Including forestry, gold in sovereign wealth fund is bad business; remove permanent tax waivers from future oil agreements- Charles Ramson Jr.

Last Updated on Friday, 28 September 2018, 17:56 by Denis Chabrol

British-trained oil and gas resource person, Charles Ramson Jr. on Friday called for the removal of other natural resources such as forestry and gold from the proposed sovereign wealth fund, and the erasure or amendment of permanent tax  from Guyana’s future Production Sharing Agreements (PSAs).

Just back from a University of Oxford Oil Gas and Mining Executive Course, Ramson announced that he would be documenting his concerns about the Green Paper on the SWF- styled locally as the Natural Resources Fund (NRF) to include revenues from forestry – and the existing PSA to the bipartisan parliamentary committee on Natural Resources.

“This, in my view is a mistake and this view is shared by Eric Parrado, who is one of the leading world experts on SWFs…Co-mingling is a mistake,” he told a media briefing at Cara Lodge.

Ramson, who is already the holder of a Masters Degree in Oil and Gas from the University of Aberdeen through a UK-funded Chevening Scholarship, has however shied away from meeting with the Ministry of the Presidency’s Department of Energy to share his perspectives, saying that the government has already had its chance.

He argued that to include other natural resource revenues with oil earnings in the SWF/NRF does not allow for a clear public picture on how much money we have actually earned from oil. “That is important for transparency so the public can hold the government accountable,” said Ramson, a practicing Attorney-at-Law.

He further reasoned that, along with no scientific or economic justification for depositing revenues from the forestry sector, forestry is a renewable natural resource which makes it totally different from non-renewable commodities like oil or gold. “In addition, forestry does not suffer severe price volatility or shocks, so there is no need to have to smooth expenditure which is one of the main purposes of a stabilisation mechanism in a SWF. Further, as a renewable natural resource, it means there is inherent intergenerational equity quality unless the forest land is converted for some other agricultural use so that purpose is removed altogether,” he said.

Echoing Parrado’s points of view, Ramson said there is no scientific or economic justification for depositing revenues from mining into the NRF, because t put such excess revenues in the Fund, there would be structural economic imbalances. “In addition, gold acts as a hedge in low oil price situations. If you chart the history of the oil price relative to the gold price, you find that gold prices rise or remain buoyant during an oil price collapse,” he said.

If that is the reasoning, he said government should go ahead and add rice, sugar, fisheries or wildlife.

Parrado was part of an international team of economists and other experts that had met with President David Granger and other Cabinet members on a range of economic issues related to Guyana’s emerging oil and gas sector.

The Guyanese Attorney-at-Law and Oil and Gas commentator also called on the Guyana government to remove the stabilisation clause from Guyana’s PSA which is also included in the one signed with ExxonMobil. ‘Our stabilisation clause needs to either be removed from our PSA or to be changed altogether so right now our stabilisation clause is indefinite. In other PSAs around the world and in other countries I have spoken to- the members of those countries that are there; their stabilisation clause is for a specific time frame  which says that after five years or after ten years we go back to the table. Ours, as it stands, is in perpetuity for as long as the contract exists, we are not able to change the terms of that agreement and that is what we have agreed to,” he said.

Crediting ExxonMobil with de-risking the Guyana basin by finding commercial quantities of high quality oil, Ramson said the agreement between Guyana and Tullow/Eco should not have been on similar terms as those with Exxon. “Any other contract after that should never have been on similar terms as the ExxonMobil; the one with Eco and Tullow is very similar terms. In fact, the royalty is lower; the licensing fees are also lower,” he said.

“No tax, value added tax, excise tax, duty, fee, charge or other impost shall be levied at the date hereof or from time to time thereafter on the contractor or affiliated companies in respect of income derived from petroleum operations or in respect of any property held, transactions undertaken or activities performed for any purpose authorised or contemplated,” states the clause in the 2016 PSA agreement.

The contract provides for the company to pay import duties, income taxes and other taxes on services provided other than those related to petroleum services under the agreement, rent due to the government for land rights, local government rates and taxes, and a range of miscellaneous fees. The contracting companies, affiliates, contractors and sub-contractors as well as their staff must pay income and corporation taxes.

Further, the agreement prohibits the government from levying or demanding any additional monies in the future. “After the signing of this agreement and in conformance with Article 15, the government shall not increase the economic burdens on the contractor under this agreement or by applying to this agreement or the operations conducted thereunder any increase of or any new petroleum related fiscal obligation, including, but not limited to any new taxes whatsoever, any new royalties, duties, fees, charges, Value Added Tax or other imposts,” states the accord.

With regards to import duties, the government has committed to ExxonMobil, its partners, and sub-contractors engaged in petroleum operations to waive all duties, taxes and other imposts on all equipment and supplies except food and alcoholic beverages. The company is also exempt from paying export duties on such items that have been brought into the country for petroleum operations.