What is Local Content and who should benefit from it?

Feb 20, 2021 Letters

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DEAR EDITOR,

I applaud the government for consulting with the public on arriving at a policy on local content requirements (LCR) for the oil and gas industry. Local Content Policy refers to the legal requirement of foreign investors using domestic goods and resources or services. We have limitations in both.
When the APNU led regime was negotiating with Exxon in 2016/17 on a new oil production agreement for field development, a few of us, economists and budding oil enthusiasts, met in New York as well as online discussing royalty, profit sharing, and local content and offered recommendations. We also organized seminars and hosted oil specialists in several public forums in New York and zoom webinars. As expected, our recommendations were all ignored and Guyana signed a lopsided agreement. The APNU regime signed an oil agreement that was well below international norms. Since then, we have championed efforts to renegotiate the unjust contract without success.
The current President, Vice President, Minister of Energy and other spokespersons for this administration were quizzed by Mr. Glenn Lall and KN on renegotiation of the oil agreement. The government says it will not violate the sanctity of a contract but that it will press for greater local content in oil companies’ exploration and production. Exxon claims it has been spending billions on local content. Since there has not been any audit of Exxon’s expenditures or purchases or hiring, Exxon’s figures can’t be verified. It can’t be determined what percentage of Exxon’s expenses or personnel are actually ‘local’ content. A genuine audit may find just a small percentage of Exxon’s Guyana cost operations is local content. The present administration has displayed seriousness about local content. Colleagues who met regularly over the last four years to discuss local content and other oil and gas related issues complain that they were not invited for participation in the recent panel discussion.
All countries, including UK, Norway, etc., have a local content requirement in extraction of resources or foreign investment. There is a percentage of local resources in foreign investment that varies as per negotiation. Generally, World Bank and IMF recommends not less than 20 percent but can be up to 50 percent.
Guyana does not have much technical skills or resources or capital equipment for oil or gas production. So its local content resources may be very infinitesimal. What qualifies (or not) as local content and how can it be enhanced? Local content is the value of local input that a project uses to help boost the national economy. It is not just the utilization of local food but other resources as well including development (training) of local skills and technology transfer. Local content is not the equivalent of hiring Guyanese for cleaning of the oil platform and rooms, cooking for platform staff, washing underwear and bed sheets, supplying “bhajie” and water melons, and non-technical activities. Local content is building a workforce that is skilled to meet the requirements of the energy industry. It is also hiring Guyanese in management. Those were some of our recommendations that were ignored by those who negotiated with Exxon.
It is expected that more Guyanese will be increasingly employed in the oil and gas sector and taking over the daily activities including technical aspects of the industry. Since Guyana lacks local manufacturing and oil specialists, it is expected that Exxon will provide training to Guyanese to enable them to take over operations of production. Guyanese must be provided the technical aspects of production not just in cleaning platforms or lifting pipes or transporting materials from shore base to platform. Where possible, Guyanese can be trained for the oil and gas industry by a local (not expatriate) contractor not just in Calgary or Texas.
Local content is also defined in terms of the ownership of the enterprise involved in production and training of Guyanese. Having a foreigner or an expatriate establishing operations in Guyana and virtually owning the newly found company that offer basic training to a few Guyanese for low paying oil sector jobs is not the expectation of the meaning of local content. At any rate, the contractor reaps the bulk of the revenues with very little going to local Guyanese or those who champion local content policy.
It is noted that during the previous regime, a few individuals took advantage of the secrecy of operations and the contract and of connections with the energy companies to establish companies that supply goods and services to them. Genuinely local Guyanese owned entities should get preference over others – that is the very definition of local content. Preference must not be given to those who enjoyed an advantage as a result of incestuous relationships with the oil companies or those with political connections getting contracts to recruit local Guyanese and providing training to work in the industry. There must be a level playing field for all with preference given to local Guyanese, especially those who champion local content policy. Local Guyanese and those who champion local content should enjoy the same tax breaks and duty concessions as the foreigners or expatriates.

Yours truly,
Vishnu Bisram

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