Local content and development

Four years after oil was struck, in quantities that now qualify the find as one of the largest worldwide for the decade, and is being pumped into a Floating Production Storage and Offloading (FPSO) vessel, the PNC coalition finally presented a third, and what they said was the final, draft of a Local Content Policy (LCP). The question is whether the country is receiving the commensurate benefits from its resources that will be depleted within a few decades.
While there has been much-deserved attention focused on the revenues that will accrue to the country from the signing bonuses, the royalties and share of production from the International Oil Companies (IOCs) that were, and are being, hired as operators, the LCP is the second prong through which oil-producing countries can benefit from their resource. We can consider LCP as a coherent set of initiatives that promote inputs into the local economy from the O&G sector through the transfer of technology, the creation of local employment opportunities and increasing local ownership and control.
Basically, a country can push local content by ensuring that the oil companies and the ones supporting their operations are hiring local Guyanese labour and procuring local goods and services. It is as simple as that. But the problem with only having a draft LCP at this stage is akin to not even locking the stable as the horse is escaping since the enforcement legislation might be lacking. Take the commonsensical-sounding need to hire local labour: the riposte by the operators is that Guyanese are not “qualified” for the very technical and specialised tasks demanded.
At this point, while numbers of Guyanese hired are being bandied about, there has been no breakdown of what areas of competence or positions in those fields they are occupying. There have been anecdotal accusations that Guyanese are performing mostly basic unskilled tasks, and even these are not paid at the same rates as foreigners. So does the LCP draft require, for instance, that a certain percentage of Guyanese with the basic training in the particular field be hired and given the requisite training? It does not.
Another mechanism that was used in other countries to increase local content benefits was to require foreign companies that desire to bid for contracts in the supply chain of the oil and gas industry (goods and services) to become part of local corporate bodies that have a specified percentage of local ownership. This would have increased the participation of local businesses and allowed them to absorb best practices in procedures and operations that would gradually spread into the local corporate culture and increase the competitiveness of the country overall. However, this has been specifically prohibited in the last LCP draft on the grounds that it is open to corruption.
Properly designed LCPs have a menu of measures that can be used to incorporate local content, which include quotas on indigenisation, training programmes with local educational institutions, public education, incentives for small businesses, processing and production of derivative products etc. With our present legislation sorely lacking in these areas, we are left at the mercy of the subject minister to whom periodic LC reports are to be submitted from the operators hoping they will be beneficent. This is unlikely since they could easily source more qualified labour and required products from overseas. These reports are not required to be made public and are, therefore, susceptible to what is called “grand corruption”. There should be an independent body to certify LC compliance.
Another problem with the draft LCP is that it is not integrated into the strategic development plan for the country (the Green Development Strategy). Meaning that identified skills for wider development, say in building infrastructure, could be prioritised so that Guyana could benefit from the externalities of skills and technologies.
Lastly, the promised Local Content Compliance Unit to monitor the LCP and suggest modifications to the legislation over time is still not in place.