Renegotiating the Petroleum Contract

The Government may of course find Exxon unwilling to be a part of any renegotiation process, a stance that will raise a number of issues. It is not enough to feel cheated of US$55 billion as calculated by Global Witness, the international NGO. We can expect the oil companies will aggressively assert the sanctity of contract and rely on what is called the stability clause. These are valid issues and the Government will have to arm itself not only to counter the arguments but to make its own case for a bigger and fairer share of the petroleum pie. Exxon after all, is not just another company but as the title of the bestselling book by Steve Coll suggests, the company is a private empire.

According to the Agreement, the government is under what is called the Stability clause, barred from amending, modifying or negotiating for changes to the agreement or amendments to the law adversely affecting the oil companies, without equivalent compensation. Should that position hold, over the next 40 years or so Exxon and its partners would pay no taxes in Guyana while the rate of royalty is frozen at 2%. Exxon and its partners would no doubt be aware too, that the dispute resolution clause in the Petroleum Agreements is unquestionably upheld by the courts, which would take the matter entirely out of Guyana’s hands. Unless Exxon is willing to negotiate, any action barring nationalization, which has to be ruled out, will turn on the issue of the stability clause.

The issue of such clauses has been addressed in a number of jurisdictions and the results have not been consistent one way or the other. In Israel, The Movement for Quality Government in Israel v Prime Minister HCJ 4374/15 demonstrated that stability clauses can be stuck down by courts if it is found that the clauses defy basic principles of the rule of law. In Nigeria, in adjudicating on the issue of the legal validity of legislative stability provisions, it was held that it is unconstitutional for investment statutes to fetter the legislature from making law, a right acknowledged by the Constitution. On the other hand, some cases have gone the other way, holding that even in the absence of a stability clause or specific promises by the Government, there can be a legitimate expectation that the Agreement will be upheld. However, in Parkerings v. Lithuania, it was stated that:

...legislative changes, far from being unpredictable, were in fact to be regarded as likely. As any businessman would, the Claimant was aware of the risk that changes of laws would probably occur after the conclusion of the Agreement. The circumstances surrounding the decision to invest in Lithuania were certainly not an indication of stability of the legal environment. Thus, in such a situation, no expectation that the laws would remain unchanged was legitimate”.

Guyana badly needs to receive a larger share from the exploitation of this non-renewable resource. There are considerable hidden costs which the country has to bear merely to oversee the operation and worse, there are added costs from Guyana becoming a polluter, a costly tag to wear.

It is hoped that Exxon and its partners would show some willingness to even the scale by agreeing to a more reasonable deal and recognise that it is not in its interest to have a confrontation with the Government of a small state over a lopsided Agreement negotiated in secret by its predecessor. Worse yet, it may have to confront serious examples that suggest illegalities in the contract.

Conclusion

As Minister Edghill proudly declared “this administration is decidedly pro-Guyana, pro-private sector”. To show that this was not mere rhetoric, the Minster gave the example of a decision to construct a road and cited “job creation, opening farmlands and generating economic activity of a certain value.” (emphasis added). Nothing like enhancing the lives and welfare of the residents or the reduction of transportation costs.

Labour received little notice except for the re-institution of a separate Ministry of Labour, and very troublingly, there was no indication of how the Government plans to deal with the increasingly serious financial problems facing the National Insurance Scheme. The Minister admitted that income levels remain ‘below-par’ and that both current public and private sector minimum wages are inadequate for a reasonable standard of living. But instead of identifying how the Government will address this major problems, the Minister chose to address a number of tax measures many of which will favour businesses and the better off in our society.

Businesses are particularly pleased with the tax measures of which the exemption from corporation tax for health care and private education ranks and rankles. The one size fit all cuts by 50% of the increase in license fees necessarily fail to address those eminently sensible specific increases including those under the Intoxicating Liquor Licensing Act (Cap82:01). The blanket reversal of land charges fails to take account of the grave abuse of small farmers by rapacious landlords operating in the agriculture sector and the varying rates of land charges across the country.

The Budget contains several measures which positively address the needs of Amerindians, the poorest segment of the Guyana population. Time may not have permitted the government the opportunity to address the plight of the coastal communities, the villages, and the perennially deprived areas such as Albouystown, Plastic City and

Minister of Public Works Juan Edghill presenting the budget last week.

Tiger Bay which cry out for redevelopment. In delivering a Budget days after the swearing in of the Irfaan Ali Administration, the budget team in the absence of a substantive Finance Minister did a reasonable job. The flip side of this of course, was the absence of any consultation with stakeholders including labour, civil society and the private sector. The latter group should however have no cause to complain as segments of its membership received more than they could have wished for.

We are concerned that the tax measures might not all have been sufficiently well thought out, and that these could make future tax reform and later tax measures particularly difficult for the Administration and the country.

The Minister announced that the PPP/C (sic) will engage the Oil and Gas Companies in better contract administration/renegotiation. We welcome this announcement. See Commentary and Analysis for further discussion.

To use the famous cliché, this is the largest Budget ever. The question is whose Budget? As parliamentarians move to the debate on the Budget Speech, they will first have to understand that what is presented as Budget 2020 really covers three stages – the APNU+AFC Administration up to August 2, the two months of August and September and the three months of October 1 to December 31. Technically, in respect of revenue and spending, this is not Budget 2020 but Projections 2020. We regret and apologise that we could offer no clarification or assistance in this regard and assure readers that this is not for want of trying.

The PPP/C does not have a good record of early budgets. Since Budget 2020 is considered as an emergency Budget and since the budget process for 2021 should by law have already begun, it is imperative that that process begin immediately.