Dear Editor,
Reference is made to several recent reports (including a statement by GRA’s Godfrey Statia) and commentaries relating to royalty and whether it is recovered as company costs for operations. In Guyana, everyone is an economist, including many who never took an economics course or read an economics book or magazine. Worse, everyone is an oil expert. The public is misled by uninformed information about royalty and profits as well as oil economics.
For clarification purposes, royalty refers to payment by a company or business for use of the state’s or someone else’s resources and is not recoverable as a cost. However, for tax purposes, it is computed as a business cost. Head of GRA Mr Godfrey Statia affirms that the royalty paid by Exxon to Guyana is not to be recovered.
Royalty is usually paid at the top — percentage of total value of resources recovered from operations before any expenses are deducted. In Guyana’s case, the paltry two percent is supposed to be paid at the top — two percent of total sales (inclusive of the earnings of Exxon and the Guyana lifts). After the 2% is paid, then 75% is deducted from the remaining amount as cost recovery. The remaining 25% is divided between Guyana and Exxon (with its two other partners) as profits. The latter is straightforward. Whether Exxon pays the royalty from profits or some other source is immaterial. What matters is Guyana gets 2% of all the oil.
Guyana will know exactly what is hers — the equivalent of 12.5% profit (from its lifts) and the 2% at the top if we know total revenues from all sales. Towards this goal, an audit is needed on all sales, expenses, and payments made by Exxon. A neutral forensic audit of all costs of Exxon’s operations is critical. A forensic audit by oil accounting experts will determine the appropriateness of the claimed costs. In this way, we can form a just or correct conclusion on whether Guyana is getting fair value from oil operations and sales.
Yours sincerely,
Vishnu Bisram (PhD)
