In the Thursday September 12, 2019 edition of Stabroek News (SN), our claim that the award of the petroleum exploration licences was subject to the Public Procurement Act was rejected by the Public Procurement Commission and by Dr. Anand Goolsarran, a former auditor general and past president of TIGI. Our column to which these individuals were responding was published under the title “Article #7 – Exxon Contract: A major oversight or wilful blindness? – The procurement act 2003” in the September 4, 2019 edition of SN.
If our argument that petroleum exploration and production are subject to public procurement has no merit as indicated by our critics, it would mean that the lawyers and politicians who amended the constitution in 2000 wasted a golden opportunity to close a door to one yawning corridor of corruption. It would mean that they wasted the time invested in drafting a law which could have preempted most of the problems we have now with the oil contracts. This would be especially telling because a few months after they signed an oil exploration contract (the 1999 Exxon agreement with Exxon) they either did not know that exploration for petroleum was a service and that it was possible to block that crevasse through the very Act they were drafting, or worse, they left it open so they could continue to do backroom deals with the oil companies.
Public procurement is well-known to provide a breeding ground for corruption especially in oil and gas. The United Nations Office on Drugs and Crime in its handbook identifies procurement as a “major risk area for corruption”. It recognises that “In order to carry out its functions, a government needs to purchase goods, services and works. This government activity is referred to as public procurement (or as government procurement or government contracts or public contracts)”. Whatever is procured, “it is important to keep in mind that a procuring entity never spends its own money but instead taxpayers’ money” and this is the underlying reason for governments’ “obligation to purchase goods, services and works only from the firms which offer the best value for money” (UNODC, 2013, p. 1).
Constitutional provisions on competition
Section 212AA is not the only section of the constitution that speaks to the need for preservation of the national assets against loss of value through ignorance of the alternative price/value matrix available. Under the label “CHAPTER II, PRINCIPLES AND BASES OF THE POLITICAL, ECONOMIC AND SOCIAL SYSTEM” we have Section 15 which reads “…The State shall intervene to mitigate the deleterious effects of competition on individuals or groups of individuals.” We believe that we could easily substitute “absence of competition” for “competition” in that section and it would mean exactly the same thing.
Therefore, if one is in any doubt about the intent of S212AA regarding the need for existing laws to give effect to meaningful competition in the economy, S15 should remove it. It puts an obligation upon the state to address any laws, systems, and behaviours which rob the state of the benefits of competition.
In defining competition, the Merriam-Webster dictionary states that it is “the effort of two or more parties acting independently to secure the business of a third party by offering the most favorable terms” (Merriam-Webster, 2019). Section 212W(1) of the Constitution states that “There shall be a Public Procurement Commission the purpose of which is to monitor public procurement and the procedure therefor in order to ensure that the procurement of goods, services, and the execution of works are conducted in a fair, equitable, transparent, competitive, and cost effective manner…”
Therefore, there could be no doubt about the purpose of the Constitution in its expectations of the Public Procurement Commission and its intent to include the entire economy under its scope.
Therefore, regardless of whether or not our position that petroleum is captured under the Procurement Act (PA) 2003 is correct, the Public Procurement Commission should have been recommending that our procurement systems need to be urgently upgraded to address the need for public auctions in petroleum. Auctions are recognized as a component of best practices for petroleum around the world and as outlined in our column which has drawn the criticisms, there have been calls for Guyana to adopt this approach (TIGI, September 4, 2019).
The PA 2003 was established pursuant to the provisions of the constitution. However, prior to its establishment, the Petroleum Exploration and Production Act (PEPA) 1986 existed as a special act governing the petroleum exploration and production. In order to determine which of the two currently applies to petroleum exploration and production, we need to examine a few principles in law.
Principle of implied repeal
The principle of implied repeal addresses what happens when a later law appears to affect requirements under an earlier law. It says that a special law cannot be repealed, amended
or altered by a subsequent general law by mere implication. In order for this principle to apply, there needs to be incompatibility in the conflicting clauses from Acts in question. This requirement of incompatibility is met by the PA 2003 and the PEPA 1986.
S21(1) of the PEPA 1986 says “Subject to this Act, on application duly made, the Minister may grant, on such conditions as he determines, or refuse to grant, a petroleum prospecting license in respect of any block or blocks.” This act gives the minister a choice of whatever conditions he wishes including public tender. In contrast, S25(1) of the PA 2003 provides that “S 25(1)) Subject to subsection (2), public tendering is mandatory”. Clearly, we have a conflict. Either the minister has a choice or he does not. It cannot be both.
Another rule for solving such problems is that if the earlier Act is a special law (the PEPA 1986 is a special law for petroleum) it cannot be trumped by a general law (The PA 2003 is a general law). This would leave the minister retaining his options. But there is yet one more rule.
It does not matter which law it is, if it conflicts with the aims and objectives of the Constitution of the country, it must yield ground. The Constitution of Guyana provides at Section 212AA that “The functions of the Public Procurement Commission are to – (a) monitor and review the functioning of all public procurement systems to ensure that they are in accordance with law and such policy guidelines as may be determined by the National Assembly; (b) promote awareness of the rules, procedures and special requirements of the procurement process among suppliers, contractors and public bodies”.
In pursuance of this section of the Constitution, the National Assembly did pass a law. It is called the PA 2003. We therefore hold that the clauses of this Act prevail over those of the PEPA 1986 which are in conflict with it and that the minister’s options to either hold public tender or not have been thereby removed.
The PEPA 1986 conforms to a template that was in common use at that time. This suggests that in 1986 the Government of Guyana had embarked upon a path of making its petroleum Act harmonized with best international practice. As we have shown, best international practice includes public tender in the petroleum sector and an understanding of the concept of procurement to include exploration and production in that sector. In order for our critics to be correct, some time after 1986 the country was put on a path toward a localized and restricted understanding of procurement that would result in any petroleum industry envisioned in the PEPA 1986 being marooned on Serbonian Bog (to borrow a phrase from Lord Denning, Master of the Rolls) of opportunity for corruption and in such a way that it was intended to dodge the very constitution the country had drafted.
We disagree with the inherent position of our critics that the PA 2003 enacted in pursuance of the 2000 constitutional amendments relevant to government procurement left petroleum, the mother of all scandal and corruption in the world, out of its reach.
Responses to criticisms
In his argument, Dr. Goolsarran quotes, as we did, the 2003 Procurement Act. He says “The Procurement Act 2003 deals with the procurement of goods, services and the execution of works. It defines ‘goods’ to include “raw materials, products, equipment and other physical objects of every kind and description, whether in solid, liquid, or gaseous form, and electricity”. Similarly, ‘services’ is defined as “services of a general nature other than consulting and construction services”. ‘Construction’ is defined as “all works associated with the construction, reconstruction, demolition, repair or renovation of a building, structure or works, such as site preparation, excavation, erection, building, installation of equipment or materials, decoration and finishing”.
He then contends that it is evident that the granting of exploration licences is not included in the definition. It would seem that this argument focuses on the wrapping of the package rather than the contents. But one must go beyond what the legal instrument that the licence represents to make a conclusion about whether it is different from “goods and services.” Otherwise, a contract for the supply of stone would also not qualify as goods procured simply because it was a “contract” and not goods.
Every procurement activity is governed by some form of agreement regardless of what name it is called. The agreement to procure a quantity of stone might be referred to as “Contract for supply of stone by some company.” It could have been called a note or a record of short-term purchase, but it would be an agreement to acquire goods. The fact that it is represented by a document with a commonly understood name does not make a difference. It is the fact of acquisition of the goods and services that is the essence of the procurement concept.
Similarly, when a government embarks upon the acquisition of the service of exploration for petroleum, according to the 1986 PEPA, there is a prescribed procedure and certain forms involved. One of these is called a license. It is not the name of the document that is the essence of procurement but what will follow because of the document – the search, and where found, acquisition of petroleum. That search is a service and it is handled under certain prescribed formats by law.
Commissioner Dodson contends that “They [Exxon] are not providing a service or a good. If, for example, the government wanted to buy petroleum products from them that is another issue that would be a procurement issue and that would fall under the procurement Act and come under the purview of the Public Procurement Commission.”
She seems to be saying that because the miner or vendor approaches the government to provide the end product of his efforts, and not the other way around, the activity does not qualify as government procurement. In other words, the seller exists without a buyer and the act of acquisition which is the heart of government procurement is extinguished by the mere existence of the motive and initiative of one party to the transaction.
Commissioner Dodson appears to have drawn a line between one type of economic good and another for the purposes of the PA 2003. We see no such line except that which the Act itself specifies. Ultimately, the government’s commitment to the endeavour (e.g. oil spill etc.) is backed by the public treasury. This cannot escape the procurement laws.
According to the SN report, Commissioner Corbin says that ‘The whole area of issuing of licences for exploration and production is not a procurement of goods and services for government. The Procurement Act governs the procurement of goods, services and works by government entities. Now there is a specific Act which governs petroleum exploration and production,” she added while holding the Petroleum Exploration and Production Act.’
We have no doubt at all that the PEPA of 1986 governs the exploration and production of petroleum in Guyana. We recognized that in our first articles. But this is not at all at odds with the applicability of the procurement law. Section 3 of the Procurement Act declares that it [the Act] applies to all procurement, except for national defence or national security; and if so excepted, it must be so stated. No such statement can be found in the published 2016 contract with ESSO, CNOOC Nexen, and Hess. The Constitution is the supreme law and given that the PA 2003 was established pursuant to its 2000 amendments, any clauses of earlier special Acts which are in conflict with the provisions PA 2003 (and hence with the constitution) are no longer relevant. Hence, once the Procurement Act of 2003 is violated, we need look no further for guidance on what should obtain with respect to Petroleum Exploration and Production (See section on principle of implied repeal above).
To conclude, our critics claimed to have identified an error but we disagree. Prior to the existence of the Procurement Act of 2003, the PEPA of 1986 governed petroleum exploration and production exclusively. It still governs the sector today, but subject to the provisions of the PA 2003. The provisions of the PEPA 1986 must either be as stringent as or more stringent than those of the PA 2003 for them to continue to be relevant today. The Minister’s discretion in the PEPA 1986 is therefore effectively fettered by the PA 2003.
