Tuesday, December 7, 2021

Finding right balance in JVs will ensure Guyanese companies don’t get ‘short end of stick’, says analyst

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As more local companies enter joint ventures (JV) in Guyana to pursue growing opportunities in the country’s emerging oil and gas sector, one expert in the industry says finding the right balance in JV agreements is crucial if locals are to benefit in a meaningful way.

Arthur Deakin, Co-Director of Americas Market Intelligence (AMI) Energy Practice, said having the foreign company owning the entire operation while just ‘rent assisting’ a couple of Guyanese to make it count as local content must be avoided.

The seesaw dilemma: matching Guyana’s labor force with its energy bonanza

“So, I think you have to have a majority of employees that are Guyanese or based in Guyana at least and then the voting rights could be a mixture of both financial commitments and the number of employees. Finding a right balance between those two,” Deakin told OilNOW in a recent exclusive interview.

If percentage ownership and voting rights are based mostly on the capital each party is plugging into the company, then local partners, already facing major challenges with access to finance, would be at a disadvantage.

“They need to have some sort of rule or framework that proportionally compensates the Guyanese companies based on the actual capital they have to invest,” Deakin explained. “So, it wouldn’t be apples to apples in the sense that 20 million from a Guyanese company wouldn’t equal 20 million from a foreign company. 20 million could perhaps equal 100 million for a Guyanese company.”

The AMI analyst said finding the “optimal balance” that encourages local participation in these joint ventures while also not being too strict that it will discourage foreign companies from entering the partnerships is key if these ventures are to be successful.

President of the Georgetown Chamber of Commerce and Industry (GCCI), Timothy Tucker has repeatedly warned against local companies begin used as ‘window dressing’ in partnerships merely to satisfy local content considerations but where the Guyanese partner has no real influence.

Guyanese should retain majority stakes, profits in partnerships with foreign businesses – Tucker

He said where partnerships between locals and foreigners are formed, it should not be a case where the Guyanese only owns at least 51 percent of a company, but the foreigner has all the voting rights and majority profits. “That’s not local content, that’s rent a citizen basically,” Tucker said, pointing out that the GCCI would like to see locals retaining voting powers and at least 51 percent of the profits.

“We are not dictating what people do with their profits, but we believe that a lot of the spend and re-investment should be in the country, that’s what we mean by local content,” the GCCI President has stated.

According to the latest draft Local Content Policy, a Guyanese or local company is one that is beneficially majority-owned by a Guyanese citizen –with at least 51 percent of stakes belonging to the local. Meanwhile, ‘foreign-owned, registered in Guyana’ companies are those that are less than fifty-one percent owned by Guyanese. Further to this, Tucker said the Chamber is firm in its position that Guyanese companies should be given first consideration for contracts in the sector, as long as they are qualified to meet the requirements of the contract.

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