Local Content law gives Minister Bharrat the power to regulate bundling of contracts, payment delays

Aug 18, 2022 News

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By Renay Sambach

Kaieteur News – Despite the passage of the Guyana’s Local Content legislation in December 2021; local businesses have been struggling to benefit from the oil and gas sector.

The Local Content law is intended to regulate the way companies operate in Guyana’s oil and gas sector; employ persons, buy services and the way that they procure goods.

Since the passage of the law, several members of Guyana’s private sector have voiced concerns in relation to local content issues, particularly, the bundling of contracts by oil companies and the lengthy time it takes oil and gas companies to pay local businesses for goods and services provided.

In December 2021, Minister of Natural Resources, Vickram Bharrat, had tabled the Bill in the National Assembly and in May 2022, the minister reported that he received several complaints from local companies on the challenges they have been facing in the oil and gas sector. The minister had stated that he received complaints that oil companies have been bundling services for catering, security, garbage collection and other technical offshore support systems as part of one contract. This, Bharrat said, has been posing significant challenge to locals, as they are burdened to offer a service they are not registered to.

There were also reports, on oil companies taking a lengthy time to pay local businesses for services provided, thereby hampering their competitiveness in the oil and gas industry. As a result, Minister Bharrat had put oil companies on notice that the Government of Guyana will not tolerate the shortchanging of citizens in their own country.

The Ministry of Natural Resources and the Private Sector Commission on Wednesday associated themselves on the issue of unbundling of contracts and shorter payment period to local businesses. It was stated too that both sides agreed to continue to push for the unbundling of contracts and to examine a 30-day payment period for small and medium-sized businesses.

MIN. BHARRAT SITTING ON POWERS

While the government and private sector have agreed to lobby the oil companies to operate in a favourable manner to local businesses – Minister Bharrat has been sitting on the powers given to him under the Local Content Act. In addition to the duties of the minister under the legislation, according to Section 25 (Power to make regulations) of the Local Content Act, it was stated that, “The Minister may make regulations for carrying out the purposes of this Act.”

However, the minister has not implemented any regulation to bring ease to local businesses that are being stifled by the oil companies.

BUNDLING OF CONTRACTS

Just last week, President of the Georgetown Chamber of Commerce and Industry (GCCI), Timothy Tucker, reiterated the issue of the bundling of contracts by oil companies which has been stifling local businesses.

The Chamber in a statement said that it has taken note of recurrent contract bundling practices within Guyana’s petroleum sector and expressed its disapproval of this practice.  It was stated that the contract bundling, which is the consolidation of the procurement of various goods and services under one contract, has seemingly become a practice of companies within the petroleum sector. The Chambers noted too that the contracts are being solicited for Expression Of Interest (EOI) and Requests For Information (RFI) under one umbrella by various players in the industry.

To this end, it was explained that the sum-effect of this practice is that Micro, Small And Medium-Sized Enterprises (MSMEs) are unable to compete in the space since the ‘bundling’ practice will set an artificial barrier to their participation. Apart from its obvious hindrance to MSMEs wishing to service the sector, the Chamber believes that contract bundling works against the spirit and intent of Guyana’s Local Content Act 2021 thereby, defeating the objectives of the Act as it relates to private sector development.

PAYMENT DELAYS

Another bugbear is the payment delays from oil companies to local businesses. Kaieteur News had reported that local businesses servicing the oil and gas sector continue to lament the lengthy time it takes the oil and gas companies to pay them for goods and services provided. The issue of late payments has been a sore one and is being blamed for the stifling local businesses.

In July, GCCI had interacted with Attorney General (AG) and Minister of Legal Affairs, Anil Nandlall, S.C, where they raised several issues of pertinent importance, including, regulating payment arrangements in the oil and gas sector.

On the same issue, Vice President, Bharrat Jagdeo, had stated that the legislation provides for the government to regulate the payment terms to local companies.  He said, “…the issue of payment terms, we spoke of it in opposition, we raised it with the oil and gas companies and that has to change and the legislation provides for us to regulate this.”

The Vice President noted that a 90-day payment term to smalls firms in Guyana is not acceptable. “We are getting around to regulating that to ensure that Guyanese companies could have better payment terms,” Jagdeo noted. During an interview with this publication, the Attorney General explained that local businesses have complained of a systemic delay in payments for good supplied and services rendered. “They complained that this delay is having severe impact on their limited capital and liquidity thereby hampering their ability to discharge their contractual obligations,” he added.

According to the Minister, the local businesses related to the government that in many instances, they are unable to secure sufficient credit facilities and as a result, they have to flunk the financial capital in some occurrences. It was noted that in some instances where they are required to pay VAT (Value Added Tax) in relation to monies that they have not yet received, in respect to transactions that they have not received payments for.  As such, Nandlall noted that the businesses are requesting some form of regulations that would limit the timeframe for the credit arrangements.  “One avenue that is being explored is the promulgation of regulation for the Local Content Act to address the issue,” the AG note.

He recalled that when the Local Content Act was being debated in the National Assembly, the government made a commitment that after it becomes functional – if any inadequacies were to arise or difficulties encountered, regulations would be made to address the issue.

Notably, the Attorney General stated that if the amendment to the local content legislation is not effective – the government will then explore other means.

 

 

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