Summary
Since the implementation of the Local Content Act, the local content spend in the procurement of goods and services, and employment have increased substantially relative to the revenue generated by the oil companies, namely, EEPGL, Hess and CNOOC, when compared to the previous years. As of 2022, according to the Local Content Secretariat, total local content spend amounted to US$700 million or G$147 billion and is projected to reach US$1 billion orG$210 billion annually. For the same period, EEPGL reported its local content spend amounted to US$400 million, representing 57% of the total spend exclusive of employment cost attributable to its Guyanese labour force. While these are commendable achievements, it remains unclear to what extent are Guyanese firms are losing contracts to foreign firms in which they have demonstrable capacity and capabilities. The recommendations put forward herein are intended to strengthen the Local Content Act aimed at maximizing the value of local content-spend. These proposals are based on the lessons learned from the experiences of local companies that are still facing a number of challenges. This author is of the strong view that strengthening the Local Content Legislation can result in the value of in-country spend on local content increasing significantly.
Background
The Government of Guyana (GoG) must be commended for the implementation of the Local Content Legislation (LCL) aimed at maximizing the in-country spend to Guyanese firms and workers from the oil and gas sector. Had it not been for the government’s stewardship in this regard, Guyanese firms and individuals would have struggled to enter into the industry. Widespread, and deepened inequality, and disproportionate distribution of wealth generated from the country’s oil and gas resources would have been the stark reality. Although the LCL has served to minimize the manifestation of such outcome, it is far from totally eradicating and/or preventing same from occurring.
Discussion and Analysis
Since the implementation of the Local Content Act, the local content spend in the procurement of goods and services, and employment have increased substantially relative to the revenue generated by the oil companies, namely, EEPGL, Hess and CNOOC, when compared to the previous years. As of 2022, according to the Local Content Secretariat, total local content spend amounted to US$700 million or G$147 billion and is projected to reach US$1 billion orG$210 billion annually. For the same period, EEPGL reported its local content spend amounted to US$400 million, representing 57% of the total spend exclusive of employment cost attributable to its Guyanese labour force. While these are commendable achievements, it remains unclear to what extent are Guyanese firms are losing contracts to foreign firms in which they have demonstrable capacity and capabilities.
Pursuant to the Local Content Act, EEPGL/ExxonMobil is required to provide feedback, presumably that would help unsuccessful bidders understand where they fell short for the provision of goods and services. The LCL mandates that a “fair and transparent” process ought to be undertaken in the procurement process for goods and services.
Additionally, section 13 of the Local Content Act speaks to Bid Evaluation wherein Section 13 (3) states that:
“A contractor, sub-contractor or Licensee shall award a contract on the basis of competitive bidding procurement procedure that has been initiated by a widely circulated public tender process.”
In order to give operational effect to the foregoing sub-section in the Act, the Local Content Secretariat developed a Bid Evaluation Guideline to be adopted by Contractors. As such, further reference is made to Sections 3.6 and 3.7 of the Guideline, respectively. Specifically, 3.7 of the Guideline which speaks to a “fair and transparent process”.
Having been involved in a competitive procurement process with EEPGL recently, this author is of the considered view that the procurement process of EEPGL is not fully transparent in the manner that the LCL contemplated.
Considering that the oil and gas upstream activities are financed from the operating cash flow generated from the sale of Guyana’s crude. It is reasonable to expect that the complete procurement process should be done in a fully transparent manner―particularly in the post contract award stage. In so doing, all of the bidders that participated should at minimum be furnished with the following information:
i) How many firms/suppliers participated in the final RFQ/RFP stage of the procurement process,
ii) The names of the firms/suppliers,
iii) State whether the firms participated in the RFQ/RFP stage of the process are 100% or 51% Guyanese owned firms,
iv) Which of the firm/supplier has been awarded the contract and whether the firm is a 100% or 51% Guyanese owned firm and/or whether the firm is a foreign entity; and
v) The quoted prices by all of the firms shortlisted, including the firm that was awarded the contract.
The above mirrors the national procurement procedure which is a publicly transparent process. This author is of the view that the aforementioned is in conformity with the spirit of the Local Content Act in the interest of a fair and transparent process which ought to be applied in such a manner that the suppliers who participated are privy to this type of information. The Local Content Secretariat should also be furnished with this information so that a fair determination can be ascertained by all parties involved in the process, as well as the regulator.
If, however, the Contractor, Sub-contractors or Licensees find it difficult, for whatever reason, to furnish suppliers with the aforementioned information, then such requirements should be provided to the Local Content Secretariat.
There are situations in which 100% small and medium sized Guyanese owned firms are losing contracts to the more well established larger local firms that have entered into Joint Ventures (JVs) with foreign firms. There is a particular example wherein a 100% small Guyanese firm lost a contract to a JV in which the foreign partner has the capability for the assignment and not the local partner. Whereas the small, 100% local firm that has the capability and capacity, was bypassed. In this example, the contention is that this is essentially an indigenous firm losing to a foreign entity.
Notwithstanding, it should be mentioned categorically that losing to another 100% or 51% Guyanese firm that possess the relevant capability would have been perfectly fine. But, not to a foreign entity that has a JV with a local firm just to cash in on contracts in the industry. This is unacceptable and contravenes the spirit of the Local Content Act.
To date, there are approximately 838 companies registered with the Local Content Secretariat that have obtained their local content certification. Of this amount, 752 or 90% are 100% Guyanese owned and the remaining 10% are JVs with the 51% Guyanese owned and 49% foreign ownership structure.
Given the above situation, it would be interesting to discern whether the 90% Guyanese firm that are 100% indigenous are the beneficiary of 90% of the local content spend, or it is the inverse. Presumably, based on engagement with other local firms and feedback provided at various consultation forums, it would appear that the inverse is more accurate–that is to say, the 10% local companies that are comprised of 49% foreign ownership are the beneficiaries of 90% of the local content spend. If this is proven to be true, then it is certainly not the desired outcome, especially if the 90% category that are 100% Guyanese owned do possess the capability and capacity.
The authorities are currently in the process of reviewing the Local Content Act. Accordingly, the following recommendations are presented for their consideration, viz-á-viz, amendments to the Act:
- Amendment to the Local Content Act mandating Contractors, Sub-contractors, or Licensee to provide suppliers at minimum, with the type of information as outlined in (i-v) above as part of a “fair and transparent” procurement process.
- Development of Local Content Regulations to aid in the administration of the Local Content Act.
- The regulations and the Act should be amended to include a prescriptive Bid Evaluation Guideline to be adopted, that includes, for example, primary consideration to be given to 100% Guyanese owned firms first, provided that they possess the capability and capacity, and if they do not have the required capability and capacity, only then Contractors, Sub-contractors or Licensees should consider JV firms comprising of foreign entities.
- Detailed procurement reports outlining how the award of contracts was arrived at, furnished to the Local Content Secretariat.
- Based on the aforementioned recommendations, if considered, the Local Content Secretariat should produce regular reports with analysis that demonstrates the percentage and/or value of contracts/local content spend that are awarded to 100% Guyanese owned firms relative to the others.
Concluding Remarks
The recommendations put forward herein are intended to strengthen the Local Content Act aimed at maximizing the value of local content-spend. These proposals are based on the lessons learned from the experiences of local companies that are still facing a number of challenges. This author is of the strong view that strengthening the Local Content Legislation can result in the value of in-country spend on local content increasing significantly.
About the Author
Joel Bhagwandin is a public policy/financial analyst―and an experienced financial professional with more than fifteen years’ experience in the financial sector, corporate finance, financial management, consulting, and academia. He is actively engaged in providing insights and analyses on a range of public policy, economic and finance issues in Guyana over the last six years. He has authored more than 300 articles covering a variety of thematic areas. Joel has also written extensively on the oil and gas sector. (Author’s professional profile on LinkedIn can be accessed here: [https://www.linkedin.com/in/joel-bhagwandin-57481470/.)](https://www.linkedin.com/in/joel-bhagwandin-57481470/.) “”)
