SUMMARY
REAL-TIME time monitoring of costs is not catered for in the current PSA model by design which is a universal practice with PSA-type fiscal regimes, wherein it does not allow for a co-management element. Notwithstanding, this type of arrangement can be facilitated should the government consider a National Oil Company Structure. One way to make an informed decision in this regard would be to examine the findings of the cost-oil audit to determine whether there were material cases of transfer pricing, evidence of inflated costs, and the inclusion of cost items that should not have been part of the cost bank for recovery. While the government has indicated that it is actively considering a contemporary version of a National Oil Company without being part of the day-to-day management of the company, this model certainly confers the right and obligation upon the government to have a seat at the board level. At this level, having real-time monitoring will be possible through the adoption of prudent corporate governance principles and practices.

BACKGROUND
Reference is made to a Kaieteur News Article dated August 28th, 2022, with the caption: “ExxonMobil 2016 contract contradicts Jagdeo’s claim that Guyana cannot do real-time monitoring of costs.” Guyana’s Vice-President Dr Bharat Jagdeo, in a press conference in response to a question posed on the audit of cost oil, stated that the “absence of a co-management arrangement prevents the country from knowing what costs are being racked up by the oil companies early on and to ascertain which amounts are inflated.” The Kaieteur News journalist sought to argue that the Production Sharing Agreement (PSA) does provide for real-time monitoring of costs by the government, inter alia, where section 7.1 of the PSA states that: “The Contractor shall prepare with respect to each Calendar Quarter, or on a monthly basis if requested by the Minister in writing, a Statement of Expenditure and Receipts under the Agreement. The Statement will distinguish between Exploration Costs, Development Costs and Operating Costs consistent with the individual categories specified in Sections 2 and 3 herein and will separately identify major items of expenditure within these categories. The statement will show the following: (a) Actual expenditures and receipts on a monthly basis for the period in question. (b) Cumulative expenditure and receipts for the budget year in question. (c) Cumulative expenditures and receipts since the Effective Date. (d) Latest forecast of cumulative expenditures to year end. (e) Variations between budget forecast and latest forecast, with explanations thereof Subject to 7.1, the Statement of Expenditure and Receipts shall be submitted to the Minister no later than 30 days after the end of such Calendar Quarter or Month as the case may be.”

DISCUSSION AND ANALYSIS
The case made out by the Kaieteur News journalist clearly indicated that there is lack of a thorough understanding of what is truly meant by the term “real -time monitoring” in finance and more specifically from a finance-control perspective. This article therefore seeks to lend some degree of clarity in this regard. In so doing, Guyanese of a non-finance background can have a better understanding and appreciation for the term and what exactly constitutes real-time monitoring. First, let’s understand what the cited clause from the PSA means when it states that the Contractor (the oil companies) shall prepare with respect to each calendar quarter or on a monthly basis… The term shall prepare with respect to each calendar quarter or monthly basis simply means that the transactions would have already been incurred. Hence, this is “after the fact” or a post audit or examination exercise and therefore does not in any way constitute real-time monitoring by any standard. Second, let’s understand what is meant by “real-time monitoring” from a finance-control perspective and what the Vice-president referred to as a co-management arrangement in order to so do – suggesting that had there been a co-management arrangement in place, such framework would have allowed for real-time monitoring of costs.

That said, to truly understand real-time monitoring, one has to understand the internal processes from a financial management perspective. In the practice of prudent financial management and internal control there are certain processes and systems that have to be established and adhered to. To this end, the specific issue at hand concerns expenditure control and the expenditure-approval process. All expenses have to go through an approval process where for example, different levels of management would have approval limits and over a certain limit would have to be approved by senior management, executive management, and the Board level. In strict corporate governance practices, the Board of Directors have oversight responsibilities through the formation of various sub committees on the various aspects of management of the organisation, finance and procurement being two examples of such sub committees. Expense items such as wages and salaries, utilities, office-administrative expenses are considered routine expenses and are subject to a minimum – management approval. With respect to the procurement of goods and services, a procurement and approval process ought to be followed. So, for example, the need of the goods or services would have to be determined, the process of determining the need is also a robust process tied to the annual strategic planning process and budgeting exercise of the company, then the quantity and cost have to be determined and approved.

Following the approval of the budget, then the procurement process will take effect, at this stage an evaluation is conducted based on the price submitted by various vendors, a competitive process – that is, then a decision is made as to which vendor offers the best price and best quality. Following the approval of the vendor, the payment process is then activated whereby the invoice has to be submitted, verified, and approved by the relevant level of management then the final part of processing the payment through whatever method of payment the vendor requests – be it, in the form of a cheque, direct bank transfer, credit card, etc. The above explanation seeks to demonstrate in the simplest fashion the various processes and levels of approval that an expense has to go through before approval before it is actually incurred. It is these very processes which are all part of the internal control and management of the organisation that one would have to be a part of – from the origination stage (planning and budgeting) to the final stage of implementation (the point of processing the payment) in order to be considered real-time monitoring.

For simplicity, the diagrams in figures 1 and 2 above illustrate the entire process internally with respect to the procurement cycle and expenditure management process which the government is not a part of in the current PSA model. Finally, it is worth noting, however, that to be part of this process – of having real-time monitoring and control or at minimum real-time “input,” this is where the National Oil Company model comes into play and one of the key advantages of a National Oil Company. While the government has indicated that it is actively considering a contemporary version of a National Oil Company without being part of the day-to-day management of the company, this model certainly confers the right and obligation upon the government to have a seat at the Board level. At this level, having real-time monitoring will be possible through the adoption of prudent corporate governance principles and practices.

CONCLUDING REMARKS
Real-time monitoring of costs is not catered for in the current PSA model by design, which is a universal practice with PSA-type fiscal regimes, wherein it does not allow for a co-management element. Notwithstanding this exclusion, this type of arrangement can be facilitated should the government consider a National Oil Company Structure. One way to make an informed decision in this regard would be to examine the findings of the cost-oil audit to determine whether there were material cases of transfer pricing, evidence of inflated costs, and the inclusion of cost items that should not have been part of the cost bank for recovery.