–Vice-President Jagdeo affirms

VICE-PRESIDENT Dr. Bharrat Jagdeo has reaffirmed the government’s commitment that any cost-oil expenditure deemed unjustified will be disallowed, in accordance with the procedure that has to be followed.

In an invited comment to the media on the sidelines of an event at the Pegasus Suites on Tuesday, the Vice-President responded to reports that hundreds of millions of dollars in cost-oil expenses were deemed questionable in an audit report by IHS Markit, which evaluated operational expenses claimed by ExxonMobil and its partners for 1999 to 2017.

Jagdeo related that given the technical nature of the audit report and its findings, the document is currently being handled by the Guyana Revenue Authority (GRA) and other technical officials at the Ministry of Natural Resources. However, he maintained that unjustified costs will be stricken from the expenditure books.

“If they come up with these cost are not justified, then the company has to submit justification. And if they cannot, then there has to be an adjustment,” Dr. Jagdeo said.

He added: “It has to go through a process. In the audit, in the preliminary findings, you have contested costs; you have to get the company to respond. You have to send it over to the company to respond; they are then required to submit additional documentation. If they can’t submit additional documentation, then the cost is disallowed. So it comes out the cost bank, and goes towards profit oil; so, a greater share of the adjustment has to be made to profit oil.”

According to the current Production Sharing Agreement (PSA) that Guyana has with oil-and-gas operator ExxonMobil, the company can recoup up to 75 per cent of the revenue as cost oil, which is incurred production costs.

The remaining revenue is split 50/50 between the government and the contractor. Hence, the amount of revenue that goes to cost oil affects the amount of money that the country is able to gain from its patrimony.

As such, the expenses listed by the company is audited by the government to ensure all expenses are allowable, and are at fair market rates. If an expense is raised as questionable in the audit and the company cannot defend it, then it is removed from cost oil, and Guyana’s profit is increased.

For the period 1999 to 2017, Exxon has claimed US$1.67 billion in expenses.

Even as the first audit report is being deliberated upon by the relevant authorities, the cost-recovery audit of the 2018 to 2020 expenses has been submitted, and was earlier last month sent to ExxonMobil for its response on the findings.