Kaieteur News – Oil companies when they enter into a country, know that they will have to make provisions for local content. They do not need to be reminded of any overarching philosophy of shared prosperity.
Exxon and its partners however got a shock when they came to Guyana. They found, no doubt to their liking, that they were able to ink a production sharing agreement (PSA) without any local content provisions in place. And in the five years between discovery and production, no local content policy or law was enacted. So Guyana has little leverage over the oil companies when it comes to imposing local content requirements.
The oil companies therefore got a free ticket. They did not have to bother about local content regulations. And the Trinidadians and Americans came and dominated the sector’s supply-chain.
The oil companies, however, know that wherever they go, that the local economy will expect to benefit from the sector and that demands will be made for greater benefits to the economy apart from the oil revenues.
It is for this reason that Jagdeo’s apologetic tone to the oil companies is so disconcerting. He has no reason to be placating them about them not being dis-incentivized by the local content policies of the government.
He told them, “The Local Content Policy is not created to dis-incentivise investment but it’s a promise that we made to our people about shared prosperity.”
If he had stopped his mollifying at that stage, it would not have been so embarrassing. But while he was sitting when he made these comment, it was as if he was kneeling. Kneeling before the oil companies!
This is what he went on to say, “We want to assure the oil companies, notwithstanding what I just said there, that we are not going to be populist. We are not going to make it so unrealistic – the PSA – that it becomes a disincentive for them to invest here when we believe the sector can produce healthy remuneration for the investors but yet contribute more to Guyanese and their development.”
What does populism have to do with local content? And why the overemphasis on local content policies not dis-incentivizing investors?
Exxon is the least concerned about local content policies. They can ignore it at their pleasure. The PSA, which they signed with the government, has a Stability Clause, which insulates Exxon from any materially adverse effects of any change in laws or regulations (and policies).
Jagdeo can deceive himself about shared prosperity. The oil companies are predators. They are not here to share prosperity. They are here to make money. So if our leaders lapsed when they failed to institute local content provisions in the Production Sharing Agreement, then the oil companies know that they have an escape valve to avoid meaningful participation of locals in the industry.
He knows very well that Exxon will come and listen to what he has to say but in the end, the company cannot be forced to do anything that it does not want to do. The APNU+AFC gave to them a contract, which protects them against any local content requirement that will affect them adversely.
And Jagdeo is proud to boast that his party took a decision not to renegotiate the contract. While accepting that the current arrangements are in favour of the oil companies, he said, quite amusingly, that shared prosperity would be realized through new PSAs.
The other oil companies are not going to sign any new PSA, which is markedly different from that enjoyed, by Exxon and its partners. That is what precedent means. Those persons who have already acquired the rights to our oil blocks are simply going to sell those rights to Exxon, which will not be bound by any new model PSA.
But what is most disconcerting is when Jagdeo, during the consultation, said, “We know we don’t have the capacity to build FPSOs…but…we have the capacity to supply taxi service and vehicle services and our people have enough money to build good quality homes to rent to oil companies and a number of these things. That’s where the companies will have to utilize local resources at least for us to get up to at least a tiny threshold of oil expenditure in these companies.”
Is that what we are good enough for – taxi services, motor vehicles repairs and rental of buildings? Is this Jagdeo’s idea of shared prosperity? If it is, then God help Guyana!
(The views expressed in this article are those of the author and do not necessarily reflect the opinions of this newspaper.)
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