By Dr Terrence R. Blackman
On December 16, 2021, the Guyanese National Assembly consider the proposed Local Content Laws to integrate Guyanese into the country’s emerging oil and gas industry. The goal of Guyana’s local content policy is to “maximize the level, quality, and benefits of participation in the petroleum sector value chain by Guyanese.” Vice president Jagdeo, in recent remarks, has said that the Local Content legislation will progressively integrate Guyanese workers and businesses into the oil and gas sector.
On Friday, November 19, 2021, the Guyana Business Journal and Caribbean Policy Consortium hosted a discussion of a new study, Strategic Considerations for Local Content Requirements in Guyana’s Oil Sector, by Dr Jerry Haar, Professor of International Business, Florida International University. Panelists included Dr Anthony Bryan of the University of the West Indies and the Caribbean Policy Consortium and Dr Daid Lewis of the Caribbean Policy Consortium, and myself.
Dr Haar lauded the government’s goal to maximize the quality and benefit of Guyanese participation in the petroleum sector’s value chain. He emphasized the potentially positive consequences of preferred access and opportunities for Guyanese. However, Dr Haar noted, with concern, the “extensive and rigid compendium of local content targets that are questionable in their derivation and exceedingly difficult to attain,” and he argues, “that these targets pose a strong disincentive for potential foreign investors.” December 04, 2021, Stabroek News Editorial observed that “a major contributor to what looks like current investor hesitancy is the uncertainty over impending local content legislation, its proposed schedules, and regulatory framework.”
The editorial further noted that “while the private sector is naturally pushing hard for local content, foreign investors still do not have a clear picture of how the reality of this will be on the ground. Passing this legislation will inevitably mean added costs for all companies. They will have to create departments to ensure that each project has locally sourced material and local workers. Some companies may simply see the local content schedules as too burdensome and unrealistic, so rather than risk breaking the laws of a foreign country will curtail or not initiate projects here. This investment hesitancy might explain why no large American firms are yet to show interest in any big infrastructure projects.” The Local Content Legislation is essential for Guyana, and Guyanese must get this right at its inception.
Permit me two examples: The Table below depicts proposed Local Content targets from the date of effectiveness of the Petroleum Agreement in the proposed Local Content Legislation for Upstream petroleum activities. Recall, Upstream is a term for the stages of the operation in the oil and gas industry that involve exploration and production.
Representing this data graphically, below, and plotting a trend line for the growth of Guyanese participation in the area of “Technical Core Staff” we observe that the proposed targets will require an increase in Guyanese participation in “Technical Core Staff” of approximately 5.5% per year over the next ten years. Is this a realistic target?
To better understand why this might be an unrealistic expectation, let’s examine a recent advertisement for an Upstream Data Scientist. Data scientists in the oil & gas industry combine domain expertise with interdisciplinary data science skills to bring insights to challenging energy decisions. Candidates work on challenging data science problems across oil & gas businesses, including exploration, production, refining, chemicals, and retail. Candidates are required to apply statistical analysis, pattern recognition, and machine learning – along with domain knowledge and subject-specific models – to solve science, engineering, and commercial problems and to contribute to all stages of data modeling and analytics projects, including problem formulation, solution development, and product deployment.
The expected level of proficiency is that of an experienced, mid-career data scientist with a proven track record of solving challenging problems in the field. A Ph.D. in statistics, computer science, science, or engineering with significant experience in data science, focused on problem-solving is required along with substantive expertise in Python, MATLAB, or R.
Can we find six Guyanese candidates with this technical background to fill this position today? A law mandating that oil & gas operators hire six Guyanese candidates yearly for this sector is counterproductive. As Dr Haar noted, any LCR model developed for Guyana has to be based upon a Guyanese reality.
A Guyanese reality also necessitates that the private sector, both local and foreign, and the public sector work closely together to assist local firms in meeting the technical requirements for oil services and equipment. And, importantly, this assessment and the projected numerical targets need to be done by an independent expert party. It is also vital that institutions like the University of Guyana play a crucial role in LCR framing conversations.
Guyana’s oil and gas development can create boundless opportunities when effectively implemented. Unlocking these opportunities is the clear intent of local content policy (LCP). The government of Guyana has produced a draft Local Content Policy document in which there are many positive features: preferred access and opportunities for Guyanese; the need for good governance for the LCP to succeed; the need for appropriate legislative support for successful policy implementation; and engagement of the Guyanese diaspora as a vitally important resource. However, as is evident from the example above, the proposed local content targets are questionable, and they are likely to put the LCL’s effectiveness at risk.
Considering targets related to Materials and Procurement, the proposed LCL expects operators in the Guyanese oil and gas sector to procure 100 percent of the steel pipes used in Guyana from Guyanese firms in ten years. Is this realistic? No. In an October 2021 letter to the Editor, Lynn Richards noted: Guyana does not have iron ore. Guyana does not have a steel plant, and there are no plans for steel production facilities to be built in Guyana. The absence of a steel production infrastructure means that a Guyanese steel company would have bought these steel plates from somewhere and then sold them to whichever contractor was building an FPSO, even in Singapore. This steel would not come from Guyana.
Thus, these targets are simply paper transactions involving a local company sending an invoice putting on its markup. Paper transactions involving local companies are unlikely to create jobs or build local capacity, which is the most beneficial aspect of local content. Precisely this type of arrangement creates an environment conducive to corruption. Therefore, these targets are unlikely to “maximize the level, quality, and benefits of participation in the petroleum sector value chain by Guyanese.”
The government of Guyana should relinquish the proposed percentage target levels in Local Content Bill 2021. Instead, in collaboration with the private sector (local and foreign) and civil society, the government should analyze the national economy and identify the specific education, training, and skill development needed for the oil and gas sector. This analysis should identify Guyana’s current capabilities and determine the best alignment of local personnel expertise and local business capacity with local content opportunities.
Guyana’s greatest asset is her human capital. How do we ensure that Guyanese take an increasing percentage of high-tier petroleum engineering and other technical jobs and business at this critical juncture in Guyana’s oil and gas journey? First, the government and private sector must strengthen the ability of Guyanese and Guyanese companies to meet the technical requirements for oil services sustainably. This competitiveness enhancement necessitates that the government and oil companies invest, simultaneously, in both short- and long-term education and training opportunities for Guyanese, both abroad and in Guyanese institutions. In her oil and gas trajectory, Guyana’s local content initiatives must urgently focus on building educational capacity.