ChrisRam.net

Time for the Sanctity of Contract Circus to come to an end.

President Irfaan Ali recycles the argument so often that it is now official doctrine: the 2016 Stabroek Block Petroleum Agreement is a bad deal for Guyana, but “sanctity of contract” prevents renegotiation. In his recent Al Jazeera interview, Ali again asserted the Agreement was bad and the companies benefited more, yet continued to invoke sanctity as though that answered the issue.

Ali knows no serious critic is suggesting Guyana should renege on the Agreement. Reneging means refusing to honour a contract; renegotiation means asking the other parties to agree to different terms. If they agree, the amended agreement becomes the contract to be honoured. Ali’s conflation of the two is not merely mistaken but disingenuous. It turns a lawful request for better terms into an accusation of contractual dishonour and smacks of evasion.

Guyana cannot compel renegotiation or impose an amendment unilaterally. But it can ask. The contractors may refuse. What remains difficult to explain is why the Ali Administration refuses to ask.

The sanctity argument is debunked by facts Ali rarely acknowledges. The 1999 Petroleum Agreement was replaced by the 2016 Agreement, itself the product of a renegotiation of the contractual relationship. Exxon’s own then Country Manager described the 2016 PSA as a renegotiation. The 2016 Agreement was later amended in 2019 over the treatment of the 2% royalty. ExxonMobil and its partners did not walk away. They accepted the new arrangement and continued investing.

Did Ali not know about sanctity when, before taking office, he thunderously promised to “review and renegotiate” the petroleum contracts? Or is sanctity a principle he discovered only after assuming office? His earlier commitment is a matter of public record. In February 2020, he said everything was on the table for review and renegotiation.

The President also repeatedly raised the prospect that the oil companies might leave if Guyana presses for better terms. Yet his own Administration previously argued, in resisting ring-fencing, the circumstances change once investments are made. They will not walk. More importantly, the petroleum industry is replete with renegotiations – in Azerbaijan, Kazakhstan, Trinidad and Tobago, Bolivia, Ecuador and Ghana, sometimes more than once. Some were difficult and some governments went far beyond anything being suggested for Guyana. In most cases the companies stayed. Where companies did leave, the circumstances commonly involved nationalisation, imposed terms or economics that became commercially unattractive.

That is fundamentally different from a host government asking for consensual discussions. Stabroek is not marginal acreage. It is a developed and highly productive petroleum province with enormous discoveries, several producing projects, established infrastructure and billions of dollars already invested. The geological and commercial risks today are vastly different from those existing when the Agreement was signed in 2016. Ali himself concedes the bargain favoured the companies, yet behaves as though those transformed circumstances are irrelevant.

There is another point routinely obscured. Esso is the Operator, charged under Article 2.2 with conducting the day-to-day activities, but the Contractor comprises three parties. Those interests are held by Exxon, Chevron and CNOOC. The Agreement makes the distinction explicit and makes the obligations of the parties comprising the Contractor joint and several.

Government should therefore write formally to each of the companies, setting out the Guyana proposes to discuss and request individual responses. There is no reason to assume beforehand that three separate companies, with different ownership, commercial interests and relationships with Guyana, must inevitably take the same position.

In CNOOC’s case, Guyana also retains a substantial diplomatic relationship with China. There would be nothing improper in Government using its relationship with the Chinese Embassy to communicate the seriousness with which Guyana approaches the matter and its desire for constructive engagement. Diplomacy cannot rewrite a commercial contract, but neither should a sovereign state neglect legitimate diplomatic channels where they may assist.

The Government should also explain the legal basis of its position. The Attorney General is, under Article 112 of the Constitution, the principal legal adviser to the Government of Guyana. Yet the public defence of the Agreement has come principally from President Ali, Vice President Jagdeo and the Minister of Natural Resources. If “sanctity of contract” is being presented as a legal impediment to even seeking renegotiation, then Guyanese are entitled to know whether it is in fact the considered advice of the Attorney General.

The Government retains constitutional and other legal experts from across the Caribbean for matters in which it considers specialist advice necessary. Ali recently spoke of obtaining experts on contract financing in an area where the Agreement gives Guyana limited direct control. Yet on the fundamental legal question whether the State may formally seek consensual amendments to an agreement worth many billions of dollars to the country, no considered legal opinion has been placed before the public.

If the Government is serious, it should stop speculating about what the companies might do, and proceed to establish. Put a formal written proposal to Exxon, Chevron and CNOOC separately, identifying the provisions Guyana wishes to revisit, and publish the responses. If all three refuse, the country will at least know that the companies have closed the door. Until then, every assertion that they would “walk away” is conjecture being used to justify inaction.

Ali must stop the charade and come clean with the public. If his Administration has made a political decision that the 2016 Agreement will not be touched, let him say so plainly, and boldly accept responsibility for that decision. He should stop dressing a policy choice in the language of legal inevitability.

That decision is not about one year or one budget. It is a decision to preserve for decades a bargain whose roots go back to 1999 and whose 2016 terms can govern the exploitation of Guyana’s principal petroleum resource far into this century. It is a bargain under which Guyana receives only a 2% royalty, shares profit oil after cost recovery, has to contribute to decommissioning, and assumes the contractors’ income-tax liability through the machinery of the Agreement. If Ali intends to leave those extraordinary concessions untouched for another generation and more, then that is his decision and he should man up to it.

He cannot continue blaming “sanctity of contract” for a result his own Government chooses to preserve. If Guyanese are forced to live with the consequences of this Agreement into the latter part of the century, they are entitled to know this is not some unavoidable command of contract law. It is President Irfaan Ali’s and the PPP/C’s political choice.

Column 200: Sovereignty in the Age of Oil

Introduction

The series began on May 26, 2017 as Oil and gas – The New Economic Horizon and was expected to run for twenty-five weeks. As the research deepened, it became Road to First Oil – Every Man, Woman and Child Must Become Oil-Minded, borrowing the Daily Chronicle exhortation brought to my attention by historian Dr Nigel Westmaas. Twenty-five columns became fifty, then one hundred, and this is number 200. I can feel cramp setting in.

That first column identified the legislative framework, taxation, corruption, the Sovereign Wealth Fund and the border controversy with Venezuela. It also recalled Cheddi Jagan’s 1986 warning against giving oil companies a “blank cheque” and putting Guyana’s independence and energy policies in the hands of transnationals. Nearly nine years later, Venezuela has moved from the margins to the centre, touching our territory, security, relationship with the United States and even the value of our petroleum. The question now is larger: how sovereign is Guyana in the age of oil?

In 1939, while British Guiana was still a colony, petroleum legislation vested the country’s petroleum resources in the State. The Petroleum Activities Act 2023 repeats the principle. In law, the petroleum is ours, but legal ownership should not be confused with effective sovereignty. Cheddi Jagan understood that danger. As Leader of the Opposition in 1986, he warned against putting Guyana’s independence and energy policies in the hands of the transnationals. Yet thirteen years later, the PPP Government under President Janet Jagan signed the 1999 Petroleum Agreement with Esso. No one then knew the scale of the Stabroek resource, but the irony is unavoidable: the party that warned against surrendering energy policy to transnationals entered the agreement that became the foundation for ExxonMobil’s dominant role.

Energy security and Energy sovereignty

Last week I considered President Ali’s proposed refinery, national oil company and increased fuel storage as questions of energy security. Guyana needs reliable supplies of petroleum products, but energy security is not energy sovereignty. Storage, a refinery and even a national oil company may improve security without giving Guyana effective control over production, technology, capital, markets or the geopolitical forces surrounding its petroleum.

We need look no further than Venezuela for the clearest warning. It nationalised its petroleum industry and possesses the world’s largest proven oil reserves, yet the United States showed through raw power and its influence over the critical elements of the petroleum sector – technology, finance, shipping, insurance and markets – that legal ownership does not guarantee the ability to produce and sell oil. Washington did not need to own the wells; power over the systems surrounding them was enough.

Now Washington is demonstrating the reverse power by helping to bring Venezuela back into the international petroleum system. This is about more than oil. Drawing Caracas away from Russia, China, Iran and Cuba is itself a major political and strategic prize, reviving in some respects the old Cold War contest for influence in the hemisphere.

For Guyana, that is transformational, though not necessarily entirely in its interest. American companies own approximately 75% of the Stabroek Block, with ExxonMobil as operator, while the United States is Guyana’s most important external strategic partner against Venezuela’s claim to Essequibo. The danger is not that America will abandon Guyana for Venezuela. Guyana has embraced Trump’s America so completely that Washington can now regard Ali’s cooperation as a given.

The consequence is that Guyana and Venezuela increasingly exist in the same hemispheric “ecosystem”, to borrow President Ali’s word – an ecosystem led by President Trump and administered through Secretary of State Marco Rubio. A transactional President may see two neighbouring countries tied to American power and capital and ask why their century-old controversy should disturb his larger hemispheric design. The message may simply be: you are both within my sphere of influence, so settle your differences and move on. For Guyana, that is where dependence becomes a sovereignty problem.

The risk is aggravated, paradoxically, by the very fact that Guyana properly chose the legal route. There are strong reasons for confidence that the ICJ will uphold the 1899 Award and confirm Guyana’s title to Essequibo, but a favourable judgment may not end the controversy. The Court can decide; it cannot enforce. If Venezuela rejects its judgment, Guyana would have to depend heavily on diplomacy and international pressure which, in practical terms, would mean above all the United States. The unsettling question is whether Guyana would still be free to insist on the full benefit of that victory if Washington prefers a negotiated political settlement.

There is an uncomfortable irony in the arrangement on which Guyana’s security depends. Jurisdiction is secure under the 1966 Geneva Agreement and the Secretary-General’s choice of the ICJ. Enforcement is another matter. If Venezuela refuses to comply, Guyana may turn to the Security Council, where the United States holds a veto. That is the same United States that withdrew from the Nicaragua case and later vetoed Security Council action seeking compliance with the Court’s 1986 judgment. Guyana’s legal position may be secure; its practical protection still depends heavily on crude power.

Ali’s sellout

The recent agreement under which Guyana will receive certain third-country nationals removed from the United States adds to the concern. Economics can hardly explain it. If not money, is it goodwill, strategic credit or insurance against Venezuela – or is this simply President Ali’s vulgar, unauthorised and unlawful attempt to find favour with Washington? In the process, he has placed Guyana in the same basket as Eswatini, Equatorial Guinea, Liberia and other states recruited into the Trump administration’s third-country deportation programme. Eswatini is receiving deportees under a US$5.1 million arrangement, while Liberia has agreed to accept as many as 1,200 third-country nationals.

This perhaps is the most discomforting development of all, coming on top of the broken promises at home. I believed the PPP/C when it pledged to renegotiate the 2016 Petroleum Agreement. In office, it abandoned that promise for “better contract administration”, while refusing to insist on protections such as ring-fencing and stronger fiscal terms. Production accelerated; State capacity and contractual protection did not.

Conclusion

Two hundred columns ago, I was filled with hope, expectation and confidence about what petroleum could mean for Guyana. Those have been shattered by the quality of leadership, the failure to build strong institutions, the amateurish and fragmented management of the sector, and the willingness to accommodate ExxonMobil and now Washington rather than insist consistently on the national interest. Too much rests on a handful of political personalities and too little on independent expertise, disciplined policy and institutions capable of standing up to interests far more powerful than Guyana.

A personal milestone of 200 columns means little against that record. We have oil, money and strategic importance, but supine leadership, little courage and too little institutional capacity to use the power we possess. Energy security is not sovereignty, and neither legal ownership nor an ICJ judgment can substitute for the capacity and will to defend the national interest.

 expected this journey to last twenty-five weeks. It has lasted nearly nine years and produced 200 columns. With cramp and fatigue setting in, that is excuse enough to retire hurt. The bleaker thought is that the Ali Administration has already retired from the harder contests: building the institutions and expertise required to manage the sector, delivering the promised better contract administration, and, most importantly, exercising real sovereignty.