The oil contract Guyana has with ExxonMobil will tie the hands of successive Governments. This is according to Chartered Accountant Christopher Ram, who in his blog noted that the Stability Clause of the renegotiated contract has been increased from just one paragraph (the 1999 agreement) to four. He observed that the increases protect the interest of the operators.
Christopher Ram
“The Government’s hands are tied, and it is effectively prevented from exercising one of the most fundamental and sovereign duties of any State in relation not only to the oil companies but also to their successors and assignees. Article 32 – Stability of Agreement has been increased from one to four paragraphs, all of considerable consequence.”
He noted that the 2016 changes are designed not only to protect the interests of the oil companies but more importantly, to limit the role of the Government in applying new laws in so far as the oil companies are concerned.
According to Ram if Guyana decides to make any amendments to its laws, whether through the amendment of existing laws; including the hydrocarbon laws, the customs code, or tax code, the Government would have to restore any benefits lost.
“The new Article requires that the foregoing obligation of the Government includes the obligation to resolve promptly by whatever means may be necessary (my emphasis) any conflict or anomaly between the Agreement and any new or amended legislation, including by way of exemption, legislation, decree and/or other authoritative acts.”
The contract
The contract was finalised on October 7, 2016, between the coalition Government, ExxonMobil and its partners in the Stabroek block and released on December 28, 2017.
In Article 15 of the contract, Exxon is exempt from paying Corporation, Excise or Value Added Tax on its earnings from petroleum.
Article 15.4 also provides for the Government itself to pay the company’s Income Tax. To facilitate this, the oil company has to submit tax returns to the Government. Article 32 stipulates that Government cannot modify the contract or increase any fiscal obligation the company has.
This therefore puts a cap on the taxes, royalties, duties, fees or charges outlined in the contract. Government also has to compensate the operator if a change to existing laws causes loss of revenue for the company.
But there are provisions for Exxon to fulfil its corporate social responsibility. This includes a fund for social and environment projects. Exxon has to contribute US$300,000 per year to this fund. The sums roll over and the company together with Government will determine which projects to fund.
The contract sets aside another US$300,000 per year to ensure Guyanese personnel are trained at local or overseas universities and conferences. There are also provisions for a continuous review of local content.
