A $4.2 million VAT payment despite the US oil giant exempted from exploring oil at the Deepwater Cape Three Points (DWCTP) is what led to the company exiting Ghana.
According to reports, the failure by the Ghana government to implement VAT exemption granted in the DWCTP oil block Petroleum Agreement compelled Exxon Mobil decision to abandon its exploration activities.
Several incentives are provided by the government to lure potential oil investors into the country.
But Exxon Mobil paid about $4.2 million in VAT despite the company being exempted from paying VAT as per the Petroleum Agreement.
Article 12.8 of the DWCTP Petroleum Agreement (PA) specifically states that “Contractor, its affiliates and sub-contractors shall not be liable to pay VAT in respect of plant, equipment and materials and related services supplied in Ghana, to be used solely and exclusively in the conduct of Petroleum Operations under this Agreement”.
However, letters written by external consultant of ExxonMobil, Deloitte & Touche, which did not get any favorable responses infuriated Exxon Mobil to vacate the DWCTP oil block.
The letter stated that “we wish to follow up on this request as our client has not received any feedback from your office to date. Our client is currently compelled to make payment for VAT on supplier invoices which is an adverse cash flow impact on its operations considering that the company is clearly exempted from upfront payment of VAT in accordance with Article 12.16 of its Petroleum Agreement ratified by Parliament.”
“We look forward to your prompt response and issuance of VAT Relief Purchase Order booklet to our client””, it added.
For almost two years, all attempts by ExxonMobil to get the government to address this concern has proven futile.