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Saturday, February 27, 2021

Need for realistic local content targets form key part of discussions as Guyana prepares framework

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Section seven of Guyana’s draft revised Local Content Policy Document that is currently under consultation falls under the title, ‘Minimum Local Content in Goods and Services’ and sets out mandatory local content targets for companies in the oil and gas sector. According to the document, to ensure maximum participation of local suppliers in the petroleum sector and development of Guyanese persons, companies will have to comply with a series of sliding scale targets.

The section outlines local content levels to be attained under various, specified categories from the date of effectiveness of the licence or petroleum agreement, to varying time frames such as in three, five, seven and ten years.  This has attracted concerns from oil and gas operators who are apprehensive over the possible effect of a failure to meet targets due to the unavailability of the goods and services locally. However, both President Irfaan Ali and Vice President Bharrat Jagdeo have assured that all stakeholders will be consulted, and the targets will be amended to reflect realistic and achievable goals.

During stakeholder consultations on Monday, February 15, President Irfaan Ali stated that the government is aware of the requirements and standards necessary to tap into the oil and gas supply chain. “…We are ready to make those investments in our human capital to meet those opportunities, but in doing so we have to have a policy that protects those opportunities for those persons who are training to meet the opportunity,” he stated, later adding that setting achievable local content targets is crucial to this goal.  The President said, “We are not here to say that we want to minimize foreign investments. That would be to our detriment. But we want the investors who are coming in to recognize that through a legislative mechanism, through regulations, through institutions, that they have to commit to local content. And not only commit to local content but we are going to move with you in setting targets as to the levels of local content.”

He is adamant that there is a certain level of business from the oil and gas sector from the forward and backward linkages of the petroleum industry that has to be made a special niche for local suppliers only. President Ali continued, “And I have said publicly that there [are] some, I don’t want to say lower levels of services, but there’s some services that we have done all our lives in Guyana. Brokerage services for example.”

Meanwhile, Vice President Bharrat Jagdeo affirmed that the oil and gas sector cannot only benefit foreign investors and businesses, but the impact and opportunities must trickle down to Guyanese. “We know we don’t have the capacity to build FPSO’s…but…we have the capacity to supply taxi service and vehicle services and our people have enough money to build good quality homes to rent to oil companies and a number of these things. That’s where the companies will have to utilise local resources at least for us to get up to at least a tiny threshold of oil expenditure in these companies,” he declared. The niches that will be reserved for Guyanese, he said, cannot result in substandard work or uncompetitive prices.  However, the current draft provisions are not set in stone, as the Vice President conceded, “We do not want to be rigid, with setting thresholds without consultations with the sectors and with the companies because many of these things are very nuanced.” These sentiments by Mr. Jagdeo were reflective of the concerns raised by ExxonMobil Guyana President, Alistair Routledge.

In his contribution to the consultation, the ExxonMobil Guyana official stated that it is an imperative to the country that people not only benefit from the revenues from the resource itself but also that they benefit from the creation of local content and the building of sustainable capacity. He noted that ExxonMobil’s operations in Guyana have resulted in the employment of over 2500 Guyanese and the utilisation of more than 800 vendors last year. His concerns stem from the lack of technical capacity for the sector in Guyana. Highlighting an example, he said, “I noted that there were some targets that were laid out, some draft targets around plate steel for example. As you well know, there is no steel manufacturing in the country, so we need to collaborate with you to understand what is the actual development plan, what is the vision for the country? Does the country want to manufacture, to make steel?”

Similar concerns were raised by Tullow Oil Guyana’s Country Manager, Joachim Vogt, who said that the company is keen on seeing the development of a mutually beneficial way for the regulator and the industry players to ensure that the legislative output, that is the final Policy, is effectively manageable and the industry is effectively capable of delivering what is set as targets. He noted that Tullow Oil is still in the early exploration phase, and “…We would struggle to deliver precisely this kind of targets as they are set here in this document, so I think it would be important…that phasing, the actual phasing of the local content philosophy that is prevailing here…”

Similar sentiments were shared by Stabroek block co-venturer, CNOOC, who, through their representative, said that the company is considering Guyana’s Local Content Policy Guidance Document and is in the process of considering the practical elements of those proposals.

Mr. Jagdeo in listening to the concerns assured that the contentious targets can be highlighted and submitted by the companies, as those outlined in the draft “were just taken from somewhere.”

“…And frankly speaking, if we’re not producing steel, we can’t set some of the targets etc. So, I’ve scanned those too. That is why I said right at the beginning, this has to go through several iterations before we come up with the final document.” He reaffirmed that unrealistic targets and provisions will be amended as the document will go through “several iterations.”

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