Wednesday, September 28, 2022

Imposing windfall tax on oil production operations would be breach of contract, says Guyana VP

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As a result of high oil prices driven by the Russia-Ukraine war, territories such as the United Kingdom and Canada have implemented a windfall tax on oil companies. This tax, which is applied to the profits oil companies gain due to a cause they have no role in, is also under consideration for adoption by the United States of America.

Guyana’s Vice President, Dr. Bharrat Jagdeo

Guyana’s Vice President Dr. Bharrat Jagdeo recently told reporters that such a tax cannot be implemented in the South American country given the fiscal regime governing the contract the country has with the lone group of companies producing oil offshore.

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The former President who is responsible for oil sector policy said Guyana is bound by the provisions of the 2016 Production Sharing Agreement (PSA) with ExxonMobil Guyana, Hess and CNOOC, which clearly preserves the economics of their projects at the Stabroek Block, by virtue of a Stabilisation clause.

He said too that Guyana’s situation is dissimilar to developed countries where the authorities have the scope to simply approach the legislative arm and effect such changes.

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The Vice President said, “Some countries are experiencing intense pressure from their population to go for a windfall tax; they are not doing so willingly in some cases. The problem here in Guyana is that we are bound by a PSA with strict fiscal provisions and if you change the tax system, it would be a breach of contract.”

The Stabroek Block co-venturers started producing oil in 2019 following the world class Liza discovery back in 2015. Since that time, the companies, with Exxon as operator, has found close to 11 billion barrels of oil on the block.

“We are unlike those countries that have these companies operating there for many years, some 40 to 50 years and because they fall under the standing tax regime for the country, Parliament could easily institute a windfall tax. So, that is the reason why we can’t do that here. We would run afoul of the agreement,” he said.

In any case, the Vice President asserted that the country is already benefiting from a bit of the windfall due to the high price it gets for its 50 percent share of profit oil. Guyana also receives two percent royalty on all oil produced and sold.

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