Restrictive local content measures can hurt oil companies – British High Commissioner

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Greg Quinn, British High Commissioner to Guyana

British High Commissioner to Guyana, Greg Quinn, believes careful consideration must be given to the establishment of guidelines for the use of local content in the oil & gas industry since measures which are too restrictive can serve to hurt oil companies and curtail their operations.

OilNOW sat down with the High Commissioner at his Main Street, Georgetown office on Monday for a wide-ranging discussion on Guyana’s journey towards first oil.

On the issue of local content, the Georgetown Chamber of Commerce and Industry (GCCI) has been calling for legislation to be put in place that would make it mandatory for oil companies to utilize Guyanese contractors for the provision of material and services. At present, the country is crafting a policy framework to guide how companies operate and this is expected to be completed and ready for implementation by early 2018.

While experts in the industry have put forward arguments for both approaches, the position in which Guyana finds itself as a newcomer to the industry – with limited capacity – has made the push for laws forcing companies to use local content less feasible to some stakeholders.

The UK’s chief diplomat in Guyana said while he has seen both approaches worked in other locations, a sensible policy negates the need for laws.  “I think both work. I think you don’t necessarily need to legislate because if you have a good sensible policy and you are talking to the oil companies, then the oil companies will know for example, what they need to do,” he said.

However, GCCI’s President, Deodat Indar, believes that crafting a policy and hoping that the oil companies adhere to it may not be enough, hence the need for legislation. “You can have the legislation in a scalable manner and parts of it implemented at different timing,” he stated at a recently held press conference.

But experiences in the industry have also shown that restrictive laws governing the use of local content, particularly in situations where the required services are simply not available in the host country can have adverse effects.

“It’s important not to become too prescriptive…they are certain things Guyana is not going to be able to provide, and certain expertise that Guyana is not going to be able to provide. So what you need to ensure is that you don’t put in place something that is so restrictive that it actually stops the companies developing,” the High Commissioner said.

Since the first competitive licensing round was held in Brazil in 1999, one of the bid criteria for concession awards has been the minimum percentage of local content that the bidder commits to achieve. If they fail to achieve that percentage, they are subject to steep fines. Over recent years, these requirements have been widely criticised for their complexity and the additional costs they have imposed on the industry. Operators have been forced to try to anticipate the levels of local content that they will be able to secure in the development of a field at the bidding stage, when they do not know what kind of reservoir they may discover, nor what technology will be available, nor what capacity local suppliers will have at that time, which may be five to ten years after bidding.

After heated discussions between different branches of government and industry bodies, the Brazilian government announced in February its proposed changes to the rules on local content requirements signaling that they will be simplified and current levels will be relaxed significantly.

 

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