As a scandal grows over the surreptitious attempt to cut disputed ExxonMobil costs, chartered accountant and attorney Christopher Ram has flayed the Ministry of Natural Resources for stating that the GRA is the competent authority to lead petroleum audits.
In a letter that appears in today’s edition of Stabroek News, Ram said that It would be perfectly understandable if the public is totally confused over the issue of the IHS Markit audit of the expenses claimed by Esso, Hess and CNOOC for the period 1999 – 2017. He noted that various reports in the media suggest that the UK firm contracted to audit the costs reported by the consortium found that they were overstated by US$214m.
He also noted that Stabroek News of September 16 reported David Patterson, shadow Oil and Gas Minister, as being told in a formal meeting with Alistair Routledge, the ExxonMobil-led consortium’s spokesman, that the figure had been whittled down US$3m. On the other hand, he noted that this newspaper had also reported Vice President Bharrat Jagdeo as stating that the disputed figure had been reduced to US$11m.
This despite the fact that the GRA had previously said that it had no objection to the US$214m figure.
Yet, on September 14, 2023, Ram pointed out that the Ministry of Natural Resources in a midnight statement claimed to accept the figure of US$214m while at the same time saying that the GRA was the competent authority to “lead all audits for (sic) expenses incurred by the oil companies”.
Ram said that the no-objection offered by the GRA is neither an endorsement nor a contradiction. “Second, the GRA is not the competent authority to lead all or any Petroleum audits. If that was so, why was IHS doing the audit in the first place, and not the GRA? What we are signalling to avaricious Esso (ExxonMobil subsidiary), is that it can challenge not only the audit’s findings but IHS’s competence in the contractual sense to undertake the audit.
“In any case, by wrongly identifying the GRA as the competent authority to carry out any audit, the Government is undermining the legal capacity of the consortium of auditors later appointed to audit the years immediately following 2017. This raises the troubling inference that the Ministry of Natural Resources, even at this late stage, seems to lack a proper familiarity with (Raphael) Trotman’s 2016 Petroleum Agreement”, Ram said.
He noted that the 2016 Agreement grants to the Minister the right to audit, upon 90 days’ notice, the accounts and records of the Consortium.
“It is entirely the Minister’s discretion and decision who he appoints although according to the Constitution and the Audit Act, the Auditor General should be his first option, capacity permitting”, Ram added.
He said that Article 23 – Accounting and Audits (of the 2016 Petroleum Agreement) gives to the Minister the right to audit the Petroleum Operations while Annex C to the Agreement provides extensive provisions governing that right and the obligation of the oil companies to provide all explanations the auditor requires. The oil companies have the right to respond to any audit findings while the Minister has the right to carry out further investigations on any matter raised by the oil companies. Importantly, Annex C provides strict deadlines by which each party must exercise its rights or discharge its obligation, Ram pointed out.
“It is not within the powers, duties or functions of the GRA to carry out any Minister’s audit. Such an audit can put it in conflict with the Revenue Authority Act and the tax laws. Those laws give the GRA an absolute right to carry out an audit of the returns and the books and accounts of any taxpayer in accordance with the tax laws and practice. The more technical among us will be familiar with the provision which allows for tax purposes only expenses wholly and exclusively incurred in the production of income and makes a clear distinction between capital and revenue expenditure. On the other hand, the Petroleum Agreement provides for recoverable and non-recoverable expenses, making no distinction between capital and revenue expenses”, Ram said.
He charged that the Government wants to protect and defend the 2016 Production Sharing Agreement – at all costs – and without a Petroleum Commission.
“Not only is that unfortunate, but it makes it even more important that those entrusted with the administration and execution of the Agreement read, understand, apply and enforce it”, he said.
He added that the Government must now release the IHS audit report to remove the confusion.
Stabroek News published the findings of the audit report in April this year after it had been in the possession of the PPP/C government for two years without disclosure.
The blackout on the report appeared to be to protect Exxon from the damning findings by IHS Markit.
Among the major findings in the audit report was that 12.8% of the US$1.67b expenses claimed by ExxonMobil and its partners could be disputed by the Guyana Government. This US$214.4m was roughly one fifth of the amount injected into this year’s budget from oil and gas revenues.
“The Audit has established that GoG has reasonable grounds to dispute US$214.4 million plus overhead adjustments of the costs currently included by EEPGL in the Cost Bank. This amount represents 12.8% of the cumulative cost recovery balance as of Q4 2017 Statement,” the IHS Markit Final Audit Report said.
The disputed costs fell into three main categories – Defined Costs for Removal (DCR), Inadequate Supporting Documentation (ISD), and Ministerial Approval Required (MAR). For each of the categories, the sums were: DCR – US$34 million, ISP – $179.8 million, and MAR – US$0.27 million.
The subsequent unauthorised attempt between the Ministry of Natural Resources and ExxonMobil to slash the disputed figure from US$214m to US$3m has raised numerous questions which the government is yet to answer. There has also been no word about disciplinary action over the illegality neither has ExxonMobil explained why it engaged in these prohibited negotiations.
