Latest update February 8th, 2025 6:23 PM
May 03, 2020 News
By Kiana Wilburg
Since 2016, Guyanese have been kicking and screaming for a proper Local Content Policy; the kind that ensures ExxonMobil, its joint venture partners, and subcontractors have little to no wiggle room for not using indigenous products, services and people for their projects here.
But the recent revelations of an international Energy Lawyer, Mr. J. Jay Park, make it clear that the year protests by Guyanese for an effective policy were unfortunately, misguided and perhaps, all for nothing.
Park was able to prove that even if the crème de la crème of the world’s experts was contracted to draft the best policy in the galaxy, the poor local content provisions of the Stabroek Block deal that were signed by Natural Resources Minister, Raphael Trotman, will never allow Guyanese to be in the front seat of its oil sector.
In his analysis of Guyana’s fiscal regime for the petroleum sector, Park who is one of the world’s leading energy attorneys spoke of the importance of capturing local content benefits.
During a webinar session, Park, who has over 35 years experience in the industry, said that the local economy should always obtain the maximum benefit from the exploitation of its oil resources and not just foreign suppliers and expatriates. “Unfortunately, many States’ petroleum regimes do a poor job at this,” he said.
To examine whether Guyana might have fallen into that category, Park examined the local content provisions of the Stabroek Block Production Sharing Agreement (PSA).
Article 18 of the PSA (page 46) states, “In the conduct of petroleum operations pursuant to this agreement, the contractor shall require than the Operator give preference to: (a) the purchase of Guyanese goods and materials, provided that such goods and materials are available on a timely basis of the quality and in the quantity required by the operator at a competitive price; and (b) the employment of Guyanese sub-contractors insofar as they are commercially competitive and satisfy the operator’s financial and technical requirements and meet the requirements of Article 18.1 (a)…”
Park who has practiced Energy Law for over thirty years, with a specific focus on creating optimum petroleum regimes for States, was quick to tell his online audience that he has a problem with the foregoing provision. The international lawyer said that the provision does not create any kind of preference for Guyana’s goods and services.
Expounding further, Park said that a local businessman can provide goods but the contractor, which is ExxonMobil, can simply say, “I can find it some other part of the world and get it at a lesser price.”
The lawyer continued, “And let’s say you do match or better all the prices in the entire solar system, the contractor can then say, ‘Sorry, I have found a better quality someplace else.’ Then you might say you can also find equal quality and sooner too. But even then, the contractor can say ‘Sorry, I need 10 times as much as what you have and I can get that at another source’.”
In other words, the Managing Partner of Petroleum Regimes Advisory and Park Energy Law said that Article 18 in the Stabroek Block deal is not a local preference clause. He said, “It is basically a clause that says ‘Yea, we will buy Guyanese goods that are competitive with everything else in the world and with every possible factor that can be used…”
The lawyer alluded to the fact that it would be virtually impossible for Guyanese businessmen to compete with the rest of the world for contracts in their own backyard. The criteria Guyanese have to fulfill put them at a clear disadvantage. It always will if those provisions remain unchanged.
Taking everything into consideration, Park said the Stabroek Block deal gets an F as it provides no environment to create a local preference at all.
THAT LOCAL CONTENT POLICY
In January 2020, the Energy Department had approved a policy for guidance on local content requirements. Park said that this is one of the first steps towards creating a better local content benefit regime in Guyana while adding that it sets the stage for a legal framework. He said that the intention is to get the policy into the legal regime in the future.
Based on the contents of the policy, the international lawyer said it is clear Guyana recognizes the weaknesses of the contractual provisions in place for local content. And if it is implemented, it could improve Guyana’s grade.
Of significance however is the fact that the local content policy that was approved, does not demand that Guyanese products, services and people be given first preference at all times. The policy is unable to do demand that Guyanese have the upper hand in the sector as it is required to be in harmony with the contract, and it is.
PAY THE PRICE
Park’s analysis and subsequent commentary that the Stabroek Block provisions on local content is essentially zero preference for Guyanese goods and services, also places into deeper perspective, the extent to which Guyana can or cannot be ambitious in improving its Local Content Policy.
Even if Guyana’s authorities put in place, local content legislation or regulations that dare to demand way more than the contract stipulates the contractor would be insulated from this, thanks to the Stabilization provision in the PSA. This clause explicitly states that ExxonMobil, its partners and subcontractors, shall be insulated from any new laws that would be implemented. And should the authorities seek to impose their will and affect ExxonMobil’s bottom line; the State is required to provide compensation.
TO BE CONTINUED…
Feb 08, 2025
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