I have been following with fascination the development and debate over local content for Guyana’s nascent energy sector.
Having read the draft policy paper on local content recently published by the Ministry of Natural Resources, the Guyana Government should be proud there are well-qualified staff to prepare such a comprehensive document as part of what is an active and engaged response to the issues of how to incorporate this industry into an existing economy, with the goal of extracting the full benefits for the population.
Here are a few light observations for consideration:
The use of targets and measures to evaluate and regulate local content, be it employment levels or the supply chain, may be counterproductive.
The targets as set out in the draft paper point to 100 per cent local employment for many levels running up to ten years after a project has been approved. This may not be realistic as many of the skilled jobs in oil and gas require at least ten years’ experience. This is because of the need for high performance and safety standards for the industry.
Secondly, the requirement for 100 per cent of supplies and services in some categories for exploration and production may be hard to achieve given the highly specialised nature of the sector. The other hazard of mandating 100 per cent local suppliers is that it might result in limited competition and have the effect of driving up a project’s costs to the point where the Government Take is depleted or worse the operators begin to question its viability. A study of how this may play out would be useful, which leads me to another point.
The availability of skills: In an economy such as Brazil, there is a large pool of skilled workers who can be attracted to the energy sector. Guyana’s small population and the exodus of skilled labour since the 1960s has created a dearth of engineers, managers and other higher-level staff to the point where, according to some companies, they are unable to find the manpower to develop their own businesses fully. The danger is that there will be a widespread migration of workers into the sector at the expense of manufacturing or other industries.
Anecdotally this is said to be happening already even as some companies are diverting capital away from their core activities and into oil and gas. The irony would be that in trying to gain as many benefits from oil and gas, other sectors might be stunted due to a lack of human, capital and entrepreneurial resources. This would work against the goal of building a diversified economy resilient to the notorious fluctuations and time limits of oil. One way to counter that would be to require the same employment targets for other sectors such as mining, construction and manufacturing, as was recommended by the Advisory Panel on Local Content.
As such, I would suggest as a first step there be a comprehensive survey to quantify the supply of skills that might be applicable to the new sector, combined with evaluating what might be the projected long-term demand by operators and contractors. This would also be highly instructive and helpful for training purposes as part of capacity-building.
Mandating and legislating for local content would likely end up creating increased costs both for Government in terms of regulatory agencies, and for operators and contractors looking to comply. Working out how these are balanced by the benefits of such a mandatory approach, and how it might affect the growth of the oil sector as well as the long-term shape and vision for Guyana’s economy, is an important debate.