Guyana’s Vice President Dr. Bharrat Jagdeo said that the new model production sharing agreement (PSA) to be introduced later this year will feature major improvements in four areas: profit sharing, royalty, ringfencing and taxation.
The Stabroek Block PSA, granted to ExxonMobil, Hess and CNOOC, features provisions which have come in for criticism, particularly as it relates to the fiscal terms. While the new government has said it has no intention of pushing for a renegotiation of the deal, it has made it clear that contract terms more favourable to Guyana will be the cornerstone of the new model PSA.
The royalty is 2% of all petroleum produced and sold. The contractor recovers its investments from the sale of crude up to a ceiling of 75%. The profit is split 50/50 between government and contractor. There are no ringfencing provisions.
The changes to come, Dr. Jagdeo explained, are necessary to secure a higher share of oil revenues for the country’s oil fund.
The Vice President made these comments during a press conference on Monday. One reporter had posed the question of whether Guyana would follow the example of the United States, the United Kingdom and Canada, countries that are looking to bring in more revenue from oil companies that are now benefiting from windfall profits.
One of the privately owned dailies recently wrote that the US and Canada have hiked royalties, while the UK has imposed a windfall tax to secure revenues to help households weather economic hardship caused by inflation.
Addressing this, the Vice President said these countries are developed jurisdictions. He also explained that Guyana’s current contracts cannot be changed due to the stability clause. This clause has faced criticism from some civil society actors because it prevents the government from unilaterally reviewing the contract terms through legislative or administrative action. Asked whether the new model PSA would make any changes to this clause, considering these issues, the Vice President said it would not.
“You always need a stability clause for investors, but it is [about] what you’re trying to keep stable. That is what is important… you can have a stability clause keeping the new arrangement safe,” he said.
The new arrangement, he said, should be judged by the Guyanese public as a package. He made this point in response to a question about what the profit split would be. He said the focus should be on the overall revenues Guyana would be receiving when the combination of the various items is considered.
The Vice President said that when this new PSA is implemented, then an evaluation could be done of how Guyana’s terms fare against other contracts around the world.