Despite continuous criticisms over the Production Sharing Agreement (PSA) between the Guyana Government and ExxonMobil that was negotiated under the previous Administration, Leader of the Alliance for Change (AFC), Khemraj Ramjattan stated that there are no regrets in signing the ‘lopsided’ oil contract.
The former APNU/AFC coalition inked the controversial PSA with United States oil major, ExxonMobil, in 2016 to develop the country’s petroleum resources offshore but features such as low royalty – a meagre two per cent, lack of ring-fencing provisions, sweeping cost recovery clauses, tax exemptions, among others, have attracted heavy criticisms over the years.
But during the AFC’s weekly press conference on Friday, Ramjattan contended, “Nope, I do not [regret the signing of the PSA] because indeed it seems like the law is now vindicating us. What I wanted to say here is that to get that great decision signed up, it was an important thing that we take all these things into consideration… The fact that we managed to get the signing up of that Petroleum Production Agreement going and then they [ExxonMobil and its co-venturers] came and we are now getting about two billion dollars a year, is one of the finest economic decisions ever made for the benefit of this country.”
According to the AFC Leader, had the APNU/AFC Government not signed the contract then they not only risked Exxon and its Stabroek Block co-venturers, Hess Corp and CNOOC, walking away but the Administration would have received backlash for causing the country to lose out earning billions.
“You do not, now, when you sign on then go and say, well you know I should not have done that and I should not have done that… At the time, we did what we did knowing that we were going to get monies. If we did not do that [the media and others] would have been cussing us down [about] why did you not sign the agreement, that at least we could have gotten a billion dollars or two billion dollars because the people were going to walk away… At that point when you want them to come, you had to make sure that they do not walk away, and that is the arrangement we had,” Ramjattan argued.
He added, “ExxonMobil, Hess, and CNOOC are not easy companies to deal with, but if they wanted and…we could have granted exemptions as we understand the financial people who were bargaining on our behalf said it could be done, well that is it. So, I’m not going to retract my original position that indeed the contract was a good one.”
Ramjattan also revealed that the coalition received a lot of advice from international consultants who agreed that the 2016 contract was a reasonable one to start with at that time when Guyana was pursuing its first oil. Nevertheless, he added that it would be a good decision for the current Administration to renegotiate royalties and taxes in all other projects going forward.
“Yes certainly, [the PSA should be renegotiated] because there are changed circumstances. When we signed it was about four-five billion barrels, it is eleven billion barrels now and we had signed up in relation to that one Liza arrangement and said that we are going to change certain [things] as we go along… But at the time when we signed what we signed, we were going to get this kind of monies – two billion, and it was going to raise when it reached 700,000 barrels [per day being produced] too far higher amounts,” he clarified.
However, Ramjattan’s calls for negotiation of the oil contract comes on the heels of ExxonMobil Guyana President, Alistair Routledge, defending the 2016 PSA saying that any new changes could be very “destructive to investor confidence” in the Stabroek Block.
“We’ve made now over [US]$30 billion worth of investment committed to the country based on the contract as it stands. To change the contract when you’ve already made that level of commitment would be very destructive to investor confidence in the Stabroek Block and I would suspect, more widely, in the country,” Routledge told reporters during a briefing earlier this month.
Meanwhile, during his remarks at the opening of this year’s International Energy Conference and Expo last week, President Dr Irfaan Ali also defended his Government’s decision to stick with the 2016 contract.
He pointed out that his Administration has a responsibility to honour the current agreement in the best interest of the country.
“I spoke about the consequences of walking away… Let us say we stopped production tomorrow, stopped all the production, what is the consequence? …All those who’ve invested… who took a loan, build apartments, new hotels going up, the man who had three taxis and invested in 200 taxis now. What is the exposure to them and then what is the exposure to the financial institutions that financed those investments based on projection?” the Head of State questioned.
“So, what we did, we said ‘we have something that was already signed’. We agree we’re going to efficiently manage it to extract as much benefits as possible and all future agreements are going to be different,” President Ali stated.
Contending that there “must be a balance”, the Guyanese leader posited that “you cannot set terms and conditions that lockout investment”.
He said this is especially important now that Guyana has put up 14 new oil blocks offshore for auction.
Government is currently in the process of finalising the new PSA that will guide the terms and conditions of future oil contracts.
Under new conditions, Guyana stands to benefit from as high as a US$20 million signature bonus for the deep-water blocks and US$10 million for the shallow-water blocks.
Additionally, all future PSAs will also include the retention of the 50-50 profit-sharing after cost recovery; the increase of the royalty from a mere two per cent to now a 10 per cent fixed rate; the imposition of a 10 per cent corporate tax, and the lowering of the cost recovery ceiling to 65 per cent from 75 per cent.
