Dear Editor,
Legislating ‘local content’ by way of quotas/percentages of goods and services is not the optimum approach to maximizing Guyana’s earnings from its oil industry. There will always be loopholes, such as quality, experience, competence versus qualification, etc. for the operator and its contractors to slip through. My suggested approach to increase local content is to first act aggressively to lower the cost of oil production by the operator, (EEPGL) ESSO Exploration and Production Guy-ana Ltd. (a subsidiary of ExxonMobil). Understanding this spatial pathway re-quires some background and explanation.
There are four partners in the Stabroek Production Sharing Agreement, Guyana, Hess, CNNOC, and ExxonMobil who share the profits after production costs are deducted, it is in ALL partners best interest to ensure oil is produced at the lowest possible cost; for that to happen EEPGL must meet their needs for goods, services, works and utilities in a way that achieves the best value for money. Guyana is not the only partner who is conducting audits to trim costs, HESS and CNOOC must be doing the same with great diligence for their respective shareholders; logically, the three (non-operator) partners should work together to find and disqualify the excesses of the operator (EEPGL) and its contractors.
Here is where local content blooms under this model; when Company X’s expatriate engineer employee salary that is ten times that of a local engineer is deemed non-recoverable, it is inevitable that Company X will actively seek out local engineers to fill positions, similarly, when Company Y is informed that sending a part to be machined in Arkansas cost four times as much as what it would locally and is therefore ineligible to be considered for cost recovery, there will be a shift to local machining. It is important to include the costs incurred by Exxon-Mobil’s contractors, for recent information in the public domain suggests that contractors are engaged in sole-sourcing of services and goods from preferred partners to the exclusion of locals who can be competitive given the opportunity.
A genuine partnership is one where parties agree to cooperate to advance their mutual interests; the non-operator partners realize that every cent cut in production cost per barrel of oil results in millions of USD increase in profit; when they (the partners) understand that this will come through local content, there will be a seismic shift to local goods and services.
Sincerely,
Robin Singh
