The Guyana Revenue Authority (GRA) has started the audit process for ExxonMobil’s controversial pre-contract costs which totals over US$460M. And until the Petroleum Commission is in place, GRA will also handle the review of all cost recovery bills by ExxonMobil.
But former Presidential Advisor on Petroleum, Dr. Jan Mangal, is completely against this move by GRA. He said if the Government intends to undertake a rigorous review of the contract costs incurred by Exxon, then GRA is not the optimal route. He opined that GRA is out of its depth, that it is unaware of the magnitude of the task it aspires to take on.
In a letter to the media, the Oil and Gas Consultant sought to lay out what GRA would be up against.
Apart from the pre-contract costs, Dr. Mangal said that GRA would have to go through Exxon’s proposed capital costs for the Liza Phase 1 project which is pegged at US$4.4 B. The Petroleum Consultant said that these costs cover building the facilities, such as the FPSO vessel, production wells, subsea pipelines, the shorebase, etc, and will be incurred from mid-2017 up to first oil in about late 2019 or early 2020. Dr. Mangal stressed that this is a highly technical area and “only highly experienced Oil and Gas professionals can understand and review these costs not the GRA.”
In addition to this, the former Presidential Advisor said that proposed operating costs which might be about US$200 Million per year or less for Liza Phase 1 alone would have to be audited. He said that these costs will start at first oil and run for 20 years or more. He said that GRA has no capacity to be able to do this properly.
Dr. Mangal also stressed that GRA does not have the capacity to review or even the capacity to oversee the review of contract costs.
Furthermore, Dr. Mangal said that GRA should never try to develop the capacity to play such a high-level role.
He said, “The role of a tax authority is tax, and tax is only a small part of the contract costs. Do not get me wrong, GRA has a very important role to play, but a role focused on tax issues.”
Dr. Mangal stressed that other Government Oil and Gas entities, which do not yet exist or yet have capacity (including the new Department of Energy), should be responsible for reviewing and approving contract costs.
Given the aforementioned, Dr. Mangal said that no costs should be approved until Guyana has developed these entities and staffed them with the appropriate professionals.
He insists that ExxonMobil can wait a bit whilst Guyana finally starts to get its shop in order.
