Govt. can influence Exxon, other oil companies’ procurement strategy

Aug 30, 2022 News

– can easily address late payments, unbundling of contracts –T&T Local Content Expert

By Kiana Wilburg

Kaieteur News – While Guyana has armed itself with a robust Local Content Legislation, it is becoming quite evident that authorities are experiencing teething problems as they seek to implement the law which demands the prioritised use of local goods and services by oil companies.

Local Content Expert, Anthony Paul

Two of the main challenges thus far pertain to late payments for small and medium-sized companies and the bundling of contracts. On both matters, Trinidadian Local Content Expert and Energy Strategist, Anthony Paul firmly asserts that Guyana can take steps to mitigate these issues while adding that the country, with its significant oil wealth, can influence the procurement strategies of Exxon and others.

Paul said, “Companies in the industry operate major projects with massive investments and many risks. Major projects are designed by engineers and their role is to reduce risks; bringing in a new supplier is a risk and engineers tend to find ways to remove those hurdles.” Taking this point into consideration, Paul said project engineers can structure contracts in such a way that only the suppliers they know and trust would get through.

On the issue of late payments, Paul said it is sometimes used as a mechanism by some companies to frustrate the local content process because they know small, start-up companies run very thin capital bases, and therefore, depend on lending institutions. Additionally, he said oil companies tend to issue stiff requirements for participation which makes the pool of people/companies who are acceptable to do the job, very small. He said it therefore means local companies have to compete with foreign entities on price. Paul said the locals are then forced to push their price down in order to compete. In such a case, locals are not able to grow and invest from the money they make.

The Energy Strategist said, “So the procurement strategy of a company can really frustrate the local content process instead of maximizing it. Until governments get involved in that and influence procurement strategies, and there are ways to do that, then the oil companies will have the upper hand. In spite of what they say, their interest is to protect their shareholders but the country must do the same for its people.”

Paul was keen to note that governments have the potential and the power to implement regulations that enforce how legislation is followed through. “So the government says you must procure certain services from Guyanese and that is one way they influence the supply chain. Then they can go further and say given the conditions that exist in Guyana, we require that all payments be made within x period. That is the government’s power,” expressed the industry expert.

He said one of the strong points about Guyana is that some oil companies will have a difficult time trying to convince their shareholders that they should fight a law stating that locals should be paid fairly and timely. In this way, he argued that Guyana can influence the conscience of foreign shareholders.

Importantly, Paul shared that Guyana can consider having a State Company which partners with oil companies and is therefore able to influence procurement philosophy. “If a state company is present in the mix of the operator and joint venture partners then that State Company, aside from the government, will also have a right to make inputs into the shaping of the procurement strategy at an early stage.”

He was keen to note that projects have a life cycle and to influence procurement philosophy, it cannot happen when tenders are being disseminated. That is too late. If Guyana opts to stay with the regulator role alone, he said government can say it wants to make interventions along the way, specifically when companies submit their local content plans for approval. “So you have the power to shape the engineering philosophy and strategy and that is how local content can get done or undone,” Paul stated as he concluded, “The power to be successful with local content is most certainly within the government’s grasp.”