The Economy: An Overview of Guyana’s Draft Local Content Policy for the Petroleum Sector

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Introduction

The most important objective of having a Local Content Policy (LCP) in place, is to develop and support local manufacturing and the provision of service through forward, backward and sideways linkages along the value chain (Ovadia, 2015). In order for the LCP to work effectively, it has to be designed to encourage and/or require both exploration and production firms to utilize local companies for the procurement of goods and services and multinational oil service companies to the domicile economic activities. Central to LCP is also the development of physical and human capital as it is stressed that it does not trade but the accumulation of physical and human capital that is fundamental for economic growth (Ovadia, 2015).

Earlier this year, April 2017, to be specific and in recognition of the aforementioned, the Ministry of Natural Resources developed a draft Local Content Policy for Guyana’s emerging oil & gas sector. The document has since been made publicly available for review and/or critiqued by a wide cross-section of stakeholders including the Private Sector bodies. However, to date there were no amendments to the policy paper nor is there any indication that it has been or will be finalized anytime soon.

Overview of Guyana’s LCP – Policy outline

The draft LCP outlined under its policy statement that; (1) Guyanese will be given preference where capability exists; (2) Developing the competencies of Guyanese where the demand supports the required investment; (3) Partnering international participants with Guyanese, to enable technology and knowledge transfer and access to investment opportunities for Guyanese; (4) Facilitating the entry into Guyana of international service providers and experts, to allow for ease of knowledge and technology transfer; (5) Extend Guyanese participation where it supports national development and/or enables global competitiveness; (6) Use the petroleum sector’s demand to build strategic assets, skills, training institutions, and businesses that support the sector and can be leveraged for lateral benefits to other sectors; (7) Develop and implement appropriate regulations to ensure clarity, transparency, accountability and consistency in the application of the policy.

Implementation Strategy

The implementation strategy requires for there to be procurement strategies by operators and their international contractors, which will be characterized by local capacity development and local content strategies and plans for all major programs of work at all stages of the petroleum life cycle, inclusive of; (1) Procurement strategies which will support this national policy and strategy; (2) Capacity development programs for local employees and contractors;

(3) Support for National trading and research and development programs; (4) World class supplier development strategies by sector participants that seek to facilitate access by Guyanese by way of a series of mechanisms in place, designed to accommodate this, hopefully effectively.

In addition, the LCP has embodied within it, a regulatory framework that will be responsible for the monitoring and measuring tools of the implementation processes and strategies.

It is worthwhile to mention that, according to the contract between the Government of Guyana and the major oil companies, provision was made therein for the funding of some US$600,000 annually, for local content activities. This must, therefore, be acknowledged and commended on the part of the negotiating team for the GoG.

Benchmark analysis of LCPs in other parts of the world

LCP in Angola: Objectives, Rationale and Instruments.

Strategy

Overarching Objectives The economic and social development and fair distribution of well-being and quality of life in a market economy can never be complete until that development is carried and led predominantly by Angolan citizens’ families and public-private institutions, either in terms of economic initiatives or the ownership of the right to produce goods.
Therefore,  one of the pillars of development shall be based on the national free private initiative of Angolan citizens, families and institutions.
Rationale for State intervention For that purpose, it shall be the duty of the State, according to the principle of more favorable priority or preferential treatment.
Local content policies and objectives Contribute toward reducing inequalities in competition with foreign investors and encouraging synergies between national and foreign private investors.
Instruments Create and offer the legal, material and institutional conditions

Source: Based on data from National Assembly 2003, cited by World Bank (2013)

Brazil: Policy Objectives

Over the next decade, Brazil is set to double its oil production, which requires massive investments across the oil and gas value chain. By 2020 the decade’s cumulative demand for oil & gas related goods and services in forecast to be around US$400 billion. The government aims to develop a competitive base for local suppliers, generate income, and job create opportunities. Further, the government expects the creation of over 2 million jobs in the oil and gas value chain (World Bank, 2013).

The LCPs policy tools are enabled by an integrated set of tools that includes regulations, fiscal incentives and support programs (World Bank, 2013).

In next week’s edition, this column shall extend on today’s article in which the LCPs of three other oil producing countries will be examined, namely, Trinidad & Tobago, Malasia and Kazakhstan. In that feature, the author will seek to broaden the analysis on the regulatory frameworks and conclude with recommendations for Guyana’s draft Local Content Policy, for possible improvement. Albeit, in its current state, it is suffice for now, but strengthening of the policy shall be deemed necessary beyond 2020.

*The author of this column is the holder of a Master of Science Degree from a UK university in Business Management, with specialism in Global Finance and Financial Markets.

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