Guyana to employ strict justification guidelines to monitor cost overruns on oil projects

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Guyanese authorities have assured that a strict monitoring process is in place to ensure all cost overruns for projects in the Stabroek Block are scrutinised. This was specifically noted by Vice President, Dr. Bharrat Jagdeo, the chief policy maker for the multi-billion dollar oil industry in Guyana.

The official explained that the 2016 Stabroek Block Production Sharing Agreement (PSA) arms authorities with the power to receive reports on costs to be executed for projects, be it on a quarterly, monthly or annual basis. It does not allow real-time monitoring of expenses. Be that as it may, he said the government through the conduct of audits will be able to see the extent to which there are deviations from budgets and seek justifications on such matters. If auditors remain unconvinced that those cost overruns were legitimate then those issues would be settled through arbitration, as catered for in the PSA. 

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The Vice President also acknowledged that indeed, one of the weaknesses of the PSA is that it does not allow for an approval process before deviations from budgets occur. Recognising this deficiency, he said the administration placed key safeguards in the new model PSAs for shallow and deepwater blocks which are in draft mode. 

Jagdeo said, “This is a critical issue about how we manage costs. We cannot do it in real time so we have to strengthen our capability to have more detailed information about projects and their costs and then have any deviation from that only done with the explicit approval of the Government of Guyana. That is a deficiency (in the Stabroek Block PSA) and the new PSAs fix that because we recognise that.”

The draft PSAs note that “The Contractor may not modify an approved budget without the approval from the Minister. Any request for a change to the budget…shall contain the reasons for deviations from the costs originally listed in the budget.”

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Jagdeo noted that such provisions align with the government’s intention to have better control over costs in the absence of being part of the day to day management of the oil operations. 

The Guyana Government is currently in the process of finalising two audits with ExxonMobil Guyana. The first examines pre-contract costs totalling US$1.6 billion from 1999 to 2016 while the second review pertains to US$7.3 billion in expenses incurred from 2017 to 2020. Authorities have said the final reports will be released in due course for public perusal.

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