Local Content in oil industry must be measured in value

There are several news reports that government is preparing the final draft of its local content policy (act or law). There are also several commentaries on the issue. KN has focused extensively on issues pertaining to the oil industry – especially on how the nation is being hoodwinked (cheated and robbed) in broad daylight on royalties, profit sharing, tax holidays, calculation of expenses, labour costs, local content, and more. Some politicians are in cahoots with the energy companies and they are making out like bandits; proxies or fronts are used. They are not sharing the loot with the local population. There is total content in receiving money from the energy companies but local population get minuscule benefits.
Trinidadian local content specialist Anthony Paul has done an exceptional job educating media personnel and the nation on meaning, calculation, and measurement of local content as well as about the oil industry. He points out the pitfalls that Trinidad finds itself and advises how to avoid them and how to maximise benefits for the country from the oil companies. Is government, or are politicians listening?


Some of us studied development economics and the curse of natural resources and are familiar with how multinationals strangle poor countries like Guyana and or buy politicians to exploit countries. But local industries (businesses) and civic groups are getting smarter distrusting politicians. They are demanding a greater share of businesses from foreign multinationals. This falls under a concept known as local content. Every nation has its own rules and requirements for local content use in their oil industry or extraction of any natural resources. For economists like me, Local Content simply means using local skills (manpower and technology) and resources (including food from Guyanese suppliers or companies) including transferring technology, training local workforce (in all skilled areas) in the industry, promoting energy related manufacturing, and encouraging ownership by Guyanese (individuals and companies). Local content also includes equity or part ownership of the Guyana part of the business like extracting the resources and selling them, banking, wiring money, paying labour, accounting, etc.
It is generally recommended that local content comprises over 50% input in the industry by way of staff and purchases from companies and all business related activities. But how should this amount (of over 50%) be measured? For example, if 100 workers are employed and 75% are Guyanese with 25% foreigners, does it meet the requirement of over 50%? One has to be careful in that 75% staff may mislead the public that local content is being fulfilled and the staff is overwhelmingly Guyanese. But the earnings of the 75% Guyanese staff may not even come close to half of what the 25% foreigners earn. For example, a Guyanese worker in the oil industry on the rig may earn $200 a day while the foreigner earns $750 to $1000. There is gross inequality in that the foreigner earns some five times the local employee. Similarly, in purchasing goods, there must be purchase of over fifty percent of the total value, not the total quantity or volume of the products.
Energy local content expert Anthony Paul of Trinidad advises that local content be measured in value of input (how much is spent in dollar amount on staff, business, etc.) or purchases by the oil companies from Guyanese companies rather than the quantity amount of purchase or number of staff employed. If for example, the energy company is spending US $100M on employees or on purchases, over $50M in value should be from Guyanese companies or earned by Guyanese.
Whatever is budgeted to be spent on the industry in the development and sale of oil, over 50% of the amount must be on or related to Guyanese; Guyanese must benefit from over $50 of the investment. In order to comply with this rule, if the government adopts it, the energy companies must specify how many staff will be employed and total costs and ditto for goods purchased. There is no justifiable reason why government would object to inclusion of over fifty percent of local content in the development of the energy sector and the oil industry. And there is no reason why government or politicians would oppose the idea that local content be measured in dollar amount (value) rather than in quantity or volume.
The nation should demand to know how many staff in Exxon and other foreign companies will be Guyanese including the dollar value associated with their employment and the total value of all purchases or business partnerships.
Without information, there is no way of knowing if local content rules are being honoured. In fact, we don’t even know how local content is defined in Guyana – what constitutes local content? For example, pipes are imported. Foreigners supplying the pipes can’t be local content. Should Guyanese companies be given the contract to import the pipes or should the oil companies purchase the pipes directly? The pipes have to be coated or painted. Shouldn’t Guyanese get the contract for that part of the work? We need open information on all aspects of the contract and in local content. Why aren’t local experts or Guyanese economists, or those of us in the know, consulted on the issue? We have so much to offer but are ignored or marginalised.
Mr. Paul advises that the public should have open access to information on the activities of the energy companies through the government and or other means. Information pertaining to all energy related matters must be available to the media and stored in the public library and university for public access. The government must be open in providing unlimited information to the public to monitor and hold accountable the energy related activities of the government and the energy companies.

Yours truly,
Dr. Vishnu Bisram