The Guyanese diaspora in North America held a seminar on Guyana’s prospective oil and gas industry in Richmond Hill (Little Guyana), Queens, New York last Saturday June 1. Among the main speakers were University Economics Professor Dr. Tarron Khemraj, Oil & gas Specialist Dr. Jan Mangal, Attorney Chris Ram, and planning economist Joe Persaud of Canada. The format of the seminar, organized by a newly launched group calling itself Guyana Oil and Gas Governance Network (OGGN), involved lectures by the principal speakers and an interactive question and answer period. The speakers, supported by the audience, called for a renegotiation of the oil contract signed between the government of Guyana and Exxon-Mobile and partners. There was a lively question and answer period. The program was moderated by Dr. Dhanpaul Narine. Joe Persaud moved a vote of thanks.
The contract was described as a rope around the neck of the country. It is akin to returning to slavery and indentureship. The Guyana government is on record as saying that it will not be open to re-negotiation of the one-sided contract that benefits Exxon. The speakers and OGGN feel Guyana is not getting a fair deal losing out on billions of US dollars annually as a result of a badly negotiated contract.
A sub-committee was formed after the seminar on how to move forward to bring pressure on the Guyana government and Exxon to re-open the contract. The group is appealing to Guyanese to join them in this struggle to get a fair deal that is the standard in the international industry practice pertaining to discovery of oil and gas. Among all countries with newly discovered energy, Guyanese is getting less than a fair deal – 2% royalty and sharing of the profits.
This was the first seminar held outside of Guyana on the country’s budding oil and gas sector that is expected to operationalize early next year and there have been requests for similar seminars in other parts of the diaspora. Also, an interest has been expressed by Guyanese in the diaspora to form OGGN branches in Ft. Lauderdale, Orlando, Vancouver, Toronto, Minnesota, Trinidad to put pressure on both the government and the oil investors to rework the contract so that it corresponds to the worldwide industry standard. These chapters will be formalized shortly and the organizers plan to go all out to educate Guyanese within Guyana and in the diaspora why this contract should and must be re-negotiated. The leadership of OGGN says it will work closely with NGOs in the US, Canada, and Europe to force re-negotiation of the contract.
The speakers generally focused on problems and issues relating with the contract including the so called natural resource curse that countries experience after the discovery of sudden wealth from resources. As Dr. Khemraj explained, resource curse refers to the paradox that countries which suddenly discover an abundance of natural resources (such as fossil fuels and minerals) tend to splurge the new found wealth without pursuing sound economic development. These countries tend to experience less economic growth, less democracy, and worse development outcomes than countries with fewer natural resources. Japan, Taiwan, Singapore, South Korea, etc. has almost nil resources but experience rapid growth. Guyana and several African countries have abundant resources but experienced limited development and during the 1980s negative growth. What Guyana needs is competent resource management that focuses on sustainable development so that its new found energy wealth can be put to wise use.
Dr. Khemraj also presented a chart showing how much money Guyana would collect based on the price of oil and how much it would potentially lose if the contract is not re-negotiated – in the amount of US$ billions annually.
Dr. Jan Mangal spoke on strategies for Guyana and strategies for Exxon on efficient management of the energy industry, and he provided a convincing rationale why the contract should be re-negotiated.Dr. Mangal pointed out that companies tend to use bullying tactics and drive fear to intimidate countries not to renegotiate a contract or to accept less than optimal terms. He also stated that oil companies “make a re-negotiation seem taboo” telling government leaders that “they (oil companies) are very powerful and get their way all the time”. In answer to a question, he said there are ample precedents where oil companies re-opened contracts and improved the arrangements for the countries.
Dr. Mangal advised that the government should focus on maximizing the oil revenue and focus on not squandering it. He further advised that the government should not become involved in oil management. “Leave the oil companies to do what they are good at. Streamline permitting, and streamline the movement of people and physical assets. Focus on generating the main income from the oil revenue, and not from the operational aspects of the industry. Develop a clear legislative framework and strong institutional capacity. Guyana government should take ownership of data and hire experts to guide it. Focus on anti-corruption measures. Make politicians accountable to the voters. Slowly shift from tribal politics to politics driven by real issues. Address the brain-drain and its impacts. Open up Guyana and inject it with
competition from outside. Overhaul and streamline the public sector”.
Dr. Mangal said it was a mistake to award one large block to Exxon or any company for oil exploration and drilling. “Smaller blocks would have been better as the country could have learned from (negotiation) errors after a block or two”.
Dr. Mangal claims that the standard royalty norm globally is between ten and twenty percent and not two percent. He contends that Guyana stands to lose between US$60 to 120 billion dollars if the contract remains as is.
Chris Ram addressed the legal aspects of the contract – the stability clause. Ram said Guyana’s laws have been violated in the awarding of blocks and the contract. He said one company cannot have more than one block and that a monopoly like situation is being created. He also noted that the government has acted ultra vires the constitution and laws of Guyana. He contends that several aspects of Guyana’s laws on oil exploration have been violated. Ram, like Dr. Mangal, pointed out that the contract can be challenged and that there have been precedents where oil contracts were re-negotiated in favor of countries. Israel was cited as a test case by Mr. Ram. The Israeli court ordered the Prime Minister to right the laws and renegotiated the contract with an oil company.
Ram convincingly argued that the contract can be unwound – because of one sided negotiation, lack of expertise, duress, etc. He also argued that Exxon overstated the cost of exploration, discovery, and drilling by at least US $100M; Ram calls for an audit of Exxon’s cost of exploration and drilling.
In sum, the speakers urge and the audience endorse a renegotiation of the contract for higher royalty (than the 2% agreed upon) and greater sharing of profits rather than 50% that the Guyana government accepts. The normal internationally accepted profit sharing ratio is 70% (government) to 30% (investor company). The speakers also feel that the Guyana government should not have to pay Exxon’s taxes on the profit. It was noted that the oil company is indemnified against natural disasters. In other words, should there a natural disaster, Exxon is clear of liability which is not the industry standard. In the US, Canada, Europe, and other countries, the companies are liable for disasters. Guyana could find itself in perpetual debt to neighboring countries should there be a disaster.
The speakers urge Guyanese at home and the diaspora to organize and agitate for a better contract. It was noted by a member of the audience that instead of US $5K from the oil revenues being given to every Guyanese that was proposed by Dr. Clive Thomas, with a fair contract (an increase in royalty and profit sharing), each Guyanese could end getting over US $1M annually. The contract is subjected to re-negotiation because Exxon took advantage of the government. Pressure from civil society has the potential to influence government to revise the contract with the American company. The diaspora needs to work closely with other groups abroad to make this a reality.