Recently, ExxonMobil hosted a two-day public relations forum aimed at addressing procurement processes based on lessons learnt thus far in the supply chain. The forum featured the multinational oil company’s tier one contractors and several presentations. Despite this, local media operatives continue to be critical of ExxonMobil’s definition of local content in the absence of a local content policy; and, in fact, some of the attendees sought to charge at the company in regard to its plans or programmes to help local companies get more contracts with its partners and suppliers.
Now, this was covered widely in the press, so this article will not regurgitate the contents thereof. However, this article seeks to address the contentions put forward by some of the local business executives and owners, who need to understand and appreciate that it is not up to ExxonMobil. It is proven worldwide in other oil producing countries that if the local content policy is not enshrined within its legislative framework, then it would not work effectively. And this is a task and/or responsibility the Government needs to ensure is in place, and not just merely a policy promoting local content.
Having reviewed the draft local content policy document, it appears that it mirrors an academic paper – albeit inadequate – rather than a pragmatic policy paper. To this end, while the draft policy recognises, in generic terms, the objective of local content strategies, it does not speak to the specificities with respect to how it intends to execute local content activities and/or strategies. For example, it highlighted that there will be a regulatory mechanism, but it did not address the workings and functionalities of that mechanism. And it does not speak to a strategy of removing barriers (if any) for local firms’ participation, and what strategies will be undertaken for enhancing the contestability of local firms’ and Guyanese nationals’ participation, as against international firms and foreign nationals.
Moreover, it is noted also that the draft Petroleum Commission Bill merely speaks to the promotion of local content and local participation in petroleum activities, which is unarguably inadequate; unless there will be a separate legislation to address local content.
Examples in other countries
The objective of Malaysia’s LCPs are to: (1) provide affordable petroleum resources to the local market; (2) build the foundation for forward links; and (3) secure local involvement and control of both upstream and downstream segments (Nordas et.al, 2003).
A mix of regulations, incentives-based and capability-building programmes is used to achieve the abovementioned objectives. The main ‘vehicle’ for the Malaysian LCPs was through Petronas (Oil & Gas Company) inter alia – its participation in PSAs and its policies focusing on developing the local work force’s technical skills and efficiency of their supply industry. Under the PSA terms, contractors are required to:
* Minimise the employment of foreign workforce. To this end, the recruitment of foreign personnel requires the approval of Petronas.
* Train internal Malay personnel. This includes the provision of capability development programmes that enable Malay personnel to replace the expatriate workforce
* Commit a minimum monetary amount to be allocated to the training of Petronas personnel, the amount being contract specific
* Offer on-the-job training to personnel of the NOC upon the request of Petronas
Also, every PS contractor is subject to an annual research contribution equivalent to 0.5 percent of the sum of cost oil and contractor’s share of profit oil, and the research contribution is tax deductible.
Best practices in local content development
With the availability and accessibility of sufficient literature in regard to lessons learned in hindsight on poorly implemented and less effective LCPs in some African oil producing countries, such as Nigeria and Angola, for example, it is now imperative that local content strategies be adjusted to address important questions about definition and measurement of local content, and seeking balance between strong regulation and encouraging investment that secures the best possible outcome. It is the responsibility of host governments to link local content to governance, anti-corruption strategies, and substantive transparency by all parties (Ovadia, 2015).
Development strategies that rely solely on productive investment of petroleum revenues have failed Africa in every case; yet, local content offers new potential to make oil and gas work for African development in the 21st century. To this end, Ovadia (2015) argued that, with the right policies and involvement of all stakeholders, natural resources can be developmental.