Dear Editor,
Since the implementation of the Local Content Act [LCA], the local content spend in the procurement of goods and services, and employment have increased substantially relative to the revenue generated by the oil companies, namely, EEPGL, Hess and CNOOC, when compared to the previous years. As of 2022, according to the Local Content Secretariat, total local content spend amounted to US$700 million or G$147 billion and is projected to reach US$1 billion or G$210 billion annually. For the same period, EEPGL reported its local content spend amounted to US$400 million, representing 57% of the total spend exclusive of employment cost attributable to its Guyanese labour force.
While these are commendable achievements, it remains unclear to what extent are Guyanese firms losing contracts to foreign firms in which they have demonstrable capacity and capabilities. The recommendations put forward herein are intended to strengthen the Local Content Act aimed at maximizing the value of local content-spend. These proposals are based on the lessons learned from the experiences of local companies that are still facing a number of challenges. I am of the strong view that strengthening the Local Content Legislation can result in the value of in-country spend on local content increasing significantly.
Pursuant to the Local Content Act, EEPGL/ExxonMobil is required to provide feedback, presumably that would help unsuccessful bidders understand where they fell short for the provision of goods and services. The LCA mandates that a “fair and transparent” process ought to be undertaken in the procurement pro-cess for goods and services. Additionally, section 13 of the Local Content Act speaks to Bid Evaluation wherein Section 13 (3) states that: “A contractor, sub-contractor or Licensee shall award a contract on the basis of competitive bidding procurement procedure that has been initiated by a widely circulated public tender process.”
In order to give operational effect to the foregoing sub-section in the Act, the Local Content Secretariat developed a Bid Evaluation Guide-line to be adopted by Contractors. Specifically, 3.7 of the Guideline spoke to a “fair and transparent process”. Having been involved in a competitive procurement process with EEPGL recently, I am of the view that the procurement process of EEPGL is not fully transparent in the manner that the LCA contemplated.
Considering that oil and gas upstream activities are financed from the operating cash flow generated from the sale of Guyana’s crude, it is reasonable to expect that the complete procurement process should be done in a fully transparent manner particularly in the post contract award stage. In so doing, all of the bidders that participated should at minimum be furnished with the following information:
i) How many firms/suppliers participated in the final RFQ/RFP stage of the procurement process,
ii) The names of the firms/suppliers,
iii) State whether the firms participated in the RFQ/RFP stage of the process are 100% or 51% Guyanese owned firms,
iv) Which of the firm/supplier was awarded the contract and whether the firm is a 100% or 51% Guyanese owned firm and/or whether the firm is a foreign entity; and
v) The quoted prices by all shortlisted firms, including the firm awarded the contract.
The above mirrors the national procurement procedure which is a publicly transparent process. This author is of the view that the aforementioned is in conformity with the spirit of the Local Content Act in the interest of a fair and transparent process that when applied all participating suppliers are privy to this information. The Local Content Secretariat should also be furnished with this information so that a fair determination can be ascertained by all parties involved in the process, as well as the regulator. If, however, the Contractor, Sub-contractors or Licensees find it difficult, for whatever reason, to furnish suppliers with the aforementioned information, then such requirements should be provided to the Local Content Secretariat.
There are situations in which 100% small and medium sized Guyanese owned firms are losing contracts to better resourced local firms that have entered into Joint Ventures (JVs) with foreign firms. There is a particular example wherein a 100% small Guyanese firm lost a contract to a JV in which the foreign partner has the capability for the assignment but not the local partner. In this example, the contention is that this is essentially an indigenous firm losing to a foreign entity. Notwithstanding, it should be mentioned categorically that losing to another 100% or 51% Guyanese firm that possess similar capability would have been perfectly fine, but, not to a foreign entity that has a JV with a local firm just to cash in on contracts. This is unacceptable and contravenes the spirit of the Local Content Act.
To date, there are approximately 838 companies registered with the Local Content Secretariat that have obtained their local content certification. Of this amount, 752 or 90% are 100% Guyanese owned and the remaining 10% are JVs with the 51% Guyanese owned and 49% foreign ownership structure. Given the above situation, it would be interesting to discern whether the 90% Guyanese firms that are 100% indigenous are the beneficiaries of 90% of the local content spend. Presumably, based on engagement with other local firms and feedback provided at various consultation forums, it would appear that the inverse is more accurate–that is, the 10% local companies that are comprised of 49% foreign ownership are the beneficiaries of 90% of the local content spend. If this is proven to be true, then it is certainly not the desired outcome, especially if the 90% category that are 100% Guyanese owned do possess similar capabilities and capacities. The authorities are currently reviewing the Local Content Act. Accordingly, the following recommendations are presented for their consideration, viz-á-viz, amendments to the Act:
Amendment to the Local Content Act mandating Contractors, Sub-contractors, or Licensee to provide suppliers at minimum, with the type of information as outlined in (i-v) above as part of a “fair and transparent” procurement process.
Development of Local Content Regulations to aid in the administration of the Local Content Act.
The regulations and the Act should be amended to include a prescriptive Bid Evaluation Guideline to be adopted, that includes, for example, primary consideration to be given to 100% Guya-nese owned firms first, provided that they possess the capability and capacity, and if they do not have the required capability and capacity, only then Contractors, Sub-contractors or Licensees should consider JV firms comprising of foreign entities.
Detailed procurement reports outlining how the award of contracts was arrived at, furnished to the Local Content Secretariat.
Based on the aforementioned recommendations, if considered, the Local Content Secretariat should produce regular reports with analysis that demonstrates the percentage and/or value of contracts/ local content spend that are awarded to 100% Guyanese owned firms relative to the others.
The recommendations put forward are intended to strengthen the Local Content Act aimed at maximizing the value of local content-spend. These proposals are based on the lessons learned from local companies that are still facing a number of challenges. I am of the strong view that strengthening the Local Content Legislation can result in the value of in-country spend on local content increasing significantly.
Sincerely,
Joel Bhagwandin
