Government is not obligated to pay for oil spills

Dear Editor,

Kaieteur News is wrong in its contention that the government is obligated to pay for oil spills caused by ExxonMobil’s operations (‘Contract reveals… Guyana foot bill for litigation brought against ExxonMobil’ KN, Jan 30)). The newspaper also has mischaracterized the situation with regards to the payment of litigation fees. One need not be a lawyer to point out KN’s errors here. A simple reading of the Petroleum Agreement is enough.

First, on who pays for an oil spill: Under Article 28 (Social Responsibility and Protection of the Environment), sections 28.4, 28.5 and 28.6, taken together, clearly state that any emergency, accident, or pollution affecting the environment, the Contractor (the company) is obligated to take measures to remedy the failure and the effects thereof. Section 28.6 states that if the company fails to undertake the clean up, and the government undertakes the effort in its stead, the “costs and expenses of such actions must be borne by the Contractor”.  A straight interpretation of these sections therefore leads to the conclusion that the company, not the government in any way, foots the bill for remedying an oil spill or any other damage to the environment.

That said, the question that immediately follows is: could the company recoup this cost under cost recovery? A reading of Section 3.3 in Annex C (Costs not Recoverable under the Agreement) may help. There, clause 3.3 (g) states that unrecoverable costs include those “incurred as a result of willful misconduct or gross negligence of the Contractor”. If an oil spill does not qualify under this definition, nothing else will. In sum, the agreement states that the company must pay for damage to the environment and cannot recover the costs for remediation.

Let’s next ponder on the contention of the Kaieteur News (parroted by others) that it is wrong for Guyana to “foot bill for litigation brought against ExxonMobil”. The newspaper is referring to a clause in Annex C of the agreement that says, in short, that the company can recover all costs and expenses of litigation and legal or related services necessary or expedient for the protection of the contract area and in defending or prosecuting lawsuits involving the contract area or any third party claim.

I am not sure what is the problem the KN and others have here when (i) all such litigation against third parties is in the interest of protecting the operation and thus Guyana’s own revenue stream from it, and (ii) the proceeds of any successful legal action are to be credited to the accounts of the operation, thereby reducing the company’s claim under cost oil (Annex C, section 3.5d – Credits under the Agreement). In passing, it is worth noting that the company cannot recover the costs of arbitration for any dispute with the government itself or any fines and penalties imposed by the courts of law in Guyana.

One is left to wonder why the government is so casual in responding to this and other misunderstandings regarding the oil agreement that appear in the newspapers almost daily.

Yours faithfully,
Sherwood Lowe

Around the Web

Comments