Guyana’s new Local Content law aims to provide much-needed benefits for Guyanese professionals and companies operating in the nascent oil and gas sector. Still, the government is now forced to crack down on companies exploiting some loopholes in the law.
“There are several ways that we have identified now that they [foreign oil companies and subcontractors] are trying to beat the system,” Vice President Dr. Bharrat Jagdeo said during a press conference on Friday.
Lengthy payment periods, beyond what is deemed reasonable, are a major concern.
Oil companies have been accused of making payments some 90 days after the final provision of goods and services. This, essentially, requires local companies to fund the costs incurred when executing works- a challenge for new companies penetrating the nascent industry.
The Vice President is against this practice.
“They can’t wait 90 days to pay local companies, they have to pay earlier.
“I don’t care who defends that from Exxon(Mobil), we made that clear as a local position,” Jagdeo said.
The Vice President named ExxonMobil among those companies engaged in this seemingly exploitative practice, but the company believes it is not acting unfairly.
President of ExxonMobil Guyana Alistair Routledge said that the company’s standard payment period is about 60 days, assuring Guyanese that the oil company “monitors very closely” its payment timeliness.
Even so, the company head defended lengthy payment periods.
“What’s more important for a business, we find, is that they have the certainty of the payments so that they know the working capital that they need and they can work to that.
“The worst thing is to say that there is a payment timeline and in reality, there isn’t,” Routledge explained in a recent interview with the News Room.
He also said that ExxonMobil Guyana hopes local private sector players can get better credit facilities to sustain operations while they await payments.
Jagdeo does not agree with this and hinted that the government may outlaw such lengthy payment periods with future revisions to the Local Content law.
Meanwhile, another issue Jagdeo mentioned was the increasingly concerning practice of foreign companies renting citizens’ to gain local content certification. In doing so, the companies appear to satisfy Guyanese ownership and management criteria required by law.
At least one foreign company operating in Guyana, Ramps Logistics, has been denied a Local Content certificate on the basis of violating these and other requirements. The company has since resubmitted information and is hoping for a favourable outcome.
But the exploited loopholes attracting the government’s attention don’t stop there.
Contract bundling, the process of consolidating goods and services required into one, much larger contract as opposed to requesting those goods and services from various players under separate, smaller contracts, is another concern.
Local private players argue that bundling can lock out local participation in the oil and gas sector. Routledge also argued that this practice can prove useful.
Cognisant of these concerns, Jagdeo gave strong assurances that the government will “close those loopholes”. According to him, improving the law is a work in progress.
