Oil & gas contractors now legally required to pay locals within 45 days

– as Local Content Master Plans approved for major industry players

In light of delayed payments to locals servicing the oil and gas industry, major operators will now be legally required to make payments to Guyanese suppliers within 30 to 45 days.

There have been numerous complaints of prolonged delays, as much as 90 days, for the payment of goods supplied or services rendered to major players in the oil and gas sector – an issue which has been engaging the Government’s attention.
As a result, the Natural Resources Ministry, through the Local Content Secretariat (LCS), had informed companies operating in the petroleum sector that their five-year Local Content Master Plans, which have to be submitted by year end for approval, must stipulate a 45-day payment period upon the correct receipt of an invoice to allow Guyanese companies timely and appropriate access to contract and payment terms that facilitate competitive funding and expansion.
To this end, the Natural Resources Ministry on Wednesday approved the Local Content Master Plans of several tier-one contractors, including SBM Offshore and Halliburton among others, who have complied with this new condition.
According to the Ministry, this amendment to the five-year Local Content Mater Plan is enforceable by law and will now see contractors and sub-contractors operating in the nation’s oil and gas sector issuing payment to Guyanese suppliers within 30 to 45 days following the receipt of a correct invoice.
Natural Resources Minister Vickram Bharrat, at the signing, underscored the importance of contractors and sub-contractors implementing this amendment. He reminded that the move promoted local suppliers’ competitive financing and growth through appropriate contract and payment terms, and is in keeping with Guyana’s Local Content Act.
Halliburton’s Country Lead, Vahman Jurai said during the signing ceremony that with the approval of the company’s five-year Local Content Plan, it is cognisant of one of Halliburton’s guiding principles of “Global Citizenship”.
“Halliburton is eager to work closely with our local vendors, sharing our knowledge when needed. We hope to significantly contribute to the development of Guyana’s talent in the oil and gas sector, whether through the university programmes we support or through hands-on experience working with us,” Jurai related.
Meanwhile, SBM Offshore General Manager Martin Cheong also expressed the company’s excitement about the approval of its Master Plan, which was submitted under local affiliate, Guyana Deepwater Operations (GDO) Inc.
Cheong noted that the company has been engaging more local suppliers for the provision of goods and services, hiring an increasing number of Guyanese, and expanding its training and capacity- building programmes as its operations increase in the country.
In a subsequent statement, SBM Offshore said it was further committed to continuing to maximise local content and the Guyanese workforce development, building on efforts to date from its growing number of projects in Guyana.
The Local Content Master Plans outline the commitment of contractors, sub-contractors and licensees to prioritise Guyanese nationals for employment; have policies aimed at non-discrimination and equal treatment of Guyanese nationals; implement training and other programmes to build the capacity of both their employees and the larger Guyanese workforce; coordinate with industrial and technical education training institutions in Guyana to provide sponsorships and/or internship opportunities; incorporate the requirements of the Act and the Procurement and Bid Evaluation Guideline issued by the Secretariat into their procurement strategy; outline the criteria for the supply of goods and provision of services relating to their operations; plan capacity-building activities for Guyanese nationals and Guyanese companies that supply goods and services to the industry, such as feedback sessions, supplier forums, etc, and project anticipated expenditure on local content values.
The Local Content Secretariat’s efforts to crack down on the issue of delayed payments to Guyanese companies come on the heels of complaints from the business community.
One Private Sector organisation, the Georgetown Chamber of Commerce and Industry (GCCI) has been at the forefront of raising this and other misdemeanours by operators in the oil and gas sector, with its President, Timothy Tucker previously explaining that this delay in payment was causing local companies to lose profits.
The GCCI on Thursday welcomed the inclusion of the 45-day payment period in the Local Content Master Plan by Tier One (1) contractors. The Chamber also lauded the Guyana Government for creating the obligation and enforcement mechanism of the payment timeline.
“The Chamber has been of the firm view that, to fully realise the benefits of the Local Content legislation, suppliers to the industry must be paid within a timely fashion, such as the identified 45-day period. It is, however, unfortunate that the Tier 1 contractors could not independently make timely payments, without having to be regulated into such by the Government of Guyana,” the Private Sector body stated.
The GCCI went on to call upon Tier 1 contractors to play their part in the development of local content and to operate both within the spirit and intent of the legislation.
The Government passed the Local Content Act in December 2021, and has noted that it would be continuously reviewed and updated over time in order to close loopholes that are being exploited by operators in the oil and gas sector.
This is significant especially since the passage of the Local Content laws, there have been numerous complaints about foreign companies engaged in acts such as contract bundling and using measures such as “fronting” to bypass requirements needed to qualify as a local company to tap into benefits tailored for locals.
Contract bundling, the practice of companies tendering for contracts in a way that excludes small and medium-sized companies, has been a topical issue for some time.
The Local Content Secretariat has already warned that it was cracking down on companies who still engage in contract bundling and this includes denying them the compliance certificate they need to avoid a $50 million fine.
Companies failing to reach minimum Local Content requirements in the oil sector are liable to a $50 million fine.
Both President Dr Irfaan Ali and Vice President Bharrat Jagdeo have previously said that Government has to continuously review the Local Content legislation to address the loopholes that foreign companies use to manipulate the systems in place to ensure that Guyanese benefit from the oil and gas sector. This includes manipulating their junior Guyanese staff to fill up the legally-mandated quota for senior management staff to qualify as a local company, all while the junior staff continue to collect their original small salaries.