After growing pressure from the Opposition and civil society groups, Guyana finally has a Local Content Policy (LCP) in place to help guide the operations of the oil and gas sector, and more so to ensure that Guyanese benefit from the sector. Many were hoping that a robust LCP would have been finalised before oil production commenced last December but the government rejected two early drafts that were prepared by a Caribbean expert in favor of the present one drafted by a British source and which left the country unprepared for First Oil.
To some extent, the document is still not in line with what obtains in other countries which have been known to maximise the benefits from their natural resources. The Department of Energy has promised that the LCP will be updated from time to time to be aligned with the maturing petroleum sector and with evolving national development strategies and goals.
At this time, the current policy framework is limited in scope to the upstream petroleum sector and does not as yet address directly policy areas such as mid and downstream petroleum sector opportunities, other policy issues related to the upstream petroleum sector, such as health, safety, security, environment, community impacts, tax and fiscal matters.
Based on the current policy, If oil and gas operators spend money to develop local expertise and support local businesses, it allows them to be compensated for such expenditure under cost recovery. However, the LCP yet allows the operators to priorities “qualified workers”, which discourage training locals. Guyana’s model Production Sharing Agreement (PSA), used to craft the legal agreements with various oil companies operating offshore Guyana, allows them to use revenue from their production to recover the money they invested. Whatever remains of this is the ‘profit oil’ Guyana will initially have to split with the oil company and its associates.
The objective of any Local Content Policy must be to transform the short and medium-term benefits of natural resource extraction into long-term local economic development outcomes. This could be done through capacity strengthening, institutional building and strong policies to promote domestic economic linkages, job creation and the participation of local Small and Medium Scale Enterprises (SMEs) in the value chain via the supply of goods and services to the sector.
It is well known that many resource-rich countries, particularly those in Africa, have not received the full benefits from the exploitation of their natural resources. In fact, some of them are worse off and this is as a result of a number of factors, including their own corruption and mismanagement. However, one key factor is that though these countries receive significant fiscal benefits from the export of their natural resources, the development linkages to other economic sectors remain very low in terms of domestic value added and employment creation.
Guyana must, therefore, place much focus on ensuring that the output of our extractive industries generates further benefits to the economy beyond the direct contribution to the Gross Domestic Product (GDP), through its linkage to other domestic production sectors.
That aside, the LCP is only aspirational if it is not backed by for local content legislation, which was never brought to the National Assembly. Guyana has to depend on the beneficence of the operators. It is hoped that once the elections are come and gone, the country would return to normalcy as soon as possible. The government that is elected in a free, fair and transparent process must be allowed to govern. It must also utilise a bipartisan approach as it relates to the management of the oil sector, more so how the funds are being dispersed.
The new government must also make it a matter of priority to ensure that a Petroleum Commission in place to ensure transparency and accountability in the sector. As it stands, in the absence of a Petroleum Commission, the Department of Energy has been carrying out most of the functions that would be expected of such a commission. The difference, however, is that the Department reports directly to the President.
Political leaders, the business community, civil society and citizens themselves should work in harmony to ensure that all this talk about oil and the huge potential it has for our development, could really translate into actually improving the quality of life for everyone here.