Local Content Law: Companies using junior staff to meet senior management quota – Jagdeo
…but junior staff salaries remain same despite ‘new’ job titles
Despite the Local Content Act, oil and gas companies continue to come up with new ways to bypass the law. According to Vice President Bharrat Jagdeo, companies have now taken to using their junior staff to fill up the legally-mandated quota for senior management staff, all while the junior staff continue to collect their original salary.
According to Jagdeo during the Guyana Manufacturing and Services Association (GMSA) Mid-Year Dinner, the fact that Guyana was able to get the Local Content Act passed very early into the development of the oil and gas sector is significant since many countries only pass their local content laws decades into the business. However, Jagdeo noted that even with the Act, there were companies still trying to dupe the authorities.
“There are many people who are trying to bypass the provisions of the legislation. It has been brought to my attention, for example, that a company that may have had maybe three foreign directors/managers in the old dispensation, now to get past the legislation since there is a 75 per cent management team (requirement),” Jagdeo said.
“To get past that position, they simply take junior staff and change their designations. So, the management team now becomes larger. So, they fulfil that requirement. But it’s just a designation for junior staff. When you look at their salary structure, their salaries have not changed.”
According to Jagdeo, the Government is keeping a close eye on this. He noted that other companies have also gone the route of giving a Guyanese company 50 per cent ownership, but also charge a large contract fee for management services.
Jagdeo noted that the Government’s experiences with managing local content in the oil sector, as well as Guyana’s affiliation with the World Trade Organisation (WTO) and Caribbean Community (Caricom), have dissuaded it from implementing similar policies in other productive sectors.
“So, the profit margin is smaller, to be distributed based on the shares structure. So that is why, to a large extent, if we start going to every sector, it’s not desirable. Because we’re also part of the WTO, Caricom,” the Vice President said.
“And if we start shutting down every sector to foreigners or imposing requirements for their investment in every other area, we can also have reciprocal behaviour for our investors abroad. Or alternately, they can put up trade barriers to prevent our products going into their market.”
According to the Local Content Act passed last year, oil and gas companies operating in Guyana, as well as their contractors and sub-contractors, must procure from Guyanese companies by the end of 2022, 90 per cent of office space rental and accommodation services; 90 per cent of janitorial, laundry and catering services; 95 per cent of pest control services; 100 per cent of local insurance services; 75 per cent of local supply of food; and 90 per cent of local accounting services. These are just some of the 40 different services outlined in the first schedule.
The Act also defines a local company as one incorporated under the Companies Act and beneficially owned by Guyanese nationals. Beneficial ownership is defined as owning 51 per cent of the company. Additionally, a local company is expected to have Guyanese in at least 75 per cent of executive and senior management positions and at least 90 per cent in non-managerial and other positions.
In a recent interview with Guyana Times, Natural Resources Minister Vickram Bharrat assured that the Government was committed to taking action against defaulters. He noted that as long as companies fail to satisfy all the criterion for their Local Content Certificates, these would continue to be denied to them.
“We have a Local Content legislation. And like all laws, you have to abide by the laws. And if companies are not acting in keeping with the laws, then obviously there will be consequences as we have seen the non-approval of a few companies because of the fact they did not reach the criteria set out in the legislation,” Bharrat posited.
“You know there are more than one criteria, one criteria speaks to 51 per cent ownership by Guyanese or a Guyanese company, there is another criteria that speaks 75 per cent managerial staff, there’s another criteria that speaks to 90 per cent of general staffing. So, companies need to satisfy all criteria, not only one criteria too, so once the Secretariat is not satisfied that companies are not acting in keeping with the legislation, obviously they will take action,” Bharrat further said.