Dear Editor,
Self-described adjunct professor and financial analyst Joel Bhagwandin, in responding to questions Mr. Nigel Hinds asked of the Senior Minister of Finance in a letter in the Stabroek News of October 8, 2022, states that all of the information is publicly available.
It is true that answers to some of the questions raised by Mr. Hinds are so available. For example, the answer to question 1 on regional budgetary allocation is found on pages 19/20 of Volume 1 of the Estimates of Expenditure for 2022; that on question 3 on subventions to non-governmental organisations is found on pages 601 to 607 of the same volume, while the answers to question 6 on royalties and question 7 on Profits received by the Government of Guyana in 2021 can be found on the Bank of Guyana website. The professor may care to tell Mr. Hinds where he can find the answers to the other questions.
Equally inadequate but totally distasteful and unacceptable is Bhagwandin‘s letter in the Stabroek News of October 8, rife with contempt and condescension of real Professor Hunte on the 2016 Petroleum Agreement. Bhagwandin accuses Hunte of “bewildering the mental faculties of intellectuals”, no doubt such as himself, accusing Hunte of being “clueless”. With characteristic arrogance, not justified by his demonstrated questionable knowledge, facts and conclusions, Bhagwandin begins paragraph 3 by saying “let me explain” and then goes on to demonstrate cluelessness. Using terms like CAPEX and OPEX may make one sound erudite, but those terms do not apply to the 2016 Agreement. Section 2 of Annex C to the Agreement sets out what are recoverable costs under Article 11 – Cost Recovery and Production Sharing. For the benefit of Bhagwandin, these are Exploration Costs; Development Costs; Operating Costs, Service Costs; and General and Administrative Costs and Annual Overhead Charge. These are further described in Section 2.
More ominously for Guyana, under Article 12 of the Agreement, “costs and expenses incurred by the oil companies in the production, use and/or disposal of the Associated Gas …. and those incurred in carrying out any feasibility study on the utilisation of excess associated gas shall be charged to the development costs of the oilfield and shall be recoverable contract costs.” Similarly, for Non-associated Gas, “the expenses incurred in carrying out any Appraisal Programme and all costs incurred outside the Production Area associated with an approved Development Plan for an export gas project, including costs associated with utilisation of third-party infrastructure or construction of onshore processing facilities” are also considered Recoverable Contract Costs under Article 11.
Equally mistaken are Bhagwandin’s next two paragraphs on the presumed benefits to the country and the oil companies occasioned by the 75% cost ceiling. In fact, the plain and simple reason for limiting recoverable contract costs in any single month is to ensure that the host country derives some revenue, no matter how bad the results of that month are.
To further demonstrate his unfamiliarity with the 2016 Agreement and the 1986 Petroleum Exploration and Production Act, Bhagwandin in his final paragraph asserts that “with ongoing exploration over the coming years”, fresh discoveries will extend the industry‘s life by 30 years. Had he read the Act and the Agreement, he would know that barring force majeure, the life of the Agreement and licenses granted thereunder has a limit of 40 years. With two extensions, the duration of the exploration period is 10 years while production, with a single permitted extension, goes for 30 years. There is no such thing as “another 30 years”. Bhagwandin is either conflating Esso/Hess/CNOOC and the petroleum industry or is unfamiliar with Articles 4 and 5 of the Petroleum Agreement which require the oil companies to give up 20% of the contract area after the end of the first renewal period (Article 5.1) – which incidentally is due next year – and the entire contract area – the remaining 80% of the 26,806 sq. km. except areas specified with explicit clarity under Article 5.2 of the Agreement – at the end of 10 years (Article 4.1 (b).
The recent exchanges may not be particularly productive and Professor Hunte should avoid following Bhagwandin down his CAPEX and OPEX rabbit hole. The Institute of Chartered Accountants in England and Wales considers accounting for the extractive industries to be a specialist area that requires expertise and an understanding of the business. There is too a separate international financial accounting standard (IFRS) for exploration for and evaluation of mineral resources while the USA has specific accounting rules and regulations that apply to companies engaged in oil and gas producing activities. Some familiarity with these special rules is important for an informed discussion.
Unfortunately, Professor Bhagwandin is not alone. I am saddened that persons who have an infinitely greater claim to expertise and erudition than he, repeatedly misrepresent important elements of the Agreement, including profit accruing to Guyana and the renegotiation of the contract. They do a disservice to our country by detracting from the fundamental imperative for its urgent renegotiation.
Letter writers, columnists, journalists and editors have a responsibility for facts, respect for grammar, integrity in writing and proper research. The right to write is not a license to offend these basic principles.
Yours faithfully,
Christopher Ram
