Local Content and CSR

UNDERSTANDING LOCAL CONTENT IN GUYANA AND WHY IT MAKES GOOD BUSINESS SENSE

Interview with Dominic Gaskin – Director of Business

Ministry of Business

 

  1. The principle of Local Content varies by degrees in various jurisdictions – for example in neighbouring Suriname and Trinidad and Tobago Local Content has been traditionally applied to multinationals in the Oil and Gas industry. Further afield by the Nigerian definition, Local Content policy is guiding other areas of business including expectations in the area of corporate social responsibility.
  • Please define for us the term Local Content as expressed in the various Local Content documents. Is it accurate to say that Local Content is specific to jobs and procurement or is there a broader application within the Guyana context?

 

We have gone past the two iterations of the Local Content framework. We have now progressed this to a policy document – LC3. This now has to go to Cabinet for approval. Important stakeholders in business such as the Georgetown Chamber of Industry and Commerce (GCIC) are commenting and providing input before the policy goes before Cabinet.

 

In terms of definition, Local Content is interpreted to mean, “The active participation and development of Guyanese labour and suppliers in the petroleum sector and the benefits that arise from expenditure in the sector on labour, goods and services for Guyanese industry, the economy and wider society.”

 

In terms of application, the Guyana Local Content Policy is specific to the Oil and Gas sector – and specifically downstream. At some point Local Content will address all extractive sectors but for now, the focus has to be on oil and gas and on optimizing value and non-discrimination of local citizens.

 

  1. The use of the word “pragmatic” appears quite a lot in the Local Content Policy V2 (LC2).
  • Can you help us to understand what that means to you as Director of Business and why is it important as a guiding principle?

Pragmatic in this sense means ‘fit-for-purpose’. While the word is mentioned multiple times in the earlier iterations of the policy framework, in this latest policy document it’s mentioned just three times. Of significance is the reference to Core Principles of collaboration and consultation. This requires the input of business, government and the ten regions. Certainly it must be attentive to the specific peculiarities of the jurisdiction – a significant world-class oil find and a very small economy. That reality also has to ensure we remain consistent to our obligations under existing trade agreements such as the Treaty of Chaguaramas, agreements with the WTO etc.

 

  1. The Review understands that Guyana’s Local Content Policy is in part shaped by the experience of other oil rich provinces – you make mention of this in the context section of the LC2 iteration?
  • Can you highlight some of the learnings from elsewhere that have shaped the country’s thinking and approach to local content? Who do you think has done this particularly well? Is there a role for the Ministry of Business in ensuring Guyana gets this right?

Our engagement of consultants and international experts has provided a number of lessons. The notion of success varies by jurisdictions. Without naming any country in particular, some policies have been too stringent and therefore failed to achieve the intended objectives. Other countries as in the example of Norway, have established sovereign wealth funds that deliver benefits more widely.

 

The Ministry of Business, in working collaboratively with the Ministry of Energy Resources and the Department of Energy along with consultants and experts – both Guyanese and international, has determined that a more evolutionary approach to Local Content delivery is critical to optimising oil and gas benefits for all Guyanese.

 

  1. The LC2 policy mentions Joint Ventures as a way of fostering local content. This has been particularly difficult to do in other countries and has sometimes led to benefits accruing to just a few business people.
  • Can you explain the way you see this mechanism enabling true local capability development and technology transfer?

If handled right, Joint Ventures certainly have benefits for us. While we believe that our local companies and persons should benefit from the income flows to be generated by the sector, many of them do not and may not be able to meet the requirements.

 

Our private sector is very much interested in JV’s and they see it as a means of building capacity, improving standards, strengthening management systems such as Health, Safety, Security and Environment (HSSE) and ultimately growth. Certainly JVs provide the means for acquiring technology and know-how.

 

The Centre for Business in Georgetown has been pivotal in getting people trained up, in networking companies and familiarising others with information and knowledge about the industry. This is important in preparing and positioning Guyanese ahead of First Oil.

 

JVs provide a good way for local companies to work and grow alongside others; and this also helps to retain value in country. However JV constructs are not mandatory for doing business. Having a JV in itself just to satisfy requirements will not benefit anyone.

 

  1. We refer to the policy framework statement, “We shall be pragmatic enough to recognise our limitations and those of our industry and only invest in those that are “viable and sustainable.” (Page 22) Specific to this statement and how it relates to the issues of supplier development which is listed as a priority area, can you respond to the following:-
  • What mechanism will be used to determine from among existing suppliers? For example, will some “winners” be a chosen few, or will they all be developed and then allowed to compete for work?

There’s a cost attached to supplier development. Not everyone who says I want to be a supplier can be one. The mechanisms for reporting will help to determine those who can and those who can’t make it.

 

The reporting mechanisms that are in the policy, identify two categories of suppliers for the operators – Category A being suppliers who meet the requirements or have demonstrated come capacity to deliver on requirements; and Category B being suppliers who cannot meet or have no capacity to meet requirements. . The burden- of-proof is on the operator to prove the incapacity or inability of the supplier to deliver under Category B reporting. Specific to Category A, the expectation is that operator must make provisions to prepare fair and adequate opportunity for such participation, giving Guyanese companies first consideration.

 

We must however be sensible in our expectations. This is a finite resource – current discoveries suggest perhaps 30 years or so. If the capacity is not there, can it be developed? Does it make sense to develop it for an industry with a limited shelf life? It might be more practical to develop capacity where that capacity or skills can be transferred to other sectors. This isn’t a renewable resource and therefore the wealth earned must be used to strengthen our other sectors. Investment in capacity building has to be carefully examined within the context of net benefits.

 

  1. There is mention of an implementation mechanism in the LC2.
  • Can you explain some more how this will be “performance managed” in the case of JV’s and more generally?
  • How will companies be held accountable for delivering in this agenda, who will monitor this and how will “sanctions’ work for those who are not “complying” with the “letter and spirit” of the policy?

There is neither explicit provision for Joint Ventures nor punitive measures for compliance within the policy at this time. Operators are required to submit an annual plan for Local Content delivery and to also submit half- yearly reports. Plans and reports must capture number of employees, number of contracts, details on such contracts etc. The output of those plans and reports will provide a continuous flow of information and data that will guide adjustments to the policy over the next year or two.

 

We have great expectations and we want to realise them, but there is a learning curve here. We are familiarising ourselves with a new industry and we have limited capacity. We believe that if operators do what they should do, we can then move to the stage of legislation.

 

  1. As mentioned in the policy, Guyana has a long history of mineral extraction. Oil is different but has some similar features to the bauxite industry; maybe less so to gold.
  • Why will the country succeed this time – has that history shaped the current thinking?

Not really. We are not drawing examples from any of the other extractive industries. Rather we are looking at the energy sector globally as our reference. From public discourse, there is a general reluctance to compare the benefits to be gained from Oil and Gas to benefits from gold or bauxite. Our lessons are being drawn from other jurisdictions and shaped largely by investor interests and local interests in transforming our country.

 

  1. What will make Guyana succeed when many others have had less than stellar achievements in managing this area of oil sector development?

 

I think there are 2 things. One is the relative size of our population to the scale of the discoveries. This makes us per capita, the largest producer in the world. It’s kind of difficult to mess that up. We don’t have a lot of people to address.

 

Secondly, so much is being done, discussed, developed and put into action even before the first drop of oil, that we are more prepared than many. We are benefiting tremendously from the experiences of others. While some bigger countries have still been unable to use oil and gas resources to improve the lives of all its citizens; Trinidad and Tobago for instance has used its oil and gas sector to improve per capita income and to become globally competitive.

 

  1. In terms of ease-of-doing-business in Guyana. The World Bank Report for 2019 places Guyana at 140 on a list of 190 countries and some reports describe the process as cumbersome and lengthy. Do you agree with this?

 

I have no grounds on which to disagree with the report but we have spent the last four years going through the indicators and know where the deficiencies lie and we know that these have to be addressed. This requires strong political will and I am encouraged by the fact that over the last year the Government has been placing emphasis on the ease of doing business – not just for foreign investors but to make the local private sector more competitive.

 

I believe that with the benefits of increased revenues we can fix bureaucracy. For example, we can reduce paper work and the inefficiencies and malpractice that come with this, through digitization and integrated network systems. Certainly by the year 2025 almost every Government agency will have digitized its processes and integrated its systems.

 

Other areas will also benefit – areas like finance. There are imperatives for local supplier development that will require access to capital to grow and to compete. This is so not just for big businesses but for the SMEs as well.

 

  1. Guyana has been described as entering into the Transformational Decade. How do you respond to this notion?

 

There is every expectation on the part of every government official and person. It is happening but I guess the question is how transformative? Transformation is one thing but development is another. What we want to see with the inflows is national development and economic growth in its truest sense along with increasingly higher levels of productivity.