Dear Editor,
Please allow me space in your newspaper to dispel any notion that Guyanese businesses would not have the capacity to meet the demands of the Oil industry’s Off-Field and ancillary services [OFS] demands.
It has been recently bandied about in media circles, that foreign businesses must be allowed to tender for, or take the lead in, the related business of the oil and gas sector because (or where) local industries have neither the human or financial resources, nor the experience to handle such business.
Such a notion defies the very raison d’être of a Local Content Policy.
When developing countries suddenly discover that they possess vast natural resources, of course their industries would not have the resources or experience to handle such business. Of course, they would otherwise be hopelessly vulnerable to the multinational suppliers of such services.
The whole idea of a Local Content Policy would be to create a framework whereby the local industries could quickly add such capacity as against being smashed by the multinational competition. The way the under-capacitated local company could do so under a proper LCP framework, is where the LCP makes it obligatory for the big companies, that possess such capacity, to form suitable alliances with the indigenous companies in order to get a share of the business.
For example, if an oil company must buy insurance from an indigenous company, then the local insurance provider could now approach the international reinsurance market to increase its underwriting capacity by multiples of thousands, in order to provide the business. The international reinsurance market would happily make sure that the local provider possesses the skills, and engages in the correct practices in order to ensure the success of the partnership. Oil industry insurance premiums are in the tens of millions of United States dollars.
A look at the manufacturing, logistics, supply chain and project management sectors would reveal the same circumstances. Global companies are always very happy to partner with local companies to get a piece of the billion-dollar (US) business available, well-knowing that, as applies elsewhere, they must do so in order to participate.
In other words, the international companies recognise that due to Local Content requirements, they must immediately make their own capacity available to local providers in order to get some of the business.
To craft a simple model; imagine that a Guyanese-owned provider of safety equipment now has the opportunity to supply a half billion US dollars’ worth of safety equipment over the next few years to the oil industry. LCP policies stop the huge multinational supplier who has this capacity, from directly competing. The international company, desirous of getting in, responds by making an offer to the local company’s shareholders to buy up 40 percent of their shareholding at 100 times the book value of the shares. They do so, because to them, the shares are now worth it when they consider the fabulous business potential.
Instantly, the Guyanese shareholders of this local company have gained tremendous value for their shares. But there’s more. On top of buying the forty percent of the local company’s shares, the international company agrees to provide the skills, supply chain logistics and all their capacity to successfully perform the contract. The indigenous company gains even more value; and their local shareholders who own sixty percent gain tremendous wealth.
Now apply this to our indigenous companies: law and accounting firms, banks, insurance brokers, security firms, data and IT providers, media services, advertising companies, dry-dockers and wharfs, ship handlers, aviation services providers, food producers, and so on. These providers would, upon receipt of such business, now have to expand, to hire more employees and make jobs available to more locals under the LCP; and the value continues to add up.
You could imagine how a robust LCP in favour of indigenous businesses could add value to Guyanese.
But moreover, you could visualize the tremendous loss to Guyanese that could result in the absence of such a policy. Billions of US dollars in business are at stake here. It is crucial therefore that we get our LCP right and we must do everything within our powers to encourage, advise, and insist to, our policy-makers that Guyanese business must come an exclusive first in any LCP as regards OFS and ancillary services.
Luckily, what is envisioned has been achieved world over, so there’s no ‘reinventing of the wheel’ necessary for our policymakers. Developing countries that benefitted from new oil discoveries globally have been able to add tremendous value to their nationals by simply insisting in their LCP that the oil companies must use indigenous companies as the providers of all OFS and ancillary business.
Yours faithfully,
Keith Evelyn
Chartered Banker, Chartered
Insurer, MBA
