Govt. must clarify the concept of a local company-World Bank …Warns that economic benefits can differ based on ownership

Jun 16, 2018 News

By Kiana Wilburg
As Guyana continues efforts towards strengthening its Local Content Policy, there are several concepts it must ensure are clarified. According to the World Bank, one of these notions involves clearly defining what a “local” company is.
The global organization stated that the company from which an input is purchased may be locally based and owned. It can also be locally based but foreign owned (in total or in part). There is also an avenue for it to be locally owned but located abroad.
The World Bank believes that in any attempt to have a Local Content Policy, these distinctions are important since direct benefits to the national economy can differ depending on the ownership of the “local” company.
The World Bank said that foreign investors may be less interested in investing in companies where there is majority local ownership, and may also be reluctant to transfer proprietary technology and other parts of their business if they do not have control (in this way, domestic ownership may even discourage investment).
In addition, the World Bank stated that any monitoring of local content will need to consider the nature of ownership. It said, “Where local content is defined as sales from domestically owned and located companies, it will be necessary to first establish whether the companies in question qualify as ‘local’ in terms of the policy directive.”
OTHER INTERPRETATIONS
According to the World Bank, local content can refer to jobs or value-added that is created anywhere in the domestic economy as a result of the actions of an oil and gas company, or it can more narrowly refer to jobs that are created in the neighbourhood of the oil production plant.
Although policies mainly refer to local content without specifying its location within the economy, the World Bank noted that it is common that the communities closest to—and possibly most affected by—oil or gas installations will also exert the most pressure for jobs.
The World Bank also stated that local content may even refer to the provision, by the oil company, of infrastructure (schools, medical facilities) that is not an input into its own production but intended for the benefit of the local population (either of the nation generally or the neighbourhood of the installations).
It explained that local content can be considered from different standpoints along the value chain of the oil and gas industry.
It said, too, that local content, both actual and potential, would vary over the lifecycle of the petroleum sector. In this regard, the World Bank articulated that an individual field would go through phases of exploration, construction, and production; because the inputs used at these various stages can be quite different, the extent and nature of local content can vary over time and across stages.
The World Bank said that policies designed to increase local content must take into account the sustainability of the sector. The organization said that where the hydrocarbon potential is unknown, the rationale for developing a local supply chain would be weak at best. It noted that if few fields are producing and the geological potential is unknown, local companies are unlikely to risk investing, since sale volumes may not be sustainable.
THE LONG TERM
Furthermore, the World Bank stated that Local Content Policies are concerned not only with an immediate increase in local content (for example, increasing the percentage of local employment in the petroleum sector) but with actions that will lead to its longer-term increase. It said that these may include or refer to the provision of training in appropriate skills to the local labour force.
The World Bank said that such a policy does not lead to an automatic increase in local content but, if carried out appropriately, can create and enhance local capabilities that can be transferred to other sectors.
It said that this includes the development of skills that are common to all sectors, as well as the creation and support of cluster developments with other industries that have natural synergy with the petroleum sector.