The International Monetary Fund (IMF) wants the Government of Guyana to change the way it treats interest expenses in Production Sharing Agreements (PSAs). In a special report it submitted to the Government last month, the IMF said that urgent changes are needed especially considering “how open Guyana is left to excessive or abusive use of debt by ExxonMobil in the Stabroek Block.”

The Fund said since 2015, ExxonMobil’s expenses for the development of the Liza Phase One Project would have increased. In fact, it is projected to cost US$4.4B. When the Fund conducted a Sensitivity Analysis on Exxon’s debt financing based on just a few available financing records, it was found that Guyana is looking at a high source of revenue leakage.

The IMF said, “Our Mission demonstrated to the government how the company’s (ExxonMobil) excessive debt can have a detrimental impact on its revenue by increasing the cost oil entitlement which therefore reduces the amount of profit oil to be shared between the government and the contractor. What is of concern is the fact that interest expense, irrespective of the source of financing, is an eligible recoverable cost provided that such expense is consistent with market rates.”

The Fund added, “Market rates is a vague term that has been problematic for many countries. In the Exxon Agreement, the government failed to determine what it meant by market rates. This is now left to the contractor to decide what market rates would be used. What is worse is that interest payments are exempt from withholding taxes, providing yet another incentive for the contractor to bloat its recovery costs with debt.”

In addition to this, the Fund noted that the government is unaware, up to the end of July, how much interest expenses have been incurred by ExxonMobil.

The IMF projects that Guyana may lose more than US$2.6B in the Lisa Phase One Project.


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