…allows operators to reclaim all expenses as cost oil
The Department of Energy has released the Local Content Policy, but while it is full of expectations that oil and gas operators will spend money to develop local expertise and support local businesses, it also allows operators to be compensated for such expenditure under cost recovery.
This is one of several features of the policy, which says that a number of ministries, departments and organisations— including the Private Sector Commission (PSC) and the Georgetown, Berbice, Essequibo and West Demerara and American Chambers of Commerce—were consulted prior to the policy being published.
“Where an operator’s local content plan has been approved by the Minister, the operator’s cost for delivery of the activities and programmes in the plan shall be eligible for cost recovery to the extent consistent with applicable contractual and legal frameworks,” the policy reads.
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 Local Content Policy, however, states that it will be updated from time to time “to be aligned with a maturing petroleum sector and with evolving national development strategies and goals”. Moreover, it notes that it is meant to be a precursor for local content legislation, which can only be brought to the National Assembly after the March 2 polls since Parliament has been dissolved.
“At this time, the current policy framework is therefore limited in scope to the upstream petroleum sector and does not as yet address directly the following policy areas: 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. Other petroleum-related national issues such as national development and planning,” the policy states.
When it comes to the implementation of the plan, the policy makes it clear very early that the annual local content plans being submitted by the operator are the core instrument to be used for ensuring that operators comply with the policy.
“Operators’ local content plans provide a forward-looking, efficient, focused and flexible mechanism for Government and operators to identify, plan, implement and assure delivery of local content. The policy notes, however, that the sending out a tender aimed at including Guyanese will take into consideration whether Guyanese persons and suppliers will be able to deliver.”
A visible trend in the policy is that it seeks to temper expectations. It makes it clear that until Guyana can build enough capacity, a significant amount of the specialised skills and services, as well as materials, products and equipment are unlikely to be competitively sourced locally.
According to the policy, the operator is obligated to provide to the department a list of contracts it is expected to tender over the forthcoming half-year, as well as the dates when they will invite expressions of interest.
As part of its reporting, operators will also have to provide figures of how much money they spent in Guyana’s economy from expenditure on services as well as goods. Another feature of the policy is that the operator has to describe its plans for supporting the development of local suppliers.
“In association with each project and related work, activities described in the operator’s yearly local content plan, the operator shall describe in its plan, programmes of support and development to Guyanese suppliers for the forthcoming year and for 2 to 5 years out that involve the operator and its primary contractors and shall include milestones and anticipated outcomes.”
According to the policy, some of the areas operators shall consider include supporting Guyanese in accessing the procurement process and international partnerships, developing skills, quality standards and certification, as well as “access to finance to develop capacity for Guyanese suppliers”.
The report also sets out the chain by which the operator has to submit reports on its local content compliance. In the first instance, the operator has to submit a half-year local content report by August 15.
According to the report, the subject Minister for Petroleum then has to review the report. During the review, the Minister may invite the operator in to discuss aspects of the report or make adjustments going forward. The operator will also have to submit an end-of-year local content report by February 15, which will also be subject to review by the Minister.
The operator is also obligated to local content plans on dates specified in the report. For instance, the operator has to submit its proposed local content plan by November 1, after which the Minister has to issue an invitation within 20 days and meet with the operator. The operator then has to submit a final local content plan within 21 days after this meeting.
The report specifies that the Minister has to approve this local content plan. The minister has to send either a letter of approval or rejection within 14 days of receiving the final plan. In case the plan is rejected, the policy says, the Minister has to invite the operator to a meeting.