The Esso list and local content

As the government inches along with presenting the final draft of its local content policy (LCP)  for the oil and gas sector, it released from its major operator thus far, Esso Exploration and Production Guyana Limited (EEPGL) a list of 227 goods and services suppliers utilised this year.

Inevitably, there was consternation and snickering. This was no elevated recital of deep backward linkages to the industry but merely included every single local vendor – down to Bourda Market and pastry shops –  that not only EEPGL but its contractors here have used this year. This list may be satisfying to EEPGL and the government but it is starkly unimpressive as it relates to the expectations of the public considering that direct jobs in this sector will be few and far in between.

The government has an important task ahead in finalising its local content policy. It has been three years in the making featuring the usual “experts” and it is unclear why it has to go through so many torturous steps. Surely best practices in emerging oil and gas countries have already been devised and it is really only for these to be adapted to Guyana’s circumstances and consulted on with stakeholders.

While there will be lots of expectations for the LCP and its pursuit of backward and forward linkages, the government has to ensure that it isn’t pursuing a policy simply for the sake of a policy but integrating this with the country’s overall economic plan and determining realistically what can be delivered.

A local content policy separated from the development plan and goals of the country is likely to founder and create dislocations and bottlenecks. Questions will also arise as to how much of this can be made mandatory or legislated for considering the onerous stability clause which was encompassed in the 2016 Production Sharing Agreement between the Guyana Government and EEPGL.

The experiences of emerging oil and gas economies should be considered before any decision is made on the way forward.  A 2013 study by the World Bank of local content policies in the oil and gas sector recommends that governments wishing to introduce LCPs consider some of the following:

-Consistency of LCPs with other economic development policies. Tordo, Silvana, Michael Warner, Osmel E. Manzano, and Yahya Anouti made the point that regulatory interventions to boost local employment in oil and gas may require an improvement in the quality of education, an observation that would clearly be relevant to us;

-Promote competition and the emergence of an efficient domestic economy;

-Foster technology and spillover effects. The authors noted that in Brazil the regulator required oil and gas operators to invest at least 1 percent of their gross revenue in oil and gas related research and development. Half of this has to be carried out in local universities or research institutes;

-Support the development of adequate local skills;

-Avoid imposing high administrative and compliance costs.

While there continue to be expressions of concern that Guyana and Guyanese will not benefit sufficiently from the goods and services contracts distributed by EEPGL, there are growing numbers of ExxonMobil  contractors who are advertising for the provision of goods and services. While the purchase of these services from local vendors will not in itself lead to the creation of oil jobs or diversifying of the economy, it will improve bottom lines and in some cases result in a small number of additional jobs in the supply chain.

Who is trying to ensure that  businesses here which can use the leg up are being organised to maximally tap these openings? While local businesses may become aware of the openings, it is quite another to fulfil them.

For example, TechnipFMC which provides expertise in three distinct aspects of the oil and gas business: subsea, onshore/offshore and surface technologies says that for the Liza Phase 1 project it will be providing among other things 17 Enhanced Vertical Deepwater Trees.  It says in an ad that as part of its commitment to utilize resources and persons in countries in which it operates it was inviting expressions of interest (EoIs) for the supply of a range of services including Ground Transportation Services, certified cargo container units, climate controlled storage containers, office supplies, bottled water, real estate services, personal protective equipment and freight forwarding/customs brokerage among others.

The company made it clear  that the invitation is just for EoIs and other requirements have to be met before the Request for Proposals stage. It is the period between these two stages during which local suppliers are at risk of losing out.

A key aspect of local content is to ensure that as many dollars as possible from the pockets of EEPGL and its contractors are sunk in the local economy. Are the government, the Small Business Bureau, the Private Sector Commission and the business support organisations channelling their efforts in ensuring that all of this money is spent here? Both the government and the private sector should have collaborated on setting up a unit to peruse every single invitation like the one from TechnipFMC for the provision of goods and services and then ensure that relevant suppliers are mobilized and assisted in making submissions to the company. This is not being done in an organised manner though there is a fair amount of whining that Guyanese are not benefiting. As the LCP is awaited it is time that the government and other stakeholders work to maximise the amount of oil and gas dollars spent in the local economy.

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