Guyana needs an informed and dispassionate debate on local content policies for oil industry

The heading of yesterday’s Sunday Stabroek column by Professor Clive Thomas “Why local content measures are considered ‘backward backdoor protectionism?”, while framed as a question, conveys in my view, an unfortunate negative connotation about local content policies. Dr. Thomas holds the prestigious and influential position of Presidential Advisor on Sustainable Development and his writings will no doubt help to shape national policies. Admittedly, the two preceding columns seemed more disposed to local content requirements (LCR) in oil and gas contracts but in this latest column, I am less sure.

Oil discoveries have been made in deepwater areas off Guyana, which means that the first time we will be able to use our oil is after it has been shipped off to a refinery and re-imported into Guyana. If the advisers, policy makers and the managers of the economy, choose to think that local content is not an important matter, the public needs to understand that the major difference between when the first oil flows and now, will at best be manifested in lower domestic fuel price and the balance going into the public revenues. Under Guyana’s model Production Sharing Agreement, there is no separate tax revenue: the Government’s share of profit oil includes the taxes. What this means is that we can use our share of profit oil as we see fit: the Government can sell the oil on the domestic market at reduced prices, or put the value into the Consolidated Fund, or a combination of the two. At this stage, the Constitution allows only for a single Consolidated Fund and would need to be amended to create a Sovereign Wealth Fund.

Dr. Thomas’ column yesterday seeks to summarise two reports on local content policies in the petroleum sector. The first is by the United Nations Conference on Trade and Development (UNCTAD) and the other by the World Bank. I do not share Dr. Thomas’ view of these as examples of “even more formidable body of empirical studies examining the operations of LCRs in the oil and gas sector”. Guyana has certainly gone through an intellectual transformation from the days when the World Bank-endorsed IMF’s Economic Recovery Programme (ERP) was parodied as Empty Rice Pot by the leadership of both the PPP and the WPA. Continue reading Guyana needs an informed and dispassionate debate on local content policies for oil industry