A Policy Guidance for Managing Guyana's Petroleum Resources to Enhance the Local Workforce, Supply Chains and Business Environment for Transforming the Economy and Well-Being of Guyanese.
Ministry of Natural Resources
Co-operative Republic of Guyana Revised Draft - February 2021
Increasing hydrocarbons finds offshore Guyana will offer significant opportunities for our country to fast track economic development and ensure that public welfare improvements are delivered every Guyanese. One approach to doing is the development of this productive and progressive Local Content Policy (LCP). This is an industry integrated LCP that will enable Guyana to capture the benefits of foreign direct investment by enabling conditions for investors to ensure value addition in the country for our local industries.
The purpose of developing this national local content policy for the petroleum sector is to increase the value generated by the exploitation of a resource that remains in the domestic economy; and to develop linkages between the oil sector and the rest of the economy. What matters is not only what happens in the sector but what happens beyond. As such, local content can encompass forward, lateral, and backward linkages. Backward linkages are those created by the commercial relations between oil operators and their supply chains, which include the transfer of technology and know-how, employment of nationals, and sourcing local goods and services. Lateral linkages utilise the demand of the sector to develop skills, services and infrastructure that can positively impact on other sectors of the economy while allowing locals to participate in the petroleum supply chain. Forward linkages involve the construction of facilities that process and export these resources, such as refineries and petrochemical facilities.
Therefore, our local content benefits are set in a good practice that is based on the idea of creating `shared value'. In this policy document, shared value is the foundation for a business strategy designed to achieve both project competitiveness, and stability and economic development in the local community and the entire country.
Guyana's LCP will ensure that business projects can create shared value by generating and growing economic opportunities related to their workforce, local supply chain and surrounding communities, in ways that also support their bottom line. Therefore, as we are an emerging petroleum producing and exporting nation, it is my government's guiding principles that this LCP focus on being:
- A guide towards a national strategy for economic development
- A mechanism to create value beyond the sector
- Grounded in the objectives of a realistic assessment of our resources and capabilities
- Adaptive to our energy mix and transition objective toward a low carbon economy
- Integrated to the procurement strategy of the national economy
Therefore, local content policy remains the single most important driver in Guyana's economic transformation from its petroleum resources and it also seeks to address the development imbalance by way of linking investment incentives with local content policies. Local content will generate jobs and economic diversification in developing our economy.
His Excellency, Dr Mohammed Irfaan Ali,
President of the Co-operative Republic of Guyana
1. Introduction and Background
1.1 Introduction to this Policy Version
Since the discovery of major commercial quantities of petroleum resources in 2015, the Government of Guyana (GoG) have made participation by Guyanese in the activities of the sector a priority. During the period of 2017 and 2018 two drafts of a local content policy were produced on behalf of the Ministry of Natural Resources for public comment. The second involved extensive public consultation among the range of stakeholders across the country and industry and included an implementation strategy and the framework for an implementation plan. In 2019, on behalf of the Government of Guyana, the second was revised and expanded into a third draft, inclusive of a detailed implementation plan. Thereof, the draft was further revised by a team from the Commonwealth Secretariat (CS) out of which a comprehensive report was produced for the Government of Guyana, inclusive of guidelines on its implementation and pointing towards the utility of regulations and lessons learnt in different jurisdictions, including new oil producing countries. In January 2020, the report was finalised and published. Hitherto, each revision reflected the rapidly changing circumstances and evolving stakeholder needs and government direction while underscoring the need for supporting legislation/regulations to efficiently enforce the provisions of the policy.
During this period, and in tandem with the ongoing revision of the local content policy, development of Guyana's first discovery, Liza 1, was quickly unfolding. The manifestation of first oil soon followed following the approval of the Field Development Plan and Production Licence. Notwithstanding the aforementioned, exploration and production continued unabated.
To date, two additional plans have been approved (Liza 2 and Payara) and are currently being implemented. The operating companies have indicated that at least eight additional field developments are likely to come on stream in the coming years.
In August 2020, the incoming government emphasised its commitment to Local Content Requirement (LCR) polices and the need to rapidly put in place a revised policy and enabling legislation. His Excellency, The President, established an Advisory Panel with the intention to "maximise opportunities for goods and services produced by Guyanese or sourced locally and to take advantage of opportunities that exist now, even as we plan for the future". The main task of the panel was to undertake "a review of all existing initiatives and draft policies relating to local content in the petroleum sector and to provide guidance for the development of Guyana's Local Content Policy (LCP) and Legislation through a consultative process engaging with a wide range of stakeholders". The Panel executed its mandate and submitted its report to the Minister of Natural Resources in November 2020, making recommendations on the way forward for a new policy, enabling legislation and implementation. This document considers the recommendations from the Panel report.
This policy intends to inform the amendment process (and drafting, where necessary) of existing legislation, contracts, treaties and local, regional, and international experience, local content legislative instruments for public consultation and parliamentary approval, as appropriate. An updated Implementation Plan (IP) will be developed separately, in line with the final policy and legislation/regulations. It will identify specific initiatives, measures, and targets to deliver each of the identified policy objectives.
1.2 Background - The Benefits of Local Content
Guyana's major oil and gas discoveries have focused attention on the value generated by activities surrounding both its ongoing development and anticipated production and the upcoming increase in exploration for additional reserves, as well as from the use, handling and sale of oil, gas and products derived from them.
In addition to revenue accruing to the State via taxes and royalties, Guyanese are aware of the potential to capture and retain value within the local economy through the supply of skills, conduct of activities and the offer of goods and services along the value chain of the resource.
The vast majority of these goods and services are currently imported into Guyana.
Further, as have been done with other resource rich countries in a similar state of development, Guyana recognises the benefits to be gained from improving the standards and quality of its people and businesses, and in industrialisation through power generation and manufacturing from these raw materials.
The petroleum sector requires high standards of quality, efficiency, reliability, ethics, care and attention to the environment, communities and property and the well-being of people. By supporting and participating in the sector, those who develop and provide goods, infrastructure, equipment, facilities, networks, systems, and other services that are used by the sector will need to raise their quality, standards, behaviours, and culture in order to become competitive. As many of these services are required by other sectors, taking the capacity and behavioural attributes to the non-petroleum sector, will enhance the international competitiveness of these other sectors and Guyana as a whole.
Therefore, Local Content is considered the sum of inputs of local goods and services, including employment, provided to oil the and gas operations. This occurs when operators hire locals as employees or contractors or buy goods or services from them. Local content therefore is the outcome of companies' hiring and procurement activities, often referred to as backward economic linkages.
The purpose of developing national local content policies is to increase the value generated by the exploitation of a resource that remains in the domestic economy; and to develop linkages between the oil sector and the rest of the economy.
This policy framework will therefore address giving locals a fair (or advantageous) chance at preparing for and providing goods and services and becoming employees, so as to allow them to learn and improve by doing.
11. Conclusion - Optimal Local Content Requirement Policies
Guyana's local content requirement policies for the advancement of the petroleum sector will be for the GoG to characterise optimal beneficial strategies in the context of our economic growth path. The optimal local content requirement policy will serve to monetise the positive impacts from foreign investment which is a first-best policy, but the incremental volume of business which it will induce is a function not only of the size of these benefits, but also of the response of local suppliers to new business opportunities. The GoG aim will focus on providing high-powered incentives for investor compliance, harvesting the investor's superior information, managing the government's administrative burden, and mitigating the risk of infantilising local suppliers.
Therefore, the development of the local content principles for the petroleum sector is one of the important policy levers in the industrial policy plan for Guyana as it leverages public expenditure and respond to a myriad of economic challenges and opportunities. Localisation is an extremely important policy tool for industrialisation. Through local content procurement, a policy lever is provided amongst others, to minimize import leakages which represent an outflow of funds whilst at the same time attempting to increase both aggregate demand and supply in Guyana. The economic objective of this policy is for local manufacturers to receive a substantial share of the emerging businesses, where sustainable growth will contribute to the development of local industries and the creation of jobs.