Exxon 2016 deal illegal as it violated procurement act -TIGI

(This is the seventh of a series of articles by Transparency Institute of Guyana Inc on the Production Sharing Agreement signed between the Government of Guyana and Esso Exploration and Production Guyana Limited, a subsidiary of ExxonMobil.)\

In our last article, we dealt with the miscalculation of the licence area in the contract with Exxon. Prior to that we discussed some history which suggests that the claim that Venezuelan belligerence was the justification for the resort to illegality in the invention of wholesaling of license blocks when no such concept was available, was an afterthought.

In this article, we expose the fact that the award of exploration licences ought to have been put to public tender, that it was not an option, and that therefore every licence which has been awarded without public tender is illegal, including the 2016 “contract” with Exxon.

Definitions

First of all, let us define procurement for the purposes of the Procurement Act 2003 in its own words (Section 2 (Interpretation)):

(j): Procurement means the acquisition of goods by any means including purchase, rental, lease, or hire-purchase, and the acquisition of construction, consulting, or other services. “goods” raw materials,

(g) includes other physical products, equipment and objects of every kind and description, whether in solid, liquid, or gaseous form, and electricity.

(k) “procurement contract” means a contract between the procuring entity and a supplier or contractor resulting from the procurement process.

(o) “services” means services of a general nature other than consulting and construction services.

Economic activity consists of the provision either of goods or services. So, the Procurement Act 2003 merely separates the two for the purpose of any differences in its treatment of the two, especially with regard to construction services.

The contract for petroleum exploration or subsequent petroleum production fits within the ambit of the definitions without the need for any stretching. The definition of “goods” in the entire wording captures neatly the likely results of petroleum exploration whereas the definition “services” captures exploration itself. The act also caters for both domestic and foreign contractors (Section 6(b)).

Public Tendering All-Encompassing Nature of the Procurement Act

The language of the act leaves no doubt about the all-encompassing nature of its reach. For example, S24 (1) provides that “Public corporations and other bodies in which the controlling interest is vested in the State may, subject to the approval of the National Board, conduct procurement according to their own rules or regulations, except that to the extent that such rules and regulations conflict with this Act this Act and the regulations or the regulations, shall prevail…

The Act states that “S 25(1) Subject to public tendering is subsection (2), mandatory.

For such tendering an invitation to tender or to prequalify, as applicable, is mandatory.” Subsection (2) (of section 25) refers to sections 26 through 29 which set out the various

methods other than public tendering and the applicable conditions under which they are allowed. The essential provisions are interpreted as follows:

S 26 Restricted Tendering. This is applicable when there is high specialization and goods and services are available from a limited set of sources or when the estimated cost is below the threshold set out in the regulations. All potential suppliers must be invited.

S 27 Request for Quotations. This is applicable when the estimated cost is below the threshold set out in the regulations. The contract is to be awarded to the lowest bidder.

S 28 Single Source Procurement. This is applicable when goods and services are available only from one source, when there is an emergency, when there is need for standardization or compatibility with existing goods or services or when it is a matter of national defence or when there are national security concerns.

S 29 Community Participation. This is applicable when procurement is done in remote areas and when competitiveness is not feasible. This can lead to single sourcing or to procurement on the basis of efficiency.

Subsection (2) requires provision of justification for applying any of the approaches set out in sections 26 through 29.

With respect to petroleum exploration and petroleum production, either open public tendering or restricted tendering is applicable. Restricted tendering might be applicable due to the highly specialized nature of the industry.

Constitution requires public tendering

Fortunately for Guyana, the requirement of public tendering is not a situation that is easily changed as the constitutional amendments of 2001 included the matter of public tender. Act No. 5 of 2001 Constitution (Amendment) (No. 3) Act 2001 provides for a Public Procurement Commission with a wide range of functions (see 212AA (1) ) including (c) safeguard the national interest in public procurement matters, having due regard to any international obligations; (at 212AA (1) (c)). Furthermore, with respect to procurement, the Public Procurement Commission has a “purpose of which is to monitor public procurement and the procedures therefor in order to ensure that the procurement of goods, services and execution works are conducted in a fair, equitable, transparent, competitive and cost effective manner according to law and such policy guidelines as may be determined by the National Assembly” (see 212W(1) of the Act).

Therefore, the contracting of petroleum exploration services should not have escaped the all-encompassing net created by the wording of the constitutional amendment and the subsequent Procurement Act.

It is apparent that there was no industry or acquisition of services which was to be exempted. The exploration for petroleum is a service involving the deployment of equipment and many subsidiary services such as the gathering of seismic data. All of these are subject to the conduct of public tender and indeed are so administered in most parts of the developed and developing world, and are therefore subject of the constitutional provisions.

Self-imposed blindness

But, is petroleum exploration considered procurement by governments elsewhere? We can be sure that it is. Petroleum exploration is considered procurement in other countries; for example, are Mexico (OECD, 2016), Nigeria and Norway (Center for the Study of Democracy, 2011).

From the number of license rounds (petroleum exploration auctions) that have been held since 2015 in other parts of the world including next door in Brazil, and the number of calls on the Guyana government to hold auctions, it is impossible for the connection between our own procurement laws and the nascent petroleum industry not to have come up in the minds of the politicians.

The fact that these calls have been all rejected suggests that the failure to recognize the legal position is wilful blindness.

All the calls that we are aware of were made without reference to the legal position we have outlined here. On the basis of this evidence, we conclude that the Exxon agreement and all subsequent agreements which have been signed since 2015 are offensive to the laws of Guyana including the constitution. The public should demand that the law be complied with.

The Minister has advanced the idea that the 1999 agreement and the 2016 contracts with Exxon are the same thing. This is absurd since for example, (1) the number of entities is different, (2) the area licensed are different and (3) the royalty percentages are different. The 2016 contract is clearly captured under the procurement act. Can the 1999 contract also be caught in some pre-2003 procurement requirement? One can argue that there was a moral obligation that crystallized in some civilizations as Common Law.

This breach of the procurement laws is the second major count of illegality we have identified with the Exxon contract. This status makes it a prime target for regularization – not renegotiation.