Every Man, Woman and Child Must Become Oil-Minded (Part 58)

The Politics of oil (or the oil of Politics)

Introduction

Amid all the noise about audits and Memorandum of Understanding, it is understandable and not at all surprising that a letter to the editor might have received less attention than it would have otherwise deserved. I suggest to every reader of this column to go back to last Friday’s Stabroek News and read the letter published under the name of Mr. Stephon Gabriel, Communications Officer of the Ministry of Natural Resources. Last Saturday was of course more than six weeks after Gabriel’s Ministry had ceded responsibility for petroleum to the Department of Energy in the Ministry of the Presidency and the timing of the letter raises interesting questions.

That letter, which would no doubt have been cleared at the highest level of the Ministry, made the astounding revelation that the Ministry had been given the strict responsibility (emphasis added) of ensuring ‘first oil’ production by 2020. As if to emphasise the point, Gabriel reported that that was “the preeminent objective over the past three years”.

The GGMC’s 2016 Memo

Let us be clear: the announcement of the first discovery of oil by Esso/Hess/CNOOC was made by ExxonMobil (Exxon) out of Texas USA in 20 May 2015 when the 1999 Petroleum Agreement was about to expire. As another piece of serendipitous information from the Natural Resources Ministry would have revealed, the Cabinet knew that when a two man team from the Geology and Mines Commission visited ExxonMobil in April 2016, they (the team) were “confronted” by Exxon “with the matter of their Contract and Licence.”  In fact the GGMC actually highlighted the words “Contract and Licence”.

That was not all. Here are some direct quotes from that Memo:

Esso was also keen to ensure that there is a grandfather arrangement in that regard” – the preservation of the benefits of the 1999 Agreement;

Esso would also like to preserve their interest over this portion (“the acreage that had been under threat due to Venezuela” [sic]);

In any new arrangement, special language as regards relinquishment terms would have to be included to address that matter pending Guyana/Venezuela boundary solution;

For Esso to start spending the replacement petroleum licence and agreement is (sic) needed, along with the undertaking that the development plan and permitting would be done in good time.

Catastrophic Consequences

So here we were: a major discovery having been announced with two other identified prospects – the Liza and Ranger – and a soon-to-expire 1999 licence. Any responsible and competent Government would have realised that at that point Esso was at its weakest and Guyana at its strongest. Yet, so strong and compelling was the political calculation that the Government considered the national interest and the future of Guyana were less important than “the strict responsibility of ensuring ‘first oil’ production by 2020.” It was a calculation of catastrophic consequences.

Here are some of the concessions of national and international implications which the Government made to Esso:

The Government effectively ceded Guyana’s sovereignty over “the property in petroleum existing in its natural condition in strata in Guyana” (Petroleum Act Cap. 65:05);

The Government agreed to pay in perpetuity, Esso’s taxes due on its share of all petroleum produced;

No increase in the economic burdens of Esso or the application of any new laws to the oil company;

Modifying the application of the country’s laws to “applicable or appropriate” rules of international law and generally accepted customs and usages of the international petroleum industry;

The Finance Minister waived or modified the application to the operations of Esso and its partners (a) the Income Tax Act; (b) the Income Tax (In Aid of Industry) Act; (c) the Corporation Tax Act; and (d) the Property Tax Act. 

Gabriel happily noted that in pursuit of its strict responsibility to deliver first oil in 2020, at every step of the way the Ministry of Natural Resources “sought and obtained Cabinet’s unanimous approval for each decision made”, no doubt meant to acknowledge the superior knowledge and flawless brilliance of our Ministers.

Failures 

On the other hand, in Gabriel’s three years, the Government has not amended one iota of the outdated petroleum laws of Guyana; failed to appoint a Chief Inspector who is the key technical petroleum officer specified in the laws of Guyana; failed to enforce the local content requirements of the petroleum laws; failed to consider any alternatives to the Production Sharing Agreement; failed to audit close to one billion United States Dollars in what is called pre-contract costs; failed to articulate a Petroleum Policy including a depletion policy, natural gas, domestic supply and the pricing of petroleum products; hid the signing bonus and continues to deprive the citizens of the country of access to key documents.

It is in this context that President Granger signed a Memorandum of Understanding (MOU) two days ago with Prime Minister Keith Rowley of Trinidad and Tobago. While concerns are being raised about this MOU which this column will address next week, it is qualitatively and legally different from the Esso Agreement. The MOU is non-binding, non-exclusive and relatively easy to terminate. On the other hand, the Esso Agreement is claimed to be legal, exclusive, non-renegotiable and perpetual. One hopes that at the very least, some attempt was made to protect Guyana’s interest in drafting the MOU in contrast to the Esso Agreement which was a perpetual gift.

Next week’s column will analyse the MOU.     

 

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