Consultations on draft Local Content Policy begin tomorrow

Feb 14, 2021 News

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– document proposes jobs be reserved for Guyanese only, penalties for breaches, making all foreign suppliers pay their fair share of taxes; explores funding options for local companies, promote joint-ventures between locals and foreign companies for knowledge transfer

By Kiana Wilburg

Kaieteur News – President, Dr. Irfaan Ali, is expected to lead consultations tomorrow at 13:00hrs at the Arthur Chung Conference Centre on the draft local content policy; a document that seeks to ensure each Guyanese, regardless of race, religion or sex, is well-positioned to benefit the most from their oil wealth. Put another way, this means, Guyanese must have preferential treatment in the award of contracts for goods and services in the sector, they must be given opportunities for training and employment, and there must be a transfer of technology to support capacity building in the industry and beyond.
For those who have not perused the more than 50-page document that is on the website of the Ministry of Natural Resources, Kaieteur News has compiled a list of some of the key objectives and provisions of the document which seeks to ensure Guyanese are placed in the driver’s seat of the oil and gas industry.

According to the policy, the key objectives of this draft policy are to:
1. Enhance the skills and competencies of Guyanese Citizens and ensure they are internationally competitive.
2. Promote maximum use of Guyanese in the petroleum sector workforce.
3. Maximize the use of locally sourced goods and services in the Petroleum sector.
4. Domesticate key capabilities and activities that international investors traditionally retained at Head Office.
5. Enhance and make world-class the training, technology, innovation, and research and development base of Guyana.
6. Promote alliances between Guyanese and world-class firms for the transfer of technology and knowledge transfer and research and development in the industrial sectors.
7. Promote and facilitate access to finance, local investment in businesses and industries, capital aggregation and enhance the depth and quality of the Guyana’s capital markets.
8. Provide equitable access to all Guyanese, giving preference to communities traditionally under-served or disadvantaged for social, economic, or historical reasons or by virtue of disability.
The draft policy proposes to have an implementation policy which will identify specific initiatives and measures to deliver each objective.
Importantly, the document proposes to have companies achieve certain targets for local content. These will be progressive to reflect the changing state of the domestic supply base and the forward demand. It was noted that implementation will be undertaken in a collaborative manner with stakeholders and will include regular reporting in a manner that is easily accessible and comprehensible to all parties.
As regard the targets, the policy proposes to ensure that there is a minimum growth rate o ver the years in the use of Guyanese in the areas of employment and the provision of contracts to locals for goods and services.
From the date of effectiveness of the licence or petroleum agreement, the draft document proposes that companies should have up to five to seven years to ensure supervisory staff, technical core staff, professional support staff, and semi and unskilled workers, are more than 50 to 60 percent Guyanese and 10 years to ensure that management staff is at least 45 percent local. This is for upstream oil businesses such as those involved in exploration, drilling, and extraction of the petroleum resources.
Targets are also set for companies in the midstream and downstream aspects of the oil industry. Midstream companies are those involved in the transportation, storage, and wholesale marketing of crude or refined petroleum products. Downstream businesses are involved in converting oil and gas into the finished product. These include refining crude oil into gasoline, natural gas liquids, diesel, and a variety of other energy sources.
The draft policy proposes that these companies have up to seven years to ensure that the employment of locals for their supervisory staff, technical core staff, professional support staff, and semi and unskilled workforce is above 60 to 80 percent. They have up to 10 years to get beyond that.

The draft policy notes too that Guyanese must be given opportunities to provide services in the areas of:
1) Front End Engineering Design (FEED)
2) Fabrication, Construction and Storage
3) Procurement of Materials
4) Research and development relating to in-country services
5) Transportation, supply, and disposal services
6) Well drilling services
7) Health, safety, and environmental services
8) Information systems, information technology, and communication services
9) Marine operations and logistics services
10) Financial and insurance activities.
For further benefits to Guyanese businesses, the draft policy recommends that there be unbundling of contracts to reflect the state and growth potential of the local market; market conditioning, including early notification of intended activities; preferential treatment of locals; contract management with supplier performance improvement strategies.
It also recommends facilitating partnerships between Guyanese and international suppliers; providing contract terms that facilitate access to competitive financing; opportunities to learn and grow transparency and accountability for decision making in procurement; measuring and reporting on local content policy implementation and achievements; along with benchmarking, best practice sharing and continuous improvement.

FUNDING FOR GUYANESE TO BE EXPLORED
Further to the foregoing, the draft document suggests that there must be access to affordable and competitive funding for locals. It notes that multiple approaches have been used in different jurisdictions, including the provision of specially capitalised and managed funds and innovative contracting and lending mechanisms.

ALL FOREIGN AGENTS/ CONTRACTS MUST PAY
The draft policy is also proposing a key provision, which will see an increase of public revenues (royalties and taxes) generated from the oil and gas industry which can be used by government to provide infrastructure and social services, to counter commodity price volatility and/or saved in a sovereign wealth funds for intergenerational wealth transfer.
In this regard, it notes that local participation will allow for more locals to be employed and more local companies to make profits, hence, enhancing the tax base of the country. The document notes however that locals alone must not be expected to pay their fair share of taxes. It categorically states that foreign suppliers must be required to pay up too. To the extent that the administrative effort of the local tax authority is reasonable, the drafty policy proposes that foreign companies doing business as agents, contractors, or sub-contractors to operators in Guyana must be required to register a local company and/or be Licensed and pay taxes in Guyana.

INSTITUTIONAL FRAMEWORK/REGULATION
No matter how good a policy is, if the implementation of the foregoing provisions are weak or poor and are not properly monitored or regulated, it would all be for nothing. So how exactly is the policy proposing to avoid failure in this regard?
It proposes that there be rigid identification of opportunities for Guyanese participation and capacity development needs along with detailed and up-to-date analyses of demand, based on planned and approved programmes of work. It recommends as well that the local skills base and supply chain will form the basis of databases to guide capacity development focus, employment, and procurement from locals.
As regards plans for all major projects and operations, it is being proposed that these include employment, local content and capacity development plans and procurement strategies. These are expected to be reported on and reviewed regularly during the life of the programme.
Furthermore, employment and procurement strategies of companies are expected to be developed and/or approved at the project appraisal and/or other early parts of the project life cycle, rather than at the implementation stage. The document recommends that it includes training and capacity development, knowledge and technology transfer, support for local training institutions, and research and development, give preference to Guyanese, reserve certain jobs, goods, and services for Guyanese, and identify metrics for setting targets for levels of local content and participation.
The draft policy is expected to be enforced by regulations and related legislative instruments, such as licences, permits, schedules, rules, and guidelines,

LAYERS OF REGULATION
During the implementation of the foregoing, the sector will be regulated via different layers, starting with the Sector Regulator.
Under the legislation that is envisioned to give life to the Petroleum Commission of Guyana (PCG), it is being proposed that this body will be the Regulator to ensure reports are submitted to the Parliament and to mandate that oil companies and their contractors manage their procurement through local content policies and strategies that align with the national policy.
It is envisioned that the PCG will undertake these tasks through a dedicated Local Content Secretariat or Unit, which will be responsible for the implementation of this Policy and the pertinent regulations.
The Local Content Unit will also measure and report on the local content performance by Operators and Contractors, in a transparent and consistent manner.
The government, this newspaper understands, intends to have the Local Content Unit be overseen by the “Inter-Agency Coordinating Committee,” made up of senior officials of the various government ministries and agencies that will be charged by the Minister to oversee the implementation of this Local Content Policy. It is also expected to identify those goods and services to be reserved for Guyanese and set targets for local content and participation in the provision of key goods and services and review same from time to time.
A “Multi-Stakeholder Working Group on Local Content” will also be set up and chaired by Government, involving representatives of key stakeholders’ groups, including the major Operators, international services companies, local private sector including the financial sector, education and training institutions, non-governmental organisations, labour and civil society. The Working Group is expected to advise the Inter-Agency Coordinating Committee and support collaboration and coordination among and between stakeholder groups and allow for early action on critical items required for operationalising of the Local Content Policy.

FURTHER EMPOWERMENT
It is proposed that the regulator, being the PCG, will be empowered to require independent entities to undertake local content audits, determine the mechanism for establishing the spending on local content by companies, and investigate claims of misrepresentation.
The draft document also noted that the regulator will have the right to inspect any facilities, documents, books, records, contracts, invoices, and other information related to procurement and local content and payments to local and non-local suppliers and employees. It categorically states, “Any partner, contractor, subcontractor or any other connected entity of the Operator must be contractually bound to report local content information” while adding that “There shall be established a mechanism for determining breaches of the Regulations and a Schedule of penalties for such breaches.”

ROLE OF OIL COMPANIES
The draft document categorically states that local content will only happen when a Guyanese is employed, or a Guyanese company is contracted to deliver goods or services. To qualify to be engaged, Guyanese must be capable of undertaking the tasks or participating in the activities, with at least enough basic knowledge and/or experience to learn on the job.
To get prepared, the document states that Guyanese must know what goods and services are needed, what capability and competencies they require, how many, when, and for how long the goods or services will be needed. Only then can Guyanese institutions design and deliver training and development programmes efficiently and effectively or can businesses invest in equipment, materials, facilities, technology, etc., or parents invest with a sense of comfort in their children’s higher education.
It therefore means that access to accurate, up-to-date, and appropriately granular data and information are important to decision-making for this range of stakeholders at this early stage.
Taking this into account, the draft policy seeks to ensure oil companies and subcontractors make data on their supply and employment needs more accessible to Guyanese even if this means including caveats as to areas of uncertainty.
It is being proposed that this policy will be reviewed every two years, to ensure its adequacy and effectiveness, in light of changing local and global circumstances.

 

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