The future of Grenada's oil and gas resources is now the subject of discussion at an international tribunal hearing which started in London on Monday.

The Keith Mitchell-led New National Party (NNP) government has been brought before the three-member panel by RSM Production Corporation, a U.S-based company owned by Colorado businessman, Jack Grynberg.

At stake is a 1996 oil and gas agreement which the Grenada government signed with Grynberg to explore for oil and gas in local waters.

The American businessman decided to go before the Convention on the Settlement of Investment Dispute between States and Nationals of other States known as ICSID in order to resolve their differences.

The hearings which are expected to cost millions of dollars is being funded for Grenada by a group of Russian investors who are interested in getting the contract to do the exploration work in Grenadian waters.

The tribunal is expected to be dominated by legal arguments based on statements made by a number of witnesses including Grenada's deputy prime minister, Gregory Bowen and Senior Energy Officer, John Auguste.

Following is the Part 1 of the John Auguste Witness statement submitted to the tribunal:

I,  John Auguste, say as follows:

I make this statement further to my First Witness Statement of 8 December 2006.

I have read RSM's Reply dated 5 March 2007 and the accompanying Witness Statements and deal in this Second Witness Statement with certain factual matters where RSM or its witnesses have misstated or misunderstood the position.

There are a large number of other matters within the Reply and the second witness statement of Jack Grynberg with which I disagree, but I have been advised that these matters are irrelevant to these proceedings, have been dealt with by other witnesses or documentary evidence or are otherwise for argument or submission, and as a result should not be dealt with in this statement.

I have also attempted to avoid repeating points already made in my First Witness Statement. All terms defined in my First Witness Statement have the same meaning in this Second Witness Statement.

The facts and matters on which I testify are within my own knowledge and are true to the best of my belief. When I refer to facts that are not within my own personal knowledge, I identify the source of these facts, which is true to the best of my information and belief.
This statement has been prepared by Grenada's counsel on the basis of interviews in St. George's, Grenada. I have carefully reviewed the test and confirm its accuracy.

I testify first below on the negotiation process with RSM and the resulting Agreement, in light of the inaccuracies introduced in this regard by the Reply and the second witness statement of Mr. Grynberg.

Secondly, I provide certain clarifications regarding the boundary negotiations between Grenada and its neighbours, before discussing RSM's unlawful entry into Grenadian waters in 2004 and the consequences arising from it. Finally, I comment briefly on some other inaccuracies in RSM's Reply and Mr. Grynberg's second witness statement.

AGREEMENT WITH RSM

Although I have already testified in detail on various aspects of the contract negotiations with RSM and the terms of the Agreement, I wish to provide additional information regarding the representations and impressions made and given by RSM during the negotiating process; the Government personnel involved in the negotiations: and the force majeure and license applications provisions in the Agreement.

RSM REPRESENTATIONS

I note that RSM has drawn attention to the fact that only Minister Bowen has so far testified on what I believe to be false representations made by RSM in respect of its intentions regarding the performance of the Agreement made with Grenada.
My own experience of RSM, GPC and their negotiators Messrs Flaxman and Grynberg were the following:

When Mr. Flaxman made contact with us in 1995 he made it known that he was representing Mr. Jack Grynberg of GPC. Mr. Flaxman said that Mr. Grynberg wanted to secure a license (or a production sharing agreement, as he had originally wanted) to commence exploration in Grenadian waters immediately.

The statements made b Messrs Flaxman and Grynberg during the negotiations were to the effect that they had the financial resources to undertake the exploration, and that Mr. Grynberg and GPC also had the necessary know-how having been involved in successful petroleum exploration in, for example Russia and Kazakhstan, under licenses negotiated successfully by Mr. Flaxman for Mr. Grynberg.

Neither gentlemen ever mentioned farm-outs or farm-ins during the negotiations. The Government would not have been averse to financial partners, as we understood that oil exploration is expensive. We were however, entering into an agreement with RSM and we did not expect them to hand over the exploration and development process to someone else.

They said that they had the necessary financial resources and expertise, which is the reason why we consented to enter into the Agreement with them. I thought RSM would engage contractors for parts of the work, but that RSM itself would take responsibility and be in charge.

Were RSM at a later stage to introduce partners, we would of course have been interested in verifying their bona fides. That was according to my understanding, the reason for having the assignment provision (Article 25) in the Agreement.

I considered notification and consultation to be inherent in Article 25. After all, we were supposed to be commencing an important relationship with RSM. In such a relationship one does not take the other side for granted and simply ask them to rubber stamp decisions you have made.

If RSM were to propose adding new partners, I expected there to be an appropriate consultation process, during which RSM would consult us on who they were talking to and what they were proposing, so that the Government could verify who the proposed partners were and whether it wanted them to come into our territory and exploit our natural resources.

I only heard about a potential farm-out by RSM to Vintage Petroleum and other companies years after RSM had apparently concluded a contract with them. I do not think the Government would have, or should have, entered into the Agreement with RSM if it had known at the time that RSM was a speculator as I now understand it to be.

RSM was not supposed to be a broker but an operator or at least that is what Messrs Grynberg and Flaxman represented RSM to be.

CONTRACTUAL NEGOTIATIONS

RSM has mischaracterised the respective roles of the various people involved in the contractual negotiation. In particular, RSM and Mr. Grynberg are wrong in portraying Minister Bowen's role as negligible. As I have testified in paragraph 12 of my First Witness Statement, Minister Bowen had been designated to oversee the negotiating process, due to his previous experience in the energy sector.

I think this also becomes apparent from the correspondence from the period as Minister Bowen naturally took an active part in overseeing the negotiations. He was the person I reported to regarding my contacts with Mr. Flaxman and to a lesser extent, Mr. Grynberg.

The division of labour between us was that I co-ordinated the technical aspects of the negotiation, whereas Minister Bowen would oversee the broader policy aspects including the financial issues as well as supervise my work. The role of Senator Bubb was very limited and he was certainly not involved in the technical detail of the negotiation, such as agreeing on the terms of the force majeure provision (Article 3).

I would on occasion discuss the progress of the negotiations with Senator Bubb, but never the details of particular provisions. Since the energy portfolio resided with the Ministry of Finance at that time and Senator Bubb was the junior minister, it was natural to keep him informed ultimately he was the one who signed the Agreement.

TERMS OF THE AGREEMENT

On the issue of the force majeure clause (Article 24), I would simply emphasis how inconsistent RSM's current position is with the repeated assurances at the time by Messrs Flaxman and Grynberg that they wanted to commence exploration activities immediately, and that is why they were in such a rush to have the Agreement finalised and signed.

 RSM must have known (as did I) that it might take a long time to establish the boundaries with Venezuela and Trinidad & Tobago. RSM insists in its reply on taking my words in my letter of 10 June 1996 out of context.

I agreed to the removal of an express time limit in the force majeure provision exactly in the context of the limited scope of the provision (Article 24.1, saying that the force majeure must cause the inability to perform), and the mechanism provided in Article 24 itself for dealing with a force majeure event that was worst than temporary (Article 24:3) as I have explained in my First Witness Statement.

Mr. Grynberg has also alleged that the 90-day time limit for applying for the exploration license was "plucked out of the air and had no significance whatsoever". This is an odd statement coming from Mr. Grynberg, since I was the one who proposed that number and since Mr. Grynberg did not participate in the discussions on this issue, which were conducted between Mr. Flaxman and me.

I have explained in my First Witness Statement my reasons for wishing to extend the time from seven to ninety days. RSM had proposed seven days, so eager was it (supposedly) to start exploration activities.

Had the number been plucked out of the air, and had no purpose, it would not have mattered to me, or to Mr. Flaxman, whether it was seven or ninety or whether there was any time limit at all. But in fact a time limit was introduced by RSM and changed by the government, during the negotiations, a procession in which Mr. Grynberg was not involved.

(To be continued)