Today’s column returns to the issue of Local Content Policy (LCP) which appears either to have been drowned out by the excitement of First Oil or in which interest seems to have ebbed – a pattern since the Local Content was first raised in the aftermath of the disclosure of the signing of the 2016 Petroleum Agreement. As Column 79 reported the first Draft Local Content Policy Framework was dated April 2017, the second May 2018 and the third May 2019. Perhaps we are heading for another May, maybe.
In the scheme of things, Trotman’s successor has been no more diligent in pursuing a Local Content Policy than Trotman and in fact, all of Bynoe’s high profile contractors have been non-locals: Mr. Matthew Wilks, Advisor on Oil and Gas; Dr. Michael Warner, Advisor on Local Content and Ms. Virginia Markouizou, described as a Crude Marketing Specialist, with little evidence that any of the three was appointed through the transparent mode of procurement. It is almost forgotten that there are mandatory local content requirements in the Petroleum Exploration and Production Act which Trotman and Bynoe have completely disregarded to the detriment of Guyana and Guyanese.
The WTO scare
Within the past couple days I attended a meeting of private sector players trying to galvanise interest in a Local Content Policy. I was surprised at the strength of feeling that Guyana needs to have a well-articulated, pro-Guyanese, prescriptive Local Content Policy that is enshrined in the laws. I pointed out at the meeting that a country with strong LCP is Kazakhstan and was again surprised that one of the other attendees readily circulated an e-book written by two academics from Kazakhstan and two from Reading University, my most recent alma mater. The book is called Local Content Policies in Resource-Rich Countries and would make a great gift to our policy-makers.
One common criticism of LCP’s is that it violates WTO Rules. Well, here is what the writers have to say in their book.
Under WTO rules many forms of LC are prohibited – they are perceived as protectionist and trade-distorting measures. Nevertheless, there are multiple examples of violation of WTO rules in the form of WTO members pursuing LC policy. At the same time no country-to-country level case has been pursued under WTO regulations in the O&G sector. There is a clear weakness in the WTO’s dispute-settlement system but, more importantly, interpretations of LC requirements vary making it costly to pursue disputes and damaging for the relations between countries.
Learn from Brazil and Trinidad and Tobago
Evidence abounds that not only resource-rich, developing countries have local content policies that are underpinned by law. In its publication Local Content Policies in the Oil and Gas Sector, the World Bank notes that “In Brazil and Norway, NOCs have been instrumental in developing and sustaining LC. In Trinidad and Tobago, LC is defined as the maximisation of the level of usage of local goods and services, people, businesses and financing.” While it may be going too far to describe Trinidad and Tobago as being extreme in terms of LCP, it has certainly not been bashful in promoting and protecting its national interest. Its Ministry of Energy and Energy Industries equated “Local content and participation” with “local value added” in terms of ownership, control and financing by the citizens of Trinidad and Tobago.
The failure to embrace local content by the Granger Administration has serious legal, economic and social implications: it constitutes a dereliction of its duty to place the interest of Guyanese foremost in its development agenda consistent with Article 15 of the Constitution of Guyana. But its inability to recognise that by placing LC in a wider developmental agenda, a government can also contribute to generating competitive conditions that facilitate innovation and enhanced resource recovery. In so doing, a sound LCP contains within itself an eventual exit from LC requirements, as domestic supply and technological solutions attain international competitiveness. It need not be permanent.
Conclusion
Examples of workable LCP’s abound across continents and can be found in Asia, Australia, Europe, Africa and in North and South America. Angola, Ghana, Nigeria, Indonesia, Malaysia all offer great examples from which Guyana can develop its own unique LCP. We can learn from Angola, a WTO member, which promotes and enforces LCP via three levels:
Certain categories of procurement expenditure are reserved for Angolan companies, including logistics, catering, pressure tests for storage tanks and pipelines. And here is where I think we ought to be firm: For purposes of Oil and Gas, a Guyanese company should be defined as one in which resident Guyanese own 66⅔ % of the equity shares and the range of services expanded significantly;
Spending categories that fall under a “semi-competitive regime,” where bidding by foreign suppliers and service providers is predicated on these companies first forming joint ventures with Angolan companies (expenditure categories under this regime include geophysical sciences, drilling controls and fluid analysis, and the operations and maintenance of production facilities; and
A “competitive regime,” which places all other categories of expenditure into international competitive tender, yet provides for “Angolan State companies and/or private companies the right of first refusal, provided that the value of the relevant bid is no more than 10 percent higher than those of other companies.”
Quite what Dr. Bynoe and the Granger Administration find so difficult to understand about the virtues and value of LCP is hard to imagine. They gave away the lion’s share of billions of dollars’ worth of our non-renewable resources. You would think that out of regret, they would want to ensure that Guyanese share handsomely in the balance. Even that they refuse to do.
