No penalties exist if ExxonMobil shirks Local Content responsibilities

Feb 16, 2018 ExxonMobil, News

---

Guyana’s Production Sharing Agreement (PSA) with US oil giant, ExxonMobil, has been criticised for having limited or rather, ‘mediocre” provisions in place for local content. But even with the inadequate provisions in place, no penalties exist if ExxonMobil turns out to be negligent in this regard.
On the other hand, there are several nations which after experiencing the effects of such disregard by oil operators, opted to include in future PSAs, inescapable penalties.  Uganda is just one of the many countries in this regard.
Uganda’s move towards penalties was due to the findings and recommendations of the Global Witness in relation to PSAs there. The Global Witness is an international body that works to break the links between natural resource exploitation, corruption, and human rights abuses worldwide.
According to the body, local content obligations in contracts and laws seek to ensure that companies employ nationals, train local staff and procure local services. It notes that the intention is that local industries benefit directly from the oil sector and that local people develop the skills to manage the oil sector in future.
The Global Witness noted however, that none of the contracts it examined prior to 2008 for Uganda, set benchmarks or penalties for failure to comply with the local content obligations. The International body noted that other countries have included stricter provisions for the procurement of local goods and services in their PSAs and required that they are verified by the relevant government agencies.
After revealing this, the government of Uganda made swift moves to include penalties in PSAs for failure to comply with local content provisions.
GUYANA’S LIMITED PROVISIONS
Chartered Accountant and Attorney-at-law, Christopher Ram, was one of the first local commentators to denounce the provisions for local content in the PSA that Guyana has with ExxonMobil.
Ram has highlighted several aspects of the contract which deal with Local Content.
He noted that Article 18 of the contract which deals with local content has been subject to a number of modifications when compared with the 1999 Agreement.
He said that one of the obvious changes one recognizes is that the activities regarding local content will be carried out not by the Contractor but by an Operator appointed by the three companies making up the Contractor. The Three Companies that make up the Contractor ExxonMobil are: Esso Exploration and Production Guyana Limited, CNOOC Nexen Petroleum Guyana Limited, and Hess Guyana Exploration Limited.
In respect of goods and services, Ram noted that Article 18 requires the Operator to give preference to Guyanese goods and materials of a quality and quantity, timely delivery and competitive prices. However, when it comes to Guyanese Sub-Contractors, Ram was careful to highlight that the contract says that preference is to be given “if they are commercially competitive and meet financial and technical requirements”.
Furthermore, the lawyer points out that Article 18.2 requiring the Contractor to establish tender procedures remains unchanged for the acquisition of goods, materials and services which shall ensure that Guyanese suppliers and Sub-Contractors are given adequate opportunity to compete for the supply of goods and services. In this regard, Ram said that there is also a requirement in the petroleum agreement for the Contractor to train Guyanese suppliers and Sub­ contractors in the procedures for participating in tenders and competing for contracts to be offered in the Operations.
Ram said that under the 1999 Agreement, “The old Article 18.3 required the Contractor, within 90 days of the end of the year, to provide the Minister with a report outlining its achievements in utilising Guyanese resources during that calendar year. That has now been replaced in 18.4 with a provision that requires the Contractor and the Minister (sic) to prepare a yearly plan for the utilisation of qualified Guyanese resources for the upcoming year.”

“Further, the sub-Article requires the Contractor and the Minister to meet and consider the effectiveness of the plan (which they have prepared!). Within thirty days of each half-year, the Contractor is required to provide a report to the Minister outlining its achievements in utilising qualified Guyanese resources during the previous half-year and to make appropriate adjustments to the yearly plan to better accomplish the local content goal.”
 
The attorney said that apart from the amateur drafting of this highly important Article, it seems that once again, Minister of Natural Resources Raphael Trotman has gone outside of the legislation which requires proposals on local content to be part of the application for a prospecting and a production licence. Ram stressed that these licences are usually issued on condition that such objectives are achieved.
EMPLOYMENT AND TRAINING

Ram pointed out that Article 19 of the contract which speaks to Employment and Training has been amended.
In this regard, Ram said that at Article 19.2 of the 1999 Agreement, the Contractor was required to employ to the maximum extent possible, employ, and encourage Sub-Contractors to employ Guyanese citizens having appropriate qualifications and experience.
He said that the words “maximum extent possible” have, rather unfortunately, been deleted while instead of encourage, the Contractor is required to “contractually obligate” sub-Contractors to hire appropriately qualified Guyanese.
Additionally, Ram states that Article 19.3 of the 1999 Agreement required payments ranging from US$30,000 to US$45,000 during each of the two phases of the Initial, First and Second Renewals to be applied to designated purposes. That sum has now been increased to US$300,000 annually to be paid “directly into bank accounts held and controlled by the Government.”
The use to which this money can be put as set out in the Agreement are: (a) to provide Guyanese personnel nominated by the Government with on-the-job training in Contractor’s operations in Guyana and overseas and/or practical training at institutions abroad; (b) to send qualified Guyanese personnel selected by the Government on courses not exceeding one year at universities, colleges or other training institutions; (c) to send Guyanese personnel selected by the Government to conferences and seminars related to the petroleum industry; and (d) to purchase for the Government advanced technical books, professional publications, scientific instruments or other equipment required by the Government.
The Chartered Accountant said, “It seems rather embarrassing for a Minister of the Guyana Government to repeat in the 2016 Agreement, the stipulation that the Contractor will provide funds to a sovereign Government to buy technical books for the Government. Clearly mendicancy is firmly planted in our emerging petroleum sector. It also seems a paltry sum to pay for courses in training at universities… on the job training abroad and to send officials to conferences and seminars.”
Furthermore, a new Article of the Contract, 19.4, requires the Contractor and the Minister to provide, within sixty days of a new year, a yearly plan for the utilisation of qualified Guyanese personnel for the upcoming year.
Ram opined that in what appears to be a cut and paste job, the Minister and the Contractor will meet and consider the effectiveness of their plan, while the Contractor is required to submit half-yearly reports on how their plans are working out.

---

---