The 2016 Petroleum Agreement Compared – Tough Terms

Every Man, Woman and Child in Guyana Must Become Oil-Minded

Part 33  

Local Content

Article 18 which deals with local content has been subject to a number of modifications, the first of which recognises that the activities will be carried out not by the Contractor but by an Operator appointed by the three companies making up the Contractor. In respect of goods and services, the Article requires the Operator to give preference to Guyanese goods and materials of a quality and quantity, timely delivery and competitive prices. In respect of Guyanese Sub-Contractors, preference is to be given if they are commercially competitive and meet financial and technical requirements.

Article 18.2 requiring the Contractor to establish tender procedures remains unchanged for the acquisition of goods, materials and services which shall ensure that Guyanese suppliers and Sub-Contractors are given adequate opportunity to compete for the supply of goods and services. In this regard, there is a new 18.3 requiring the Contractor to train Guyanese suppliers and Sub­ contractors in the procedures for participating in tenders and competing for contracts to be offered in the Operations.

The old Article 18.3 required the Contractor, within 90 days of the end of the year, to provide the Minister with a report outlining its achievements in utilising Guyanese resources during that calendar year. That has now been replaced in 18.4 with a provision that requires the Contractor and the Minister (sic) to prepare a yearly plan for the utilisation of qualified Guyanese resources for the upcoming year.

Further, the sub-Article requires the Contractor and the Minister to meet and consider the effectiveness of the plan (which they have prepared!). Within thirty days of each half-year, the Contractor is required to provide a report to the Minister outlining its achievements in utilising qualified Guyanese resources during the previous half-year and to make appropriate adjustments to the yearly plan to better accomplish the local content goal.

Apart from the amateur drafting of this highly important Article, it seems that once again, Minister Trotman has gone outside of the legislation which requires proposals on local content to be part of the application for a prospecting and a production licence which are usually issued on condition that such objectives are achieved.

Employment and Training – and mendicancy!

Article 19 – Employment and Training which has been amended. In 19.2 of the 1999 Agreement, the Contractor was required to employ to the maximum extent possible, employ, and encourage Sub-Contractors to employ Guyanese citizens having appropriate qualifications and experience. The words “maximum extent possible” have, rather unfortunately, been deleted while instead of encourage, the Contractor is required to “contractually obligate” sub-Contractors to hire appropriately qualified Guyanese.

Article 19.3 of the 1999 Agreement required payments ranging from US$30,000 to US$45,000 during each of the two phases of the Initial, First and Second Renewals to be applied to designated purposes. That sum has now been increased to US$300,000 annually to be paid “directly into bank accounts held and controlled by the Government.”

The use to which this money can be put as set out in the Agreement are: (a) to provide Guyanese personnel nominated by the Government with on-the-job training in Contractor’s operations in Guyana and overseas and/or practical training at institutions abroad; (b) to send qualified Guyanese personnel selected by the Government on courses not exceeding one year at universities, colleges or other training institutions; (c) to send Guyanese personnel selected by the Government to conferences and seminars related to the petroleum industry; and (d) to purchase for the Government advanced technical books, professional publications, scientific instruments or other equipment required by the Government.

It seems rather embarrassing for a Minister of the Guyana Government to repeat in the 2016 Agreement the stipulation that the Contractor will provide funds to a sovereign Government to buy technical books for the Government! Clearly mendicancy is firmly planted in our emerging petroleum sector. It also seems a paltry sum to pay for courses in training at universities and colleges y and fees, on the job training abroad and to send officials to conferences and seminars.

A new Article 19.4 requires the Contractor and the Minister to provide, within sixty days of a new year, a yearly plan for the utilisation of qualified Guyanese personnel for the upcoming year. In what appears to be a cut and paste job, the Minister and the Contractor will meet and consider the effectiveness of their plan, while the Contractor is required to submit half-yearly reports on how their plans are working out.

(Free) Assets and Insurance 

Next for consideration is Article 20 – Rights to Assets and Insurance which earlier this week generated a statement by Trotman’s Ministry after the Kaieteur News ran a piece on the new Annexure 4 to the Agreement. Article 20.1 (b) provides that subject to a number of exceptions which the Ministry’s statement conveniently ignored, the Contractor will deliver to the Minister free of charge “installations, works, pipelines, pumps, casings, tubings, engines and other equipment, machinery or assets of a fixed or permanent nature constructed, used or employed by the Contractor or the Operator in the Contract Area”, and any fixed assets outside the Contract Area, and any movable assets of the Contractor or Operator used in connection with Petroleum Operations and located in Guyana, for which the costs have been fully depreciated.

In the case of assets which have not been fully depreciated, Government will pay for those assets at a price equivalent to their unrecovered cost, i.e., cost less any wear and tear allowances. The delivery and or sale referred to above does not include assets which the Contractor or Operator requires for other areas, rented or leased assets, assets owned by sub-Contractors, household goods and vehicles and equipment and other assets not owned by the Contractor or Operator.

It is not clear why Trotman is so excited by these provisions – they were in the Janet Jagan’s 1999 Agreement. If they are so good and beneficial, the proper thing to do would be to give some credit to the late President. If Trotman actually read both the 1999 and the 2016 Agreement, his pronouncements would make some sense. It is frightening that he may not have done so which would at least explain some of his more uninformed comments and statements.

To be continued