By Dr. Vishnu Bisram
President Irfaan Ali ordered a review of the Payara Field Development (FDP). It was a wise move in light of various questions raised the oil contract. CEO of Exxon Guyana, says his company would not renegotiate the contract. He hinted that company is prepared to walk away from Payara if it does not get its way on the contract. Payara is at the field development plan (FDP) stage that is being reviewed by Allison Redford team. President acted wisely on seeking a review of Payara.
Generally speaking, it is very difficult, though not impossible to break a contract with a multinational corporation. Breaking a contract is fraught with serious consequences, some political. Anyone who studies political science would know how MNCs shape domestic politics. The law is on the side of Exxon. Nevertheless the government must attempt to seek some kind of additional benefits for Guyana and certainly enforcement of, as well as variation in, local content agreements. It requires best negotiation skills and strategies to get Exxon to give some more benefits to Guyana without actually billing Guyana for them. Guyana is today the most profitable asset of Exxon. It has been dumping various assets around the globe but retaining Guyana’s that is described as “new frontier”. In fact, Exxon has been de-listed on the NY Stock Exchange. Guyana is its saving grace for now – the best deal it ever got globally.
The least that President Ali can do is to review Payara and reset it. People must put aside all the bad press and innuendoes and allow the government to proceed with the completion of the review of the FDP. After that, government will hold discussions with Exxon on it and raise other matters. It is only fair that a new government be given some leeway over the review and its negotiations with Exxon. Suggestions can be made to reset it.
The government is looking at the bigger picture of the long term future of the oil industry in seeking a review. That is the right approach. It will set the model for future reviews of FDP and there may be another dozen over the next 30 thirty years, the term of life of oil extraction. Review of Payara gives government an opportunity to set its own standards based on world recognized best practices on FDP. And the government will not disappoint.
While Payara FDP is being reviewed as committed, the government has no choice in the selection of the reviewer. The Canadian donor selects the reviewer which is led by Ms Allison Redford and comprises of Guyanese Canadian as well.
Payara is a complicated project. I can’t imagine Redford would rubberstamp things. I expect a professional review. Further independent review of the FDP can and should be undertaken by the government to the satisfaction of critics to maximize benefits to Guyana.
As revealed, Bayphase did the technical review of the Payara FDP for the Granger government and Redford team is conducting a review of the FDP, the entire project. As reported, the Redford Team is reviewing the methodology used in the FDP, not the PSA. When completed, it is hoped that it would be a framework for future negotiation – creating a model that would work for Guyana and perhaps other countries in similar predicament as Guyana.
Contrary to what is rumoured, there is no conflict of interest between the Redford team and Exxon. It is noted that the lawyers retained by the preceding government for the Production Sharing Agreement (PSA) and preparation of earlier FDPs were blatantly conflicted with Exxon. They were lobbyists for Exxon; that in and of itself raises legal questions about the contract. The lawyers failed the preceding Guyana government in oversight role. Its report is due by weekend.
Redford’s team is tasked with a re-check of the FDP. The emphasis on Payara review is not on PSA but on issues pertaining to the environment and role of local stakeholders in supplying materials and resources and providing service to Exxon. So far, Guyanese have minimal role in local content other than supplying bhajji and bora. The last government did not listen to public views on local content.
The PSA concluded by the Granger administration in 2016 is lopsided in favor of Exxon. The government had an opportunity to negotiate a fair contract (with higher royalty and profit sharing) but failed in that mission. We read that it refused sound advice and that the negotiator, Minister Trottman, was instructed to sign the contract. Who instructed him to sign the contract, we don’t know and he won’t reveal the name (s).
The government has to honor the contract unless it can legally be shown to be unfair and Exxon was at fault. One has to make a strong, legal case for renegotiation. It is true that in law, if one side is more equipped, more skilled and learned, and information is not available to him, then the negotiation is one sided and not conducted in good faith. In labor negotiations, in my studies and teaching of the topic in economics, both sides have to be relatively equal in bargaining. One side can’t take advantage of the other side. It is akin to getting indentured laborers who can’t read or write or who speaks Bhojpuri to sign a contract written in English. Such a contract would not be held up in a court of law if challenged.
Negotiation requires both sides to be almost at par to arrive at an agreement that does not disadvantage the other. A contract resulting from fair negotiation, of give and take, of bargaining and compromise would stand scrutiny and hold up in a court challenge especially in an American court. It is also ethical and moral. If it is a bad contract, an American court would throw it out and even fine the side that takes advantage of the other side. The Exxon contract was negotiated and signed in the US. So American court has jurisdiction.
Was Exxon contract negotiated in good faith? Did the government send a competent team to do the negotiation? Was independent technical advice proffered? Trottman should not have negotiated and or sign the contract unless it was reviewed by experts acting on behalf of the interests of the nation. He said he didn’t read it. He should have. One cannot enter into a contract without reading it. Why wasn’t it read? It was irresponsible behavior – he was acting on the nation’s interest. Was he forced to sign it and if so by who? Somebody (ies), not the Ali administration, must be held accountable for this PSA and conflicts of interests associated with it. President Ali has acted wisely to recover an unjust situation on oil development.