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Brazil institutes enormous fines for local content breaches …Consultant says this is but one important lesson for emerging oil producers like Guyana
Oil and Gas consultant Nelson Narciso
By Kiana Wilburg reporting from California
Even without legislation in place, Guyana’s neighbour to the South, Brazil, has a most rigid approach when it comes to local content. The country ensures that companies put local goods and services first and by a significant percentage too. A failure to honour such commitments would lead to enormous fines.
This was pointed out yesterday during a Local Content workshop that was organized by the Institute of Americas at its headquarters in San Diego, California.
Participants have been drawn from Guyana, Brazil, Venezuela, and Argentina. The session saw two speakers. Experienced engineer and Oil and Gas consultant, Brazilian Nelson Narciso, was one of them.
During his presentation, Narciso explained that local content is of strategic importance to a country because of the lasting benefits it brings to the nation, such as enhancing the domestic industry and generating more income and jobs for the population.
He said that local content is more than “lip-service” for Brazil. Operators are expected to say up front what percentage of local goods and services they will use for specific projects. If the company says, for example, that it will use 50 percent of locals for repairs to be done at one of its offices, failure to honour that commitment would lead to an immediate fine by the regulator.
He said, too, that there are specific local content requirements that are outlined in the contracts of the oil operators in Brazil.
Narciso also gave the case where BG Group Plc., the U.K.’s third-largest natural-gas producer, paid US$71M in fines in Brazil for breaching local-content rules at an offshore project where it didn’t find commercial volumes of oil. This was back in 2015. The Energy Consultant said that there have been many other fines of this nature.
“I believe that if the company meets the minimum requirements or even over achieves, it should be rewarded. But there should be fines for when they do badly. We need to recognise who is doing the good and who is doing the bad. If there are no fines then you are doing nothing,”
The oil consultant added, “You must have a balance in the industry. That is what I found in my experience. Everyone agreed in Brazil that there should be a fine.”
Narciso said that there has been much push back by industry stakeholders on the rigid fines. While there has been consideration to relax those fines, the consultant told Kaieteur News that there is wisdom in the approach to have such provisions. He noted, too, that it is an important lesson for any emerging oil producer.
Narciso was Director of the Brazilian regulatory agency for oil, natural gas, and biofuels (ANP) from 2006 to 2010. During his term, he led the creation of the Local Content Coordinating Body, led the Gas Flaring Reduction programme, the Improvement of Production Fiscal Metering programme, Bidding Rounds and Integrated System for products movement. He is currently an international consultant for the oil and gas energy.
The second draft of Guyana’s Local Content Policy does not make a single provision for a fine or penalty to be instituted if there are local content breaches.
The document does, however, pave the way for a regulator of local content in Guyana.
(More on the Local Content framework can be seen online via the following link: https://www.nre.gov.gy/wp-content/uploads/2018/05/Second-Draft-Local-Content-Policy-Framework.pdf)
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