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 what 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 the facts. 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.
Discussion