Guyana needs clarity on its local content situation

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By Arthur Deakin is co-director of AMI's energy practice, where he oversees projects in solar, wind, biomass and hydrogen power, as well as energy storage, oil & gas and electric vehicles. Arthur has led close to 50 Latin American energy market studies since 2016 and has project experience in over 20 jurisdictions in the Americas. He has also written and published over 20 articles related to the energy sector.

By Arthur Deakin

On September 30, Guyana’s new minister of natural resources, Vickram Bharrat, met with the advisory panel on local content. The government’s goal is to maximize the participation of Guyanese citizens in the extraction of over eight billion barrels of oil. President Irfaan Ali is also looking to implement local content rules in the infrastructure and tourism sectors.

A few days after the September 30 meeting, ExxonMobil agreed to a U$9 billion investment for the development of the Payara oil field, the largest deal in Guyanese history. The Payara field is expected to produce 222,000 barrels of oil per day and will generate U$35 billion in government revenues. The deal also includes important environmental controls and a $400,000 annual audit budget that should ensure project transparency.

Following the approval of the Payara license, the attention naturally shifted to passing a local content law to guarantee Guyanese participation. Even without an established law, ExxonMobil has already done a commendable job. Since 2015, it has included over 2,000 Guyanese citizens in its onshore and offshore projects and has paid $300 million in local contracting works. Exxon, like other key players, is expected to increase its Guyanese workforce in the years to come.

However, it has not been an easy task. Despite local companies opening certain doors and mitigating the threats of bureaucracy, it is a complex mission to find the right local partners. Minimal precedence makes it hard for investors to gauge who has had proven success. It is even harder to find businesses that have not had any reputational mishaps. From a foreign investor’s perspective, a robust local content framework will help provide much-needed guidance for large players with limited local experience.

A constantly evolving local content rule will also allow for greater Guyanese participation as the industry develops. In Brazil, its original local content rules for its pre-salt oil production included disproportionate fines for non-compliance and bottlenecks that hurt the construction of FPSOs. If local content requirements are too onerous from the start, or not aligned with the local industry’s expertise, the development of projects will be delayed, and foreign investors may be hesitant to enter the country.

This is not to discourage active participation by local citizens, but rather, to protect Guyana from “biting more than it can chew.” Despite its eagerness, Guyana is still developing the capacity to handle the uptick in work. As it stands, Guyana lacks the volume to address one FSPO—not to mention the many more that are being developed. Guyana also lacks the tools to provide widespread training for its citizens.

To address this under capacity, the government should use some of its newfound wealth to provide financial and structural support for locals seeking to obtain the necessary skills to succeed. This could include the creation of an Oil and Gas Institute or improved university courses specifically focused on extractive industries.

An even more important factor is a necessary cultural shift among Guyanese businesses. In the Caribbean Oil and Gas Conference, Sudarshan Suhka, Director of Arrow Oilfield Services, mentioned that local businesses have to evolve from their “old ways and into the pace of the new sector.” This means a new business mentality and a keen acuteness in their day-to-day operations. It also means that they responsibly hire and train the right personnel to ensure they can provide adequate services to the oil and gas industry. If Guyanese businesses lack the predisposition to go above and beyond in their contracting jobs, they may be overlooked when it comes to hiring.

The creation of an expert panel to develop a local content law is a promising start for the government. It shows that they are interested in doing the necessary review before approving a vital law. But they should also try to extract some of the learnings from the previous administration, who published a local content policy. Building from that foundation will prevent the APNU/AFC’s work from being squandered. It will also encourage the approval of the law in a timely manner so that Guyanese citizens can start enjoying a booming energy sector.

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