, a judicial review should be sought. We must not repeat the experience of the National Industrial and Commercial Investments Ltd. (NICIL) where State revenues totalling some G$26 billion were intercepted during the period 2002 to 2014 and used to meet expenditure without parliamentary approval. A similar occurrence took place in respect of the Lotto Funds where hundreds of millions were diverted each year.
If the Government insists on not placing the money into the Consolidated Fund, the other option is the establishment of an Extra-budgetary (XB) Fund via an Act of Parliament. We had initially suggested that this option could be adopted since there are appropriate safeguards to ensure proper accountability for the funds, especially as regards its independent audit and reporting to the National Assembly as well as its incorporation into the public accounts. However, on reflection, this course of action is not advisable since Parliament will be surrendering its role of approving expenditure to the Executive. In addition, the creation of an XB Fund will take us into unchartered territory with possible unprecedented challenges, considering that since the FMA Act was passed, no XB Fund was established. Besides, over the years, the Government has had a very checkered history when it comes to the proper accountability for funds under the control of other State agencies. That is unlikely to change in the foreseeable future.