ExxonMobil contract illegal, irretrievably flawed and is either the result of grand corruption or grand incompetence

(This is the second of a series of articles by Transparency Institute of Guyana Inc on the Production Sharing Agreement signed between the Government of Guyana and Esso Exploration and Production Guyana Limited, a subsidiary of ExxonMobil.)

In March last, the British High Commissioner is reported (KN, 20th March, 2019) as having told the Georgetown Chamber of Commerce & Industry (GCCI) that corruption is a job for Government and the Private sector to team up against. TIGI agrees with the broad thrust of this contention. However, in many countries and many instances governments have, even where meaning well, been caught up in conflicting roles of fostering investment and winking at outright breaches of regulations.

TIGI concluded its own research on the oil contracts one year ago. However, our findings were so alarming to us that we waited and observed whether there were developments which would confirm our conclusions. Over the last 14 months since we published the first installment we have come to the conclusion that successive governments of Guyana have cooperated with foreign private interests over a period of 20 years to produce a document which appears to be the result of either grand corruption or grand incompetence. This is the so-called contract with ExxonMobil.

This contract has been called illegal before and there is an ongoing court action focused on an area of illegality in it. We plan to demonstrate that the arrangement with Exxon is a) illegal at its very root, and b) irretrievably flawed (i.e. incapable of being salvaged). 

We have identified six counts of illegality. We therefore depart from the debate on the sanctity of contracts to say that there can be no ‘sanctity’ of an illegal contract. Our findings have led us to believe that the “contract” is an arrangement in which Exxon sits in effective but illegal occupation of over 5 times the area it is legally entitled to under our laws and that this situation needs to be regularized under the scrutiny of the Guyana Parliament with a debate in full glare of the public.

At the time of publication of our first article (SN, 27th April, 2018) we could only have suspected that the provision upon which successive ministers have relied in going so far above the allowable area was regulation 13. Since then, we have had the words of Minister Trotman himself before Parliament in which he stated “We have also kept the acreage. I see much writing about it being illegal…[I] wish to point out to you the law does allow for the minister with responsibility, Section 13 of the Petroleum regulations [say that] the minister may consider any application in respect of more than 60 blocks, where the minister is satisfied that special circumstances exist for doing so,” (SN, 19th May, 2018). He was, likely responding to our article published in the April 27, 2018 edition of Stabroek News.

We will present the words of qualified legal luminaries to show that Minister Trotman was wrong – that the provision of an opportunity for discretion in a law does not confer a right to use that discretion in any way the official chooses. The exceeding of the maximum to such an extent throws the action into the realm of unfettered discretion a subject on which we found abundant information all saying the same thing – that officials acting on behalf of the public are not allowed (a) to abuse the discretion given, (b) that any use of such a provision must be in accordance with the purpose of the law, and (c) courts have consistently rejected such attempts. We will also show that the minister in 1999 need not have resorted to such an extreme mechanism to achieve the purpose stated, assuming the purpose was valid (protection from Exxon against Venezuela), as there was a simpler and legitimate alternative available.

With regard to Venezuelan aggression as a reason for the selection of Exxon, we will go into historical evidence to show:

that the representation that it was done to attract oil companies because they were showing no interest in Guyana as a result of the Venezuelan claim is suspect at best and demonstrably false at worst in which case, therefore, this justification would be contrived.

that the argument offered as a justification, i.e., for security reasons, has been proven false by subsequent events

In our previous article in April 2018 we asked where were the professionals who should have guided the minister? When we found that there was more than one highly qualified legal authority which commented in unmistakable terms about the limits of the power of a government official, we had to ask which legal minds put that “contract” together. They were unlikely to be persons who were aware that the wording would collide with precedents of the courts of this jurisdiction. We have since learnt that oil companies sometimes write the contracts themselves.

But given recent developments, where the nation has been treated to the sight of politicians winking at clear provisions of the constitution, we perhaps should not be surprised that our leaders were prepared to misinterpret or misapply provisions of the 1986 petroleum act and the constitution of Guyana as well- (our research indicates that the contract is also in breach of the constitution).

Indeed, we found that the document was also in breach of the Guyana Procurement Act 2003. We have since learnt that an international organization came to that conclusion independently. Another confirmatory development was the observation about the lack of “ring-fencing”. This was a confirmation that we were on to something when in our own unpublished draft of a set of questions which we had put together in May of 2017 to be asked on behalf of the public, we asked “On discovery of oil in a given area, how are the proceeds of that area differentiated from those from a geographically contiguous area associated with another permit? In other words, how are they separated; how is a drilling area delimited?” 

We will also address insurance as a special case. The right for Exxon to self-insure built into the contract robs our insurance industry which stands to lose out to the tune of over US$1 billion because of the breach of our laws. From the reports in the press, the populace might get the impression that our insurance industry is unable to deal with the insurance required. We have since learnt that the insurance industry has not been as quiet as it appears with regard to this threat to their business potential. We will deal separately with this supposed inadequacy of our insurance industry to handle the huge sums of insurance required.

Given these developments we are confident that we should make our findings public. We will therefore continue with our series of 12 articles that present our findings about the oil contract (Counting the one published last year as the first and not including this introduction). The articles will be published twice per week going forward.

Because in the end, the course of action we will propose will mean a much larger share of the proceeds of the generated income to the country, there could understandably be some concern as to whether we are providing more reason for a bigger fight to ensue among our political contenders. Our findings also suggest an answer to this.

Finally, the questions we will raise demand an answer from the authorities. But there would be yet two questions that also demand answers. The first would be a) why have other organisations, including international bodies not noticed what we have? These are bodies which have been commenting on the inadequacy of legislation for over a year now and b), what use would the call for new and up-to-date laws be if they can be ignored with impunity.

Granted, several individuals and organizations (including us at some point) have been calling on the government to renegotiate the contract. But clearly the assumption is that there is a binding agreement. A document which is in breach of international practice as well as local laws cannot qualify for “renegotiation.” The agreement would be invalid, void, and of no effect and can only be regularized.

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