Amid fresh criticisms regarding the Production Sharing Agreement (PSA) between the Guyana Government and ExxonMobil, that was negotiated under the previous APNU+AFC administration, President Dr Irfaan Ali has defended his government’s decision to stick with the arrangement, noting that future deals will have a better balance in terms of benefits to both parties.
The Head of State spoke extensively on the issue during the opening of the Guyana Energy Conference and Expo today, where he noted that governments have a responsibility to honour agreements between investors and the State.
He further painted a picture of the many negative consequences that would have ensued had the PPP/C administration ended the production of oil offshore.
“There’s a lot of talk about Guyana’s PSA and recently I made the point that governments have to make decisions that are in the best interest of the country. We came in to government and met what we have said publicly is a lopsided agreement…
“But we have a responsibility to honour an agreement that was made. 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.”
“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.”
Contending that there “must be a balance”, the Guyanese Leader posited that “you cannot set terms and conditions that lock out investment”
He said this is especially important with future PSAs, as the Guyana Government is currently auctioning off 14 oil blocks offshore.
President Ali had previously told media that “in the [elections] campaign, we acknowledged that this was a lopsided agreement, that the last government did a horrible job but we have to respect it…that is how the international world works…but we committed to ensuring that other blocks would not have the same PSA.”
Ahead of the opening of the bidding process for the oil blocks offshore Guyana, Vice President Dr Bharrat Jagdeo had announced an updated model for the PSA which included a 10% royalty rate, up from 2% as included in the current PSA with ExxonMobil.
The new PSA model retains the 50-50 profit sharing after cost recovery, but institutes a 10% corporate tax, and sees the lowering of the cost recovery ceiling to 65% from 75%.
It was also revealed that there will be a signing bonus of US$20 million for the deep-sea blocks and US$10 million for the shallow blocks.
These measures, according to Jagdeo, will bring Guyana’s total share under these new conditions to 27.5 per cent compared to 14.5 per cent with the old terms.
Meanwhile, the Vice President recently had cause to address criticisms of the revelations that ExxonMobil’s US$160 million Headquarters at Ogle, East Coast Demerara is cost recoverable.
Jagdeo acknowledged that prior to 2020, he did say that the building should not be cost-recoverable.
But that was in the context of when ExxonMobil was only producing 120,000 barrels of oil per day.
“I did say in Opposition that the headquarters they were building at the time was several times the price of the Marriott. That was exactly what I said. And that for the scale of operation they had, they did not need such a headquarter building. And that headquarter building, if it continued in that form, we will not support it being cost recoverable,” Jagdeo explained.
“But what has changed? One, when they started that headquarter when I said we’re producing 120,000 barrels a day. By the time we get to the completion of the headquarters, we’ll be producing 600,000 barrels per day. It has evolved from a headquarter building to house staff. They have 250 staff now, they’re renting. That would evolve to 500 staff, most of which will be Guyanese that will work there.”
Jagdeo also pointed out that as such, it was no longer just a headquarters building.
Instead, it would feature training facilities, an operations suite and a control centre for all the offshore operations which will be done in the same building. Added to this is the fibre optic cable which will come from the floating production, storage and offloading (FPSO) vessels.
“It’s not just a headquarters anymore. To manage a million barrel a day industry, from a safety and operational perspective, you need a building of that nature. A high-end building. Also, with advance capabilities,” the Vice President said.
“And so that has evolved. And now when you look at the cost of rental, it would approximate almost the cost of amortising the building over time. And that comes from our share of cost recovery too. So, the concept evolved. Had they been building that just for headquarters, we would have maintained our same position.”
