Why did Jagdeo apologize to the oil companies?
Kaieteur News – Oil companies when they enter a country, know they will have to make provisions for local content. They need not be reminded of any overarching philosophy of shared prosperity.
However, Exxon and its partners were shocked when they arrived in Guyana. They found, without a doubt, that they can inject a production sharing agreement (PSA) without any local content provisions in place. And in the five years between discovery and production, no local content law or content law was enacted. Thus Guyana has little leverage over the oil companies in terms of setting local content requirements.
So the oil companies got a free ticket. They didn’t have to bother about local content regulations. And the Trinidadians and the Americans came to dominate the supply chain of the sector.
The oil companies, however, know that wherever they go, the local economy will expect to benefit from the sector and that there will be calls for more benefits to the economy besides the revenue oil.
For this reason Jagdeo’s apologetic tone to the oil companies is so irritable. He has no reason to be pestering them because they are not motivated by the government’s local content policies.
He told them, “The Local Content Policy is not created to discourage investment but is a promise we made to our people about shared prosperity.”
If he had stopped boasting at that stage, he wouldn’t have been so embarrassed. But while he was sitting when he made these comments, he seemed to be kneeling. Kneeling in front of oil companies!
Here he went on to say, “We want to reassure the oil companies that, despite what I just said there, we are not going to be popular. We are not going to make it so unrealistic – the PSA – until it becomes a disincentive for them to invest here when we believe that the sector can produce a healthy return for investors yet contribute more to Guyanese and their development. ”
What does populism have to do with local content? And why isn’t the over-emphasis on local content policies discouraging investors?
Exxon is least concerned about local content policies. They can ignore it at their pleasure. The PSA, which they signed with the government, has a Stability Clause, which isolates Exxon from any significant adverse effects of any change in laws or regulations (and policies).
Jagdeo can deceive himself for shared prosperity. The oil companies are predators. They are not here to share prosperity. They are here to make money. So if our leaders stopped when they failed to establish local content provisions in the Shared Production Agreement, then the oil companies know they have an escape valve to avoid the meaningful participation of local people in the industry.
He knows full well that Exxon will come and listen to what it has to say but in the end, the company can’t be forced to do anything it doesn’t want to do. The APNU + AFC contracted them, which protects them from any local content requirement that will adversely affect them.
And Jagdeo is proud to boast that his party has decided not to renegotiate the contract. Accepting that the current arrangements were in favor of the oil companies, he said, quite amusingly, that a shared prosperity would be realized through new PSAs.
The other oil companies are not going to sign any new PSA, which is quite different from what was enjoyed, by Exxon and its partners. That’s the meaning of precedent. Those individuals who have already acquired the rights to our oil blocks are going to sell those rights to Exxon, which will not be bound by any new model PSA.
But what is most disheartening is when Jagdeo, during the consultation, said, “We know we don’t have the capacity to build FPSOs … but … we have the ability to deliver a taxi service and vehicle services and our people have enough money to build good quality homes for rent to oil companies and many of these things. That is where the companies will have to at least use local resources if we are to get up to a small threshold of oil expenditure in these companies. “
Is that what we are good enough for – taxi services, motor vehicle repairs and building rentals? Is it Jagdeo’s idea of shared prosperity? If it is, then God help Guyana!
(The views expressed in this article are those of the author and do not necessarily reflect the views of this newspaper.)