As the first world furiously seeks to turn off the spigot, a small impoverished South American Country sees turning it on as a way to improve lives.
On December 31, 2021 President Ali signed the Local Content Act into law. The Local Content Act guarantees two things: first, it provides a mechanism for developing infrastructure related to the massive treasure located just off the shores of the small South American country of Guyana and second it “prioritizes” and ensures that petroleum industry related development directly and immediately benefits the Guyanese citizens and businesses. Perhaps guided by the experience of other newly mineral rich countries, Guyana is striving to avoid the migratory 21st century colonization of foreign companies and workers reaping the riches and abandoning the citizenry.
Guyana is a small country on the northeastern coast of South America bordering Venezuela, Brazil and Suriname, and not to be confused with nearby French Guiana or the African nation of Ghana, that is intent to shed the socialist past of the prior century. Wrestling to shake off tumultuous post-colonial political upheavals, in modern day Guyana privatization has attracted foreign investment in the largely agricultural and mining economy. What had not been anticipated was that Guyana’s economy would be transformed in 2015 with the discovery of a significant oil field off the coast from the capital of Georgetown. Exxon made the initial discovery and entered into partnership with Guyana in December 2019 and it is projected that by 2025 the oil fields will yield 750,000 barrels of oil per day. These new-found oil riches are spurring stunning growth throughout the country’s economic sectors with the promise to dramatically raise the standard of living for the country’s population of 800,000 people. The question for Guyana is how to ensure that the citizens of the country benefit as opposed to the riches being pirated away.
A Guyanese full employment and wealth creation act
The Local Content Act is a bold protectionist corollary to the Guyanese Petroleum Exploration and Production Act (the “Petroleum Act”) and applies in relation to “all operations and activities in the petroleum sector.” The “petroleum sector” is not a defined term in either the Local Content Act or the Petroleum Act. Under the Act, every “petroleum sector” contractor, sub-contractor and licensee is required to implement “local content” into their “petroleum operations.” Petroleum Operations are broadly defined to include “operations carried out for, or in connection with, the prospecting for or production of, petroleum.”
A “Local Content Minister” is charged with establishing rules and certifications, prescribing metrics to measure compliance, approving petroleum licenses and agreements and approving the required Local Content Master Plan and a Local Content Annual Plan.
The Act further creates an administrative structure with a Local Content Secretariat who is charged to ensure effective implementation, including auditing, establishing reporting requirements and establishing and maintaining “Local Content Registers” of Guyanese nationals and companies who are issued a “certificate of registration” which is renewable annually. A “Guyanese Company” is defined under the Act as incorporated under the Guyanese Companies Act with at least 51% of the voting rights owned by Guyanese nationals and requires that Guyanese hold no less than 75% of the executive and senior management positions and no less than 90% of non-managerial and other positions.
The Local Content Act requires citizens and companies to “immediately “notify the Secretariat if there is a change in citizenship or composition of a company and failure to report is subject to a modest financial penalty for individuals and companies as well as the greater risk of being struck from the Local Content Register.
Despite its brevity, the Local Content Act provides considerable detail for precisely how much “local content” must be employed with a schedule ranging from 5% for engineering and machining to 100% for Customs Brokerage Services. The levels in the schedules are waivable by the Minister on a number of grounds, including the lack of “current Guyanese capacity.” What is not waivable is bad faith and exploiting perceived “loopholes” such as having Guyanese heritage in lieu of citizenship or “bundling” broad services in one company “essentially denying Guyanese a slice of the pie.” Thus, for foreign entities doing business in Guyana, having a liaison for ensuring compliance, and navigating local expertise and capacity is critical to ensuring not merely approval of the Local Content Certificate necessary to begin operations but also to continue.
The Act requires a Master Plan which must include an employment, procurement and capacity “Sub-Plan” which is detailed in the Second Schedule appended to the Local Content Act. The Plan must also detail the quality and quantity criteria required to estimate the in-country value for Guyana. In addition to the Master Plan, an annual plan must be approved by the Minister and the annual plan must detail the “monetary value of inputs from the supply of goods, or the provision of services, by Guyanese nationals or companies and includes local capacity development.”
Competitive bidding requires Local Content compliance and the Secretariat is required to be notified of procurement contracts related to petroleum operations and Local Content is a factor for awarding bids. Master Services Agreements must be submitted to the Secretariat annually by November 1 and, once submitted, the Minister has 45 days to approve or refuse a Local Content Plan. The Act grants the Secretariat broad “unrestricted access” to audit and inspect facilities, records and data oversight authority including rulemaking for recordkeeping and reporting. On or before Valentine’s Day every year, the Act requires a “performance report” of local content activities for the prior year and the Secretariat has 45 days to issue a certificate of compliance or non-compliance.
In addition to stringent compliance requirements which can jeopardize the approval to do business or continue business operations, the Act includes modest financial penalties for failing to submit or submitting a false or misleading “local content plan, report or record”, including Guyanese national or company that “aids and abets” or failing to submit required reports or comply with a request from the Minister. Many of the penalties fall under the Summary Jurisdiction (Procedures) Act Chapter 10:02 and the term “summary conviction offense” is defined as “any offense punishable on summary conviction before the court, and includes any matter in respect of which the court can make an order in the exercise of its summary jurisdiction.”
What you need to know to do business in Guyana
The good news is that Guyana is the one country in South America where English is the official language. Nonetheless, knowledgeable intermediaries with established relationships in government, business, and finance will enable better planning and remove uncertainty from a developing governmental bureaucracy. In country meetings with key individuals in the business, financial, legal and relevant government sectors is advisable for in-country partners, establishing offices, finding local service providers and in-country transportation and personal security services.
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