…says foreign oil companies not doing any favours by investing upfront
Foreign oil companies are not doing Guyanese a favour by fronting the capital required for the exploration and development of its oil resource since the commodity is in fact natural patrimony and the monies will be repaid with interest by this nation.
As such, Guyanese have a right to demand that local content is protected and fully exploited even in the early stages of development through monies initially being fronted by, in this case, US Oil Giant Exxon Mobil, currently gearing for production by 2020.
This is the view of industry expert; Trinidadian based Anthony Paul, the author of Guyana’s draft Local Content Policy.
Paul was at the time addressing a Local Content Policy Stakeholder Engagement held at the Georgetown Marriott on Tuesday.
Speaking to the gathering of stakeholders present, Paul cautioned Guyanese to be wary of the fact that any money invested by Exxon Mobil will in fact have to be repaid with interest using revenues earned from the oil owned by Guyanese.
He said even at the early stages of development of the sector, there are numerous opportunities for Guyanese to ensure the protection of local content.
Paul gave as example, a drill ship to be used. According to the Industry expert, while this operation is in the beginning stages of the operations, it will require support services including the supply of fuel and rations, which provides an opportunity for Guyanese input—a right that must be demanded.
Paul, in presenting his draft policy to stakeholders reminded that policies are not necessarily enforceable and rather provide guidelines for stakeholders which will require a strong regulator of the industry.
“Policy is a piece of the puzzle” he said.
He noted too that the administration of the sector will entail more than just the input of the Ministry of natural Resources but will require a “whole of government approach.”
He reminded that in Guyana’s case the oil discovery is potentially transformational in its magnitude and as such will require ‘all hands on deck.’
Speaking to some of the objectives of the draft policy for local content, Paul used the occasion to impress on the gathering that running an oil industry is not the same as managing an asset and as such requires a business approach—an approach that involves long term strategies.
On the matter of local content, Paul spoke to the usefulness of Joint Venture arrangements which would lend to the capacity building of local personnel and services provided inclusive of the transfer of technology to build local competency in the field.
This, he said, will lead not only to the building of local competency for the local sector but will also position Guyana and Guyanese to be able to export its services on a global scale.
He noted that securing local content can also relate to infrastructure and spoke to the use of wharves by entities outside of the oil and gas sectors.
Paul observed too that many of the skill sets acquired through the oil and gas sector inclusive of managerial and other procurement competencies can be transitioned to other local sectors and also forms part of securing local content through the industry.
He noted that Oil companies generally secure the services of and in many cases own the best companies in the world not only in operations but in training and development, the management of large projects.
“These are the things that we need to learn as Caribbean people to continue building ourselves,” according to Paul.
He explained that Local Content Policies aims to also capture this knowledge and competency of the large international companies in order to have this transferred to local sectors. This, he said, will inherently create more revenues and jobs for Guyana.
According to Paul, “that is why we invite foreign companies, because we don’t know how to do it ourselves….if we can learn from the industry and do that ourselves then we can take that into the broader economy and that is the rational for creating joint ventures.”
He explained that “in a joint venture you have the right to ask questions as to how key activities happen and to how decisions are made…you don’t have that right if you are an agent or a vendor.” According to Paul, in a Joint Venture the partners share the equity and risks involved.
Paul used the opportunity to speak specifically to the Guyana context and Exxon Mobil and pointed to the negative cash flow period where the investments are made at the initial stages.
According to the industry expert, the initial investments constitute significant sums of money and countries such as Guyana must be cognizant on how they can benefit from that end of the spectrum.
“There are ways to do that and the policy addressed that.”
The industry expert explained that during production, the oil which is owned by Guyana is sold and from that revenue earned all the costs that went into developing the fields and sector are recovered and what remains is then shared.
In Guyana’s case, government has agreed to accept two per cent royalty of the gross production after which initial investments and expenditure will be recovered and whatever remains as profit oil will then be shared 50/50.
According to Paul, “you pay for all these things” in reference to the initial investments which in this case has been fronted by Exxon Mobil.
“You are paying for this, the companies help giving the money upfront and then recover it with interest, so ultimately you pay for it.”
Speaking to the importance of this nation in the context of securing and protecting local content, Paul explained “it is important because as the person (Guyana/Guyanese) procuring the service you have a right to determine how that money is spent…it’s not a favour, it is a right. ”
With this in mind, Paul sought to point out that Government revenue earned is not the only source of development and protection for local content since there are other sources of benefit to Guyanese since they inherently have a right to be a part of determining how the initial investments are spent.