Ev­ery Man, Wo­man and Child in Guyana Must Be­come Oil-Minded

Stabroek News - - REGIONAL NEWS -

the meth­ods whereby the Par­ties nom­i­nate and lift their re­spec­tive shares of crude oil, such pro­ce­dures be­ing sub­ject to dis­cus­sion and agree­ment between them.

Ar­ti­cle 14.2 sets out as the prin­ci­ples gov­ern­ing such pro­ce­dures that the lift­ing will be so car­ried out so as to avoid in­ter­fer­ence with the pe­tro­leum op­er­a­tions; that if any party is un­able to lift such quan­ti­ties for any rea­son, it must no­tify the other party forth­with; and in the ab­sence of any agree­ment to the con­trary, the Govern­ment and the Con­trac­tor will share in each type of grade of crude oil in pro­por­tion to their re­spec­tive lift­ing en­ti­tle­ment.

Chal­lenges to the Govern­ment

It seems clear from the two im­me­di­ately pre­ced­ing para­graphs that the Govern­ment is more than un­likely to take up its en­ti­tle­ment and will have to rely on the Con­trac­tor to dis­pose of its share. Such a pos­si­bil­ity is pro­vided for un­der Ar­ti­cle 14.3 which al­lows the Min­is­ter to no­tify the Con­trac­tor to use rea­son­able ef­forts to mar­ket abroad on com­pet­i­tive terms all or part of Guyana’s lift­ing en­ti­tle­ment. This is not done for free. The Min­is­ter has to pay the Con­trac­tor the costs nor­mally borne by the seller in such trans­ac­tions and other terms to be agreed, in­clud­ing an agreed mar­ket­ing fee.

Fur­ther pres­sure is placed on the host coun­try by re­quir­ing the Min­is­ter to give no less than six months’ no­tice be­fore chang­ing between the right to re­ceive pay­ment in kind and agree­ing with the Con­trac­tor to mar­ket his lift­ing en­ti­tle­ment. Cu­ri­ously, the 1999 Agree­ment (Janet Ja­gan’s Agree­ment) does not con­tain any sim­i­lar pro­vi­sion for switch­ing between mar­ket­ing the lift­ing en­ti­tle­ment and re­ceiv­ing pay­ment in kind. Of course in so far as the Esso Agree­ment is con­cerned, the point is moot be­cause Min­is­ter Trot­man has cho­sen to re­place that Agree­ment with his own, for rea­sons best known to him.

Con­trac­tor’s rights

Ar­ti­cle 14.4, which is sub­ject to Ar­ti­cle 17 gives the Con­trac­tor the right to ex­port at the ex­port point all pe­tro­leum to which it is en­ti­tled free of any duty, tax or other fi­nan­cial im­post and to re­ceive and re­tain abroad all pro­ceeds from such pe­tro­leum. Read­ers of this col­umn may re­call that the Min­is­ter’s share of profit oil in­cludes not only roy­alty but also cer­tain other taxes (a) the In­come Tax Act; (b) the In­come Tax (In Aid of In­dus­try) Act; (c) the Cor­po­ra­tion Tax Act; and (d) the Prop­erty Tax Act will not ap­ply. The con­tract­ing oil com­pany may not be en­ti­tled to any tax hol­i­day but by the same to­ken it will not be li­able to Prop­erty Tax and other forms of tax­a­tion on its in­come.

Ar­ti­cle 14.4 there­fore rounds off the ex­emp­tion. Of course, if oil prices fall be­low the cost of pro­duc­tion and Guyana will in any case be en­ti­tled to a 14.5% share of the rev­enue (2% roy­alty plus 12.5% of guar­an­teed profit oil), the oil com­pany will bear an an­nual loss.

An­other right the 1999 Agree­ment al­lowed Esso was the free­dom to sell, or de­liver or sell and de­liver pe­tro­leum to third par­ties in the United States of Amer­ica.

Part 20 next week will set out a prac­ti­cal ex­am­ple of th­ese pro­vi­sions.

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