Belize imposes ringfencing on petroleum companies through its tax legislation.
Introduction
Let me confess to being as surprised as many of the readers of this column, on learning that Belize is in fact an oil producing state! Not a major one – it produces a mere 5,000 barrels of oil per day – following first discovery in 2005. Like Guyana, while Belize has a number of oil contracts, only one company, Belize Natural Energy (BNE), has found and is producing and exporting oil from that country. Just a quick comparison. Companies in that country have up to 8 years to explore for oil, and 25 years to carry out production and pump oil commercially out of the ground. If no oil is found within the eight-year exploration phase, the contract “self-terminates,” meaning it is no longer in effect. These terms are reflected in a Pre-discovery agreement.
In Guyana, companies have up to ten years for exploration, thirty years for production and, for good measure, our politicians think they have to plead with oil companies to give us back what represents our patrimony, and what the law requires them to relinquish, anyway. And of course, we pay the taxes for the oil companies – out of our share of oil production. And to give them a certificate stating that they have paid taxes here, to enable them to fraudulently claim a rebate in their home country! This is the gift that keeps on giving.
Banning offshore drilling
Here is some other interesting information: Belize has banned offshore drilling – by way of a referendum and later by a decision of the Supreme Court in 2013. In Guyana, our practice is to use Sarah Palin’s famous words, “Drill Baby Drill” and do not worry too much about flaring. But what should make our various petroleum czars look worse than amateurs, are the terms under which oil companies operate.
Under Belize law, the first charge on oil revenue is royalty of a minimum of 7.5% for oil and 5% for natural gas; next is the government’s total share of petroleum and then followed by allowable petroleum operation expenditures. That country also has a petroleum surcharge fixed to rising oil prices, and then, after all the above, the profit left is subject to tax at 40%!
Compare that with the outlandish fiscal terms Guyana extended to Exxon and Company in a Post Discovery agreement! And no one takes responsibility, except that one can say that Trotman and Granger were fired.
Back to a real country
But let us get back to a saner and more responsible country. This is how their Courts ruled in a case involving ring-fencing when the oil company sought to charge against the income earned under one agreement the exploration expenditure under another such agreements.
“When a contractor enters into a contract, he is taking a risk as there may not be any production. The expenses incurred for taking such risk cannot be imposed on other Production Sharing Agreements where there is Initial Commercial Production without specific provisions in the Act.”
The Court added: The Legislature would have been specific if it had intended for Contractors to recover expenses from Production Sharing Agreement where there was no ….Production”. The appeal brought by the oil company, Chx Belize Lp against the Commissioner of Income Tax against a demand by the Commissioner for quarterly instalments before including expenses for exploration on other wells, was rejected and thrown out. Accepting the logic of the court, and the basic accounting principle of matching expenditure against related income, the company accepted the decision and paid the amount demanded. Sadly, that would be unheard of in Guyana under these administrations.
Next week’s column will examine the generosity of our agreements and how those in charge seem to be clueless about the nature and impact of not understanding the logic of ringfencing.