“If you tear this contract up, nobody else will come” – British Economics Professor on ExxonMobil’s contract with Guyana
Sir Paul Collier
Posted by: Denis Chabrol in Demerara Waves – March 21, 2018
A British Professor of Economics and Public Policy, Sir Paul Collier on Wednesday warned that if Guyana scraps the ExxonMobil contract that would have disastrous consequences for the country’s investment climate, but he instead recommended strongly that the country beef up its capacity to avoid tax evasion by oil companies.
“Whatever you do, if you tear up your first oil contract, you are also tearing up your last oil contract. Once you get the reputation of being unreliable, the game is up,” he told a select group of senior journalists, adding that government would need “a ton” of geological information to decide whether or not Guyana got a bad deal.
Acknowledging that Guyana and ExxonMobil was “unequally matched”, he suggested that Guyana seeks to attract a few more other oil companies in the coming years instead of scrapping this one with ExxonMobil that has come in for sharp criticism in some quarters for its 2 percent royalty, US$18 million bonus, and a cap on future increased taxation even if local laws are changed.
“What would be absolutely disastrous is tearing this contract up. If you tear this con
tract up, nobody else will come. That is the brute reality. Governments have to establish credibility over the contracts they sign and if the contract you tear up within a couple of years of signing it, you’re dead,” said Sir Paul, a Professor of Economics and Public Policy at the University of Oxford’s Blavatnik School of Government and a Professorial Fellow of St Antony’s College.
He said none of the government ministers, with whom he and several other foreign experts had a one-day retreat at State House, did not ask about the possibility of amending the Production Sharing Agreement (PSA), which he called “a reasonable deal” with ExxonMobil.
Sir Paul shied away from expressing any concern about the contract, saying that Guyana would get a lot of money which, if spent wisely, would lead to improved education, electricity supply and other infrastructure.
He said if Guyana clinches agreements with other oil companies, then there would be scope for to negotiate for better benefits. As more companies are attracted to Guyana, he said there would be great scope for the country to ask for better terms and conditions. “It’s quite a good idea to get some other operators in and as you get some other operators, you will be able to compare one against the other and there are various clever devices you can use to, in a way, get one to police the other,” he said.
Guyana is not expected to rake in a lot of money in the first four years during which time ExxonMobil recovers its investment, but after that Sir Paul said Guyana would “quite a lot more” which would allow the country to prepare for a lot of cash pouring in. “You might think that you could spend a whole lot of money straight away. You couldn’t spend all straight away and so this gives you two years to really get the rules and institutions and then another three or four years when there is a gradual build up,” said Sir Paul whose research has focussed on, among other aspects, urbanisation in low-income countries and the issues of democracy in countries with low-income and high natural resources..
Sir Paul said he advised government to improve its tax collection system to focus on oil producing companies. “What you’ve got to do and this something I emphasised to government that they build the capacity to scrutinise what they pay in tax. Don’t assume that you can just trust them to pay the right amount of tax. They don’t,” he said.
In Nigeria, he said an audit had led to the oil companies having to pay US$350 million more than the monthly cheques that they had been sending to government. He noted that Norway has 40 specialist oil tax collectors who rake in 70 percent of all taxes.
He further recommended that Guyana builds a critical mass of distinctive institutions to manage oil wealth and defend them.
In addition to the two percent royalty, Guyana is entitled to 12.5 percent profit oil of the overall earnings.
Comments
By 2025 Guyana will start earning oil money?!
It’s obvious that Guyana got a bad contractual deal. The giant Exxon Mobil with its high class legal team and resources unscrupulously took advantage of the gullibility of poor Guyana’s government and gave them the short end of the stick. The contract reek with suspicion of greed and corruption. It doesn’t take a rocket scientist or a legal scholar to speculate what’s happening here. Even this Professor Collier alluded Exxon Mobil is not to be trusted.
Where there’s oil there’s greed and corruption. And Guyana will be exploited to the hilt in this deal. Remember, Exxon Mobil is there to make money for its executives and shareholders, not to be benevolent towards Guyana. All Guyanese and the world is watching. Guyana has a history of being exploited. Sadly, it appears history is about to repeat itself. It a conflict of a rich giant company against a poor third work country. Remember what happened in the oil countries in Africa and elsewhere. Investigative reporting may reveal much bribery and corruption. Guyana’s best offense is to renegotiate this contract and get the best Guyanese and internsltinal legal team involved. It would be to Exxon Mobil’s best interest too. With the news media and internet, a lot will be exposed. The world will be watching and Guyanese both at home and abroad are getting increasingly involved. This could be a win win situation unless greed prevails.
In addition to your points, there are also concerns of inequality. Local Guyanese will have to compete with expatriates who will bring in their foreign salaries that will inflate the cost of living in Guyana.
Seems we are on the same page Dean. However, while the professor has raised some pertinent issues I don’t think that any one suggested that the controversial contract be torn up. The country and its leaders have all been swallowed up by the great white sharks that invaded our waters. Only devine interventions can change that. But future decisions related to this industry must be wisely considered and put into place to stop further hemorrhaging of our our piece of the pie through inflated cost recovery that the country ihas been hoodwinked to cover out of its share of its earnings. As mentioned before, many things can happen between now and then and as such we should be ever more vigilant about future developments.
Exxon-Mobil holds over 50% of the oil leases!
https://www.kaieteurnewsonline.com/2018/03/25/proposed-oil-production-should-be-put-on-hold-intl-lawyer/
I don’t support this lawyer’s suggestion because Guyanese will suffer if Exxon is forced to leave the contract. Environmental laws should be enforced, but not compromising oil production.
And so many Brits ordering Guyanese what to do as if the Queen of England owns Guyana in 1831. You don’t see the Dutch meddling in Guyana or Suriname’s affairs don’t they? The Queen of England does not own Guyana and she is a nobody to me. I don’t like the monarchy of GB and will never show respect for any Brit imposing any colonial ideas onto Guyana, our country now free, one people, one nation, one destiny.
Mark ! That is how the shape-shifting lizards of the so-called royal family built their British Empire and still thinks they own us. They have no brain of their own. They depend on others like the professor to do it for them. Don’t think that they are human like us. Do you know why they murdered Diana?????
All of the suggestions, criticism, insults, thrown against the Government/Oil Company Contract might be correct and even useful, sometime. That the oil company is going to change anything might be wishful thinking. It is important for all to realise two things, one, they (critics) are in the peanut gallery, and this is owned by the government, good or bad.
I would like to take another position. Lets assume that there was no Oil in Guyana’s future, I am sure the country would have still progressed, maybe a lil bit slower, but ever upward, (many other good stuff in the ground) Fast Forward to 20..whenever the oil money starts to flow, the average person looks out to nice big roads, clean flowing water, big strong bridges, no more black outs, just lights on, lights on, actually think they would care if the Oil Companies stole a few points?
All the static aginst the government during this period had to put them on their toes, so maybe the brilliant Lawyers, Accountants, and generally just smart people should focus on the utilization of the new found wealth, help the government choose a more effective list of priorities, for the country as a whole.
We talking Guyanese, new challenge caught us, inexperienced, emotional, many faults, maybe, never idiots, this Oil thingee, will be handled well. Buckle Up
Yes Walter, comments from people like us should make those in control take a second look at how citizens feel, and hopefully they will pull up their socks and come to the realization that we are not dummies to have them throw sand in our eyes.
Let’s hope that the oil revenues will transform GT Public hospital into one of the most reliable hospital facilities in the Caribbean. Currently, an expectant mother is more likely to die at GT Public hospital than walking on the streets of Caracas under civil unrest.
Exactly, and away we go.
Where are the women rights activists driving their latest BMWs and wearing the latest LV/Burberry or other costly handbags? Where are they?