Aug 08, 2022 News
Local Content woes…
By Renay Sambach
Kaieteur News – As local businesses struggle to benefit from the oil and gas sector, despite the Local Content legislation being in effect, the Guyana’s Local Content Secretariat is seeking to improve its auditing and investigative capabilities, to monitor oil companies’ compliance with the law.
This is according to the Director of the Local Content Secretariat, Martin Pertab. In December 2021, Guyana passed its local content legislation, which caters to locals getting first preference in the country’s oil and gas sector. The Local Content law is intended to regulate the way companies operate in Guyana’s oil and gas sector; employ persons, buy services and the way that they procure goods.
Under the Act, the Local Content Secretariat (the Secretariat) has been established and functions as the focal point for the monitoring, evaluation, coordination, and reporting of Local Content in the petroleum operations of Guyana.
Therefore, the Secretariat key role is to monitor and evaluate companies’ performance with respect to the Guyanese utilization targets outlined in the Act.
In the Guyana Office for Investment (GO-Invest) 2022/2023 magazine titled, ‘Guyana-Investor Paradise’- Pertab gave an overview of the country’s local content legislation and also share the future direction of the Secretariat.
Pertab first shared that at the end of the year, the Secretariat will conduct an in-depth review of the companies’ achievement of the Local Content targets set out in the Act. He noted that the review will be done with the aim of amending the target percentage for future years.
Notably, he added that the review will not only inform the updating of the targets but will also identify additional areas for Guyanese participation based on the procurement activities of companies operating in the sector.
Pertab added that the Secretariat is also seeking to develop its investigative and auditing capabilities to adequately perform its functions regarding monitoring and ensuring compliance with the Act by oil companies. “This would serve to verify the information submitted to the Secretariat by companies operating in the sector,” Pertab noted.
Moreover, he noted that the Secretariat will continue to strive to play an even greater role in the development of local suppliers and ensuring that adequate investments are made by companies in this regard. Hence, he said the importance of local content development in driving structural change and developing a productive, diversified, and complex economy cannot be overemphasised.
A mere six months after the legislation was passed, local businesses have been catching hell in the oil and gas sector. Several members of Guyana’s private sector have voiced their concerns in relation to several local content issues. Just recently, President of the Georgetown Chamber of Commerce and Industry (GCCI), Timothy Tucker, reiterated the issue of the bundling of contracts by oil companies which has been stifling local businesses.
The Chamber in a statement said that it has taken note of recurrent contract bundling practices within Guyana’s petroleum sector and expressed its disapproval of this practice. According to the GCCI, contract bundling, which is the consolidation of the procurement of various goods and services under one contract, has seemingly become a practice of companies within the petroleum sector. Contracts are being solicited for Expression Of Interest (EOI) and Requests For Information (RFI) under one umbrella by various players in the industry.
The Chamber said too that the sum-effect of this practice is that Micro, Small And Medium-Sized Enterprises (MSMEs) are unable to compete in the space since the ‘bundling’ practice will set an artificial barrier to their participation. Apart from its obvious hindrance to MSMEs wishing to service the sector, the Chamber believes that contract bundling works against the spirit and intent of Guyana’s Local Content Act (2021) thereby, defeating the objectives of the Act as it relates to private sector development.
As such, the Chamber called on the Local Content Secretariat of the Ministry of Natural Resources to examine this practice and its harmful effects on the full utilization of the Local Content Act and, by extension, private sector development in Guyana.
Back in May, Minister of Natural Resources, Vickram Bharrat had put oil companies on notice that the Government of Guyana will not tolerate the shortchanging of citizens in their own country after it was brought to the attention of the administration complaints of unfair competition and other issues in the industry. Bharrat listed a number of issues, which he said are raised with him daily.
To this end, he explained that local businesses have complained that oil companies have been bundling services for catering, security, garbage collection and other technical offshore support systems as part of one contract. This, Bharrat said, has been posing significant challenge to locals, as they are burdened to offer a service they are not registered to. In fact, this often lends to the oil company failing to achieve the local content targets. To ensure that the breach of the fresh law is not the outcome, the Minister had urged that the practice be stopped.
Another bugbear is the payment delays from oil companies to local businesses.
Kaieteur News had reported that local businesses servicing the oil and gas sector continue to lament the lengthy time it takes the oil and gas companies to pay them for goods and services provided. The issue of late payments has been a sore one and is being blamed for the stifling local businesses.
Last month, the GCCI had interacted with Attorney General (AG) and Minister of Legal Affairs, Anil Nandlall, S.C, where they raised several issues of pertinent importance, including, regulating payment arrangements in the oil and gas sector.
On the same issue, Vice President, Bharrat Jagdeo, had stated that the legislation provides for the government to regulate the payment terms to local companies. He said, “…the issue of payment terms, we spoke of it in opposition, we raised it with the oil and gas companies and that has to change and the legislation provides for us to regulate this.”
The Vice President noted that a 90-days payment term to smalls firms in Guyana is not acceptable. “We are getting around to regulating that to ensure that Guyanese companies could have better payment terms,” Jagdeo noted.
During an interview with this publication, the Attorney General explained that local businesses have complained of a systemic delay in payments for good supplied and services rendered. “They complained that this delay is having severe impact on their limited capital and liquidity thereby hampering their ability to discharge their contractual obligations,” he added.
According to the Minister, the local businesses related to the government that in many instances, they are unable to secure sufficient credit facilities and as a result, they have to flunk the financial capital in some occurrences. It was noted that in some instances where they are required to pay VAT (Value Added Tax) in relation to monies that they have not yet received, in respect to transactions that they have not received payments for. As such, Nandlall noted that the businesses are requesting some form of regulations that would limit the timeframe for the credit arrangements. “One avenue that is being explored is the promulgation of regulation for the Local Content Act to address the issue,” the AG note.
He recalled that when the Local Content Act was being debated in the National Assembly, the government made a commitment that after it becomes functional – if any inadequacies were to arise or difficulties encountered, regulations would be made to address the issue.
Notably, the Attorney General stated that if the amendment to the local content legislation is not effective – the government will then explore other means.
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