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‘Local content’ in relation to the oil industry
CONSUMER CONCERNS…
Consumer Rights Activist, Pat Dial (‘Local content’ in relation to the oil industry)
By Pat Dial
Kaieteur News– Several members of the public have complained to us that though they see the term “Local Content” much used in the media, they have no precise understanding of it. In this offering, we shall endeavour to give an explanation of the term.
It is a characteristic of oil companies, when they commence operations in Third World countries, to access the goods and services they require from foreign suppliers who are affiliated to them or whom they have been accustomed to use and strongly resist any attempt to change this pattern. This pattern results in the Private Sector of the host country being denied business opportunities which should rightly be theirs and reduce the quantum of profit to the host country in cases where there are profit-sharing agreements between company and host country.
Local content is when the oil company is compelled to acquire the goods and services it needs from local companies, once there is availability.
It would have been in Guyana and the business community’s interest if Local Content Legislation had been established from the time EXXON had begun production of oil, but this was not to be. The Local Content Act was only passed in December, 2021: Forty goods and services were identified which the oil company had to acquire from Guyanese companies. Various percentages of acquisition of the particular item by the oil company were identified and these ranged from 5% to 100%.
For example, engineering and machining services were allotted 5% which meant that the oil company could access 95% of this item from non-Guyanese sources. On the other hand, ground transportation of personnel and local insurance services were allotted 100%. Examples of other items are local and accounting services 90%; industrial cleaning services – onshore 75%; security services 95% or medical services 25%. The full list of items with percentages could be seen in the Local Content Act. Heavy penalties ranging from $5 million to $50 million have been prescribed by the Act for Oil and Gas companies and their subcontractors who fail to meet the minimum targets of the legislation as well as those who are in breach of the Act.
Local companies have been investing heavily in the provision of goods and services for the oil industry and every year the list is reviewed with the intention of increasing the local percentages and ascertaining what new services could be added. As at November 2024, the Local Content Secretariat had registered 1,032 companies with the certificate to confirm that they are Guyanese companies and eligible to supply oil and gas operations.
Several foreign companies were discovered having Guyanese companies “fronting” for them but this abuse was appropriately dealt with and the abuse ended. Gradual increases in the number of youth-owned businesses have been registered with the Secretariat.
The Local Content Act has been successful in its aims and in the approximately two years it has been functioning from 2022 to 2024, it has reportedly generated over US$2 billion in business for local enterprises. It has also assisted in the employment of Guyanese nationals and approximately 65% of the workforce in the oil sector is Guyanese, with a significant representation of women.
(‘Local content’ in relation to the oil industry)
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