Guyana rejects Local Content Law while Brazil demands that no less than 50% oil investments go to its people

Oct 09, 2018 News

By Abena Rockcliffe-Campbell

Attorney-at-law, Charles Ramson

Local entrepreneurs continue to call for legislative protection to ensure that they are not shut out from business opportunities in the oil industry.

However, the Government of Guyana is adamant that there will be no moves now, or in the near future, to make it law that oil companies utilize domestic good and services.

This is the government’s position despite the fact that it announced, on several occasions, that it is now looking to adopt best practices that are employed by other oil producing countries.

In most oil producing countries around the world, the law dictates that the oil companies must utilize a certain percent of local goods and services.

In fact, Guyana’s neighbour, Brazil, mandates oil companies to use no less than 50 percent local content exploration and production.

Earlier this year, Brazil’s National Petroleum Agency (ANP) approved new local content rules for the country’s oil industry.

Under the revised system, developers were permitted to migrate their contracts as, under previous provisions, 70 percent local content was demanded.

The ANP’s decision came after the new rules were approved by the National Council for Energy Policy (CNPE). Companies had over 120 days to ask the ANP for the revised rules to be applied to their contracts.

In a breakdown of the percentages, the ANP said that oil companies would be obliged to use 50 percent local content during the Exploration and Production stage of onshore projects. In terms of offshore development, the local content requirement for exploration has been set at 18 percent with offshore production split into 25 percent for well construction, 40 percent for subsea systems and 40 percent for stationary production units.

The last section, covering stationary production units, is further divided into other three subsections: 40 percent for engineering, 40 percent for machines and equipment and 40 percent for construction, integration and building.

While the decision was accepted with some reticence by some, it was more broadly welcomed by others. The Brazilian Machinery Builders’ Association (ABIMAQ) said it was a positive development.

“This will breathe life into Brazilian industry…It’s a huge step forward for national development,” the group said in a statement.

Its sentiments were echoed by Petrobras, which said the changes would improve the current system, stimulate investment and that they represented a regulatory upgrade for the domestic oil and gas sector.

The regulator itself is satisfied that the new rules offer clarity. ANP’s Director General, Decio Oddone, was quoted saying, “This new regulation makes everything clear, unlocks projects and will be a good step for Brazilian oil production.”

He said the new rules would generate jobs and profits in the oil industry, noting that previous local content requirements were as high as 70 percent and deterred investment. “Now everybody needs to turn the page over and push on,” Oddone said.

Very recently, the Georgetown Chamber of Commerce and Industry (GCCI) had a meeting with the Minister of Business, Dominic Gaskin and Head of the Department of Energy, Dr. Mark Bynoe.

According to Attorney at Law, Charles Ramson, who is a member of the GCCI, local content was a focal topic discussed at that forum, “Where I was present.”

Ramson told Kaieteur News that instead of advocating for measures to protect local businesses, the government representatives at that meeting were speaking against local content legislation. “Imagine they were offering reasons why we should not have local content legislation. They were arguing against it.”

Ramson said that Dr. Bynoe questioned whether having a Guyanese operate as a trader or middle man qualifies as Local Content.

Ramson said, “I had to explain that this means more money in the economy, more employment for our people. I told him that businessmen will be able to secure capital for other businesses from the money collected by this.

“I explained, too, that it will provide employment for thousands of our people because as our businesses develop they will have to hire more. Our people would spend on entertainment etc which helps the money to circulate. So, the opportunity to engage in revenue capture, even for merchants, is an opportunity for Guyanese to grow.”

Ramson said that Government officials have to understand that their job as leaders is to preserve and maintain their people as well as advance development..

“We have a Prime Minister (of Trinidad and Tobago) coming here, looking to preserve and advance his group but we cannot do it for our own.”

Ramson said that it was imperative for government to push for Local Content in the development stage of the Liza project because that is when most of the money is spent…

”It was out opportunity to capture a good share of the project spending as we wait for actually revenue from production.”

In addition to the expressions that Ramson said were made at the meeting, government said, on many occasion, that Local Content legislation is not a priority.

For instance, in the “foreword” of the draft Local Content Policy, Minister of Natural Resources, Raphael Trotman, said, “The Local Content Policy (LCP) will be developed over time and in tandem with the growth of the industry.

“At present, Regulations will not be promulgated, but may become necessary as the industry unfolds and expands, and impetus is needed to steer the process or to solidify gains.”