The private sector is on a hustle

Sep 11, 2019 Features / Columnists, Peeping Tom

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The debate over local content policy is pointless. It is akin to asking for a nuclear policy for Guyana. There is no need for asking for such a policy, because Guyana will never acquire nuclear development potential. The draft policy itself leaves much to be desired. But that is a discussion for another time.
Local content has no relevance to Guyana’s oil and gas sector. The opportunities for local content are limited, because the sector is an offshore sector with little or onshore development. Guyana did not insist on the construction of a refinery nor has it gone for establishing a plant to convert the natural gas from the oil production into energy.
The limited local content that is being generated to supply the oil rigs has already been gobbled up by foreign companies. There is not much left for local suppliers.
A few weeks ago, a local energy official reportedly told a church gathering that there are other ways to obtain cheap oil than by building a refinery. This is a myopic view of the benefits of an oil refinery.
The investment in an oil refinery will raise Guyana’s gross domestic product (GDP) by a few percentage points each year during the construction phase. We have seen how the development of wharf facilities in Guyana in preparation for shore-based services has increased the contribution of the construction sector to the national economy.
The construction of a refinery will raise the GDP by a few more percentage points when operational. A refinery will create thousands of jobs. And it will generate local content services.
But in its infinite brilliance, the government made no provision for Exxon to establish a refinery. Nor are there any plans to establish a gas plant to generate cheap energy, which would have also done the same as a refinery – increase growth, employment and local content.
The establishment of either would solve our employment problems. But that is beyond the comprehension of the government. The construction of a refinery and the erection of a gas plant for energy are beyond its ambition. On its radar for the sector is free university education. That is as good as it gets.
The government is not a big thinker because it is risk averse. Big projects carry big risks but that is part of the risks which any country has to take if it is to accelerate its development over a short period of time.
The local content debate is also pointless, because the local private sector does not have the ability to become a major player in providing services to the oil and gas sector. Local content or no local content, Guyana cannot grasp the limited opportunities that are available in the sector. We can hardly build more than one major road at a time, much less to be a competitive player in providing oil and gas goods and services.
A few days ago, Guyanese got excited when it was announced that the Lisa Destiny arrived in Guyana. It is a Floating Platform Storage and Offloading (FPSO) vessel, which means that it does everything other than refine the oil. It brings up, stores the oil and then offloads it for refining somewhere else. This all-in-one vessel limits the amount of offshore services, which can be provided.
Guyanese were in raptures over the arrival of the vessel. Yet, no one has bothered to ask whether it is the same Guyanese who have to pay the price tag for this vessel as part of cost recovery under the contract signed furtively by the government with ExxonMobil and partners in 2016.
The contract provides for cost recovery for petroleum operations. It cost US$720M. It can hold about 1.6 million barrels of oil or about two weeks of the initial oil production. It means therefore that another similar vessel, costing the same amount and subject to cost recovery will have to be built. Guyana will have to fetch this bill also.
No Guyanese company can construct such a vessel. The vessel was built in Singapore by a Dutch company. So why address local content when Guyana does not have the capacity or the capability.
And it is not likely, either, that any Guyanese company has the expertise to assemble partnerships to build such a ship. Moreover, even if they did, then they would still have to compete with multinational firms who have been doing this type of construction for years.
So why debate local content? What is the content of the local content that is causing so much disaffection in the country? The private sector is making unnecessary noises about the need for local content.
The private sector is on a hustle. It knows that it cannot compete with the foreign suppliers of equipment and services to the offshore oil sector. The private sector is looking for a ‘free ride’ from the proposed local content policy. It will wait in vain.

(The views expressed in this article are those of the author and do not necessarily reflect the opinions of this newspaper)

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