‘Accelerate renegotiation of contract rather than oil production’

‘Accelerate renegotiation of contract rather than oil production’

News

– Dr. Yog Mahadeo to Jagdeo

By Davina Bagot

Kaieteur News – Vice President Bharrat Jagdeo just over a week ago promised that the lopsided 2016 oil contract that Guyana has with US oil major, ExxonMobil will change in the future through the process of renegotiation, but one member of civil society, Dr. Yog Mahadeo believes that the country should move with greater alacrity on this matter especially as production of oil and gas resources is set to triple in about five years’ time.

Dr. Mahadeo, a founding member of a transparency watchdog body- Article 13- in an invited comment on Monday told this publication that the citizens of Guyana should not allow Jagdeo to escape taking responsibility for making another promise to renegotiate the Exxon contract. To this end, he pointed out that as the leaders seek to ramp up the production of oil, it should be investing equal effort to bring back the oil company to the table. In fact, the activist noted that the renegotiation of the deal should take preeminence. According to him, “what the government has done is try to encourage the oil company to accelerate, but with that being said, I think we should also accelerate our renegotiation.”

Dr. Mahadeo was keen to note the importance of getting a better deal from the oil contract sooner rather than later, as promised by the VP. He told this newspaper that the rate of production could very well mean that the Stabroek Block could be drained in a few years time. As such, he enquired, “what are we going to be renegotiating for then? What will a renegotiation do or who will it benefit when all the oil from the Block has already been pumped?”

The activist made it clear that most Guyanese are not against or do not intend to halt the production of oil, as it is well established that the extraction of the resource can have a phenomenal impact on the country’s development. However, with Guyana being a signatory to the Paris Accord that aims at reducing global emissions to slow climate change by 2050, Mahadeo acknowledged that the government is tasked with ensuring its activities align with this goal.

He explained, “I think all of us or at least many of us would not want to stop oil exploitation because the country needs the wealth but the truth is, because of the Paris Accord, we have up to 2049 to pump and what the government has done is try to encourage the oil company to accelerate but with that being said, I think we should also accelerate our renegotiation.”

In outlining the importance of seeking a better deal today, the activist noted, for example, that ring-fencing is one “extremely important” provision that is necessary to be applied in a renewed oil contract with Exxon. “So as you are accelerating the exploration and exploitation, we should accelerate the whole issue of ring-fencing and renegotiation as a matter of fact,” he argued.

Jagdeo’s promise

On August 6, Jagdeo accepted that the contract signed with oil major, ExxonMobil, will have to be renegotiated in the future, as the deal is far from the picture being painted by “independent experts” such as Rystad Energy and the oil giant itself.

According to the VP, “on the one hand, you see Rystad Energy and Exxon trying to prove that they are the best thing for Guyana, which is not so. The contract was bad, we have to change it in the future but we are not going to renegotiate now.”

In the PPP’s 2020 manifesto, it had promised to renegotiate the deal entered into by the former Coalition administration back in 2016. However, shortly after taking office, the government changed its tune, insisting the contract could not be touched to maintain “sanctity” of agreements. The government has been arguing that if it goes down the lane of approaching the oil company for a renegotiation, it could send the wrong signal to other potential investors- that the country would not stick to contractual agreements it made.

In addition, the government’s side often reference the Stability Clause included in the oil deal. Article 32 of the contract, which lists conditions for ‘Stability of the Agreement’ states at 32.1 that “Except as may be expressly provided herein, the Government shall not amend, modify, rescind, terminate, declare invalid or unenforceable, require renegotiation of, compel replacement or substitution, or otherwise seek to avoid, alter, or limit this Agreement without the prior written consent of Contractor.”

It must be noted, however, that this clause was in existence before the PPP took office. This means that while it was in Opposition, the PPP was well aware of this provision when it made the promise to renegotiate the contract.

Provisions in the 2016 PSA

While both the PPP and former Coalition government are determined to stick to the lopsided 2016 oil contract, citizens in Guyana have mounted daily protest action, highlighting the need for changes to be made so that they can secure benefits from the deal. They believe that the present agreement only favours the oil company as Guyana receives a mere two percent royalty for its sweet light crude and settled for 50 percent profit sharing, after Exxon takes 75 percent of the earnings to clear its expenses.

The deal that the oil company often brags about to its shareholders, also forces Guyanese to pay their share of taxes, amounting to millions of US dollars each year. This figure is likely to further balloon as more operations come on stream.

In addition, the country is allowing ExxonMobil to operate offshore without full liability coverage in the event of an oil spill, which means that the risk is borne by Guyana. Another key provision that is lacking in the document is ring-fencing provision, which would avoid the oil company from using the petroleum revenue in one field to cover for expenses in another.