Understanding Energy | Energy Dept. moving forward on local content

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AS first oil approaches, the Energy Department appears to be making progress on several key parts of a local content policy. The Department reportedly told the press that the draft version of the government’s Local Content Policy should be ready within a matter of weeks.
It’s also working to establish a Local Content Compliance Unit to evaluate the reports of local content compliance that come in from oil companies. Both these are important steps for responsibly managing the new oil industry while helping to ensure that Guyanese workers and businesses play a strong role in the emerging industry.

In general, a local content policy is a roadmap for foreign companies – setting expectations and requirements. It also defines what counts as local content and establishes standards for Guyanese ownership. A comprehensive policy should also include specifics about how local content should be measured and audited to allow the Compliance Unit to consistently enforce the policy.

Another major focus for Guyana will be capacity-building, which focuses on increasing the technical ability of local firms and workers to fill roles in the industry. It’s helpful to think of local content and capacity- building as two sides of the same coin. Capacity-building aims to develop the skills and abilities of local workers and businesses, which supports the use of local products and services.

If structured thoughtfully, local content rules can be a tool that achieves a number of economic ends including fostering local companies, incentivizing more local training and education, and distributing wealth. But it also must walk a fine line of not draining other sectors of the economy.

So far, the Energy Department has relied on advisors from Chatham House and the International Monetary Fund as well as outside consultants. Utilising international expertise is an important step but creating a good policy for local content is a complex task. Requirements have to be carefully balanced to both encourage development and make sure local benefits are captured.

Some countries have unintentionally handicapped their own industries with policies that went too far. Often times, requiring an extremely high percentage of local content can cause issues when companies can’t get the specialized services and materials they need in a local market. This creates a counter-productive scenario which prevents development.
In the case of Brazil, development was slowed by several years according to international experts. That happened in large part because the country did not have an established offshore oil industry or the specialized subcontractors and suppliers that are critical.

Because of strict local content policies, companies struggled to find local options for many products and technical experts and development suffered from frequent delays.
Brazil eventually loosened its requirements in 2018 after long wait times for supplies and vessels and a lack of local technical expertise slowed development. But now, international analysts at Wood Mackenzie forecast that production will increase drastically from the 3.7 million barrels per day to 5 million barrels per day over the next few years.

Guyana is making good progress so far even in the absence of a local content policy. According to Energy Department head, Dr. Mark Bynoe, around 50 per cent of the industry workforce is already Guyanese—more than 1100 in total. Bynoe also revealed recently that more than $119 million has been spent locally by Exxon and its contractors, mostly on Guyanese suppliers and services.

Nonetheless, a clear, reasonable and enforceable policy that balances local content and development is a step in the right direction.