The Guyana Government will soon revise the Local Content Act (LCA) with the aim of expanding the 40 carved-out areas that were set aside to benefit Guyanese companies as well as fixing all the loopholes that are being taken advantage of.
This was revealed by Vice President Bharrat Jagdeo during his recent weekly press engagement.
In December 2021, the National Assembly passed the Local Content Act which outlines 40 different service areas that oil and gas companies and their subcontractors must procure from Guyanese and Guyanese-owned companies.
However, Jagdeo noted that while there are some areas where locals could not meet the demand, there are other areas where they now have the capacity to do more.
“We’ve had mixed reviews. There are some areas where we raised the bar high and the locals have not met all of those bars because they couldn’t supply and we’ve had to give exemptions because they didn’t have the capacity. And there are other areas where can now expand… So, we have some new areas that we can expand into,” he pointed out.
Another focus of the review, according to the Vice President, will be fixing the loopholes.
“There are some loopholes that people have been capitalising on and some local companies have been acting as a front for some foreign companies and they have to beware too that we’re coming after these local companies through the tax system. So, if they’re using that to benefit unfairly by bringing in the foreign to just utilising them, we’re gonna be looking at a number of measures that will hopefully address these issues too. So, yes, we’re looking at [revising the Local Content Act]. It should happen soon,” Jagdeo posited.
United States oil giant ExxonMobil, which is producing oil offshore Guyana with its partners – Hess Corporation and CNOOC Limited, disclosed earlier this year that it spent some US$400 million in 2022, with more than 1500 local companies and over 5000 Guyanese employed under the company and its contractors.
However, Jagdeo is of the view that these numbers could go up even further.
“We believe, given what our plans are and the expansion of industry offshore, it will go up to probably $1 billion maybe by 2027 or so. That’s a large sum of money to be spent procuring goods and services from our people. So, we’re very pleased that the Act was passed. It was a commitment we made in Opposition as one of the ways that we can get more benefits outside of the revenue stream that had already been affected because of the lack of ringfencing and the low royalty rate, that we can get more from their spending in the country and to integrity more, the offshore operations… more to the local economy and so that is happening,” he asserted.
Back in August, the Director of the Local Content Secretariat, Dr Martin Pertab, had noted that the strengthening and revising of the Act is high on the agenda. In fact, he had disclosed that work had already started on the process of drafting the new legislation, and once completed, it would be released publicly for countrywide consultations and feedback from stakeholders before being finalised and taken to the National Assembly.
Meanwhile, to further bring local companies closer to contract opportunities within the oil and gas sector, the Local Content Secretariat is developing an application (app) to connect Guyanese with contractors and licensees.
According to Dr Pertab, information asymmetry is a recurring challenge that the Secretariat faces, where one party – such as oil and gas contractors, sub-contractors, and licensees – has more information and takes advantage of another party – like Guyanese companies – during transactions.
In addressing this issue, the Secretariat has pushed for a competitive bidding process to be undertaken within the oil and gas sector especially as it relates to the 40 carved-out service areas for Guyanese and Guyanese-owned companies.
Dr Pertab had also pointed out that there has been an increase in participation by Guyanese in opportunities within the petroleum sector. He added that there has also been an increase in joint ventures (JV) between local and foreign companies with many of these partnerships being formed outside of the 40 carved-out areas.
“Trajectory seems to suggest that we are aligning our focus to provide a more sophisticated line of services… This is the kind of direction we want to move in. We want to move outside of those basic services and see a more advanced line of services being offered by Guyanese,” the Secretariat Head posited.
The 40 carved out services for locals include 90 per cent of office space rental and accommodation services; 90 per cent janitorial services, laundry and catering services; 95 per cent pest control services; 100 per cent local insurance services; 75 per cent local supply of food; and 90 per cent local accounting services.
The Local Content Act further mandates penalties, such as fines ranging from $5 million to $50 million, for oil and gas companies and their sub-contractors who fail to meet the minimum targets of the legislation, as well as those who are in breach of the Act.
Dr Pertab, in response to complaints that some Guyanese companies are entering into sham partnerships with foreign companies to capitalise on the benefits earmarked for locals – a practice called ‘fronting’ or ‘rent-a-citizen’, had also indicated in August that an enforcement unit has been set up to go after those companies involved in these illegal acts. (G-8)
