By Kiana Wilburg, Kaieteur News
When Governments enter negotiations with oil companies, they must ensure that the State gets a fair tradeoff, especially for the concessions granted.
This is according to Co-Director of the Graduate Certificate in Global Energy, Development and Sustainability at the University of Houston, Tom Mitro. He is also a Senior Fellow with the Columbia Centre on Sustainable Investment (CCSI).
During his discussions with CCSI, Mitro was careful to note that oil companies employ several tactics which leave governments granting concessions without a full understanding of what they are getting in return.
Expounding on this front, Mitro noted that some companies, in particular some American companies, will fly people in for negotiations. He said that ExxonMobil, which is much more centralized in its management, does this.
Mitro said that for a “fly-in” headquarters negotiating team, time is of the essence as this type of team typically plans on being in the country for a limited length of time and wants to avoid spending weekends in country.
Mitro explained that they will have pressure to achieve results quickly.
The Senior Fellow said that Governments need to be aware of this phenomenon and not yield to time pressure. He said that quite often, delays in meetings or in reaching agreement, can work to the advantage of the government too.
He said, “Some companies will also fly in the CEO with the objective of shortcutting the technical negotiation process through some political outreach, such as meeting the President, the Prime Minister, or Energy Minister.
With this in mind, the technical teams should prepare the President or the Prime Minister to ensure that undue concessions are not granted or promised without a full understanding of the details.”
He said that there must be a proper or fair tradeoff for any concession being granted.
Mitro said that there are tactics which the government could employ to get better tradeoffs.
In this regard, he said that international firms will bring different types of expertise to the table: geologists, engineers, lawyers, tax experts, and economic analysts—all who work in professional silos without any broader perspectives or mandates.
Mitro said that typically, the company would attempt to isolate each issue and to negotiate and settle them individually on a narrow technical basis.
To counter this approach, he said that Governments should generally avoid agreeing on issues individually and instead, require all of the relevant issues to be considered as one whole package by focusing on tradeoffs between unrelated issues.
For instance, Mitro said that the government could say: “We won’t agree to accelerate depreciation on your project capital expenditures unless you implement an ambitious local procurement plan,” even though the two issues are quite unrelated.
Mitro said that this type of conversation and linkage of issues could serve to mitigate the often narrowly focused technical strength of the other side.