Mr Davis wrongly stated that gov’t take from oil contract is 60%

Dear Editor,

Your letter writer Mr. Patrick Davis `We must be clear-eyed about how detrimental tearing up contracts could be’  (Sunday Stabroek, January 27) attempts to disparage Dr. Jan Mangal, accusing him of “confusing and disingenuous claims about economic development, business sector stability, and the terms of our current oil contracts”.  Mr. Davis is of course free to entertain as valid and good for his economic development the neoliberal view that we must open our arms and our Treasury to foreign investors demanding generous concessions and favourable conditions while paying remuneration to locals they would not dare to pay in their home countries. What he is not free to do is use the public space to distort the oil contracts and their consequences to the patrimony and wellbeing of our country or to recklessly seek to accuse others.

Mr. Davis states that “there is little to suggest that the contract we signed in 2016 is ‘unfair’. He then claims, boldly but wrongly, that the “government take … [is] approximately 60 per cent” and that “is by all accounts on par with other frontier countries that were untested territory prior to discovery.” How much more uninformed someone can be is hard to imagine, unless that someone has just arrived from Mars or beyond and has missed all the discussions, debates, columns and letters on the Oil Contract which had been kept hidden for eighteen months.

Helpfully however, Mr. Davis himself demolishes his own argument by comparing a post-discovery Agreement as the Esso/Hess/Nexen of 2016 with “other frontier countries that were untested territory prior to discovery”. First of all, not a single commentator has suggested that Guyana will receive 60% from the contract, so Mr. Davis might wish to share his superior knowledge in coming up with that figure. Mr. Davis must also share his knowledge about the impact on the relative share by the oil companies and the Government which will arise from the Government paying the oil companies’ Corporation Tax bill on their profits.

Let me help Mr. Davis. Once Corporation Tax is taken into account, and on certain assumptions being made about price and cost, the oil companies’ take is around 55% and the Government’s take is 45%. And that I might add is if the oil companies do not pad their figures as they have done with pre-contract costs. Mr. Davis is no doubt aware that under the Agreement, the country’s share of profit oil is a flat 50% regardless of the level of production so his 60% is a mystery. And that Article 11.2 of the Agreement allows the recovery of cost oil of up to 75% of total production, earning the country a 12.5% profit share which with royalties of 2% of the gross revenue, adds up to 14.25% in the initial years [2% + (12.5% *98%)].

Then I return to Mr. Davis’ own numbers that 60% is the standard for frontier countries prior to discovery. Since he appears to accept 60% as a fair take can he then state what additional percentage he would have liked to see Mr. Raphael Trotman insist on in a post-discovery Agreement. Finally, I would ask Mr. Davis whether there are no circumstances which would justify the renegotiation of a contract, including a stability clause that binds all future governments, as exists in the Esso/Hess/Nexen contract.

Yours faithfully,

Christopher Ram

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