by Svetlana Marshall

The Government of Guyana is looking to strengthen its local content policy to prevent foreign companies from using loopholes in the existing legislation to bypass the local content requirements.

At the opening of a Local Content Summit this morning, Vice President Bharat Jagdeo admitted that the Government is aware that there are a number of foreign companies that are using various tactics to bypass the Local Content Act.

He said through a consultative process, the Government intends to assess the loopholes, in an effort to strengthen the local content legislation.

Under the Local Content Act, it is a requirement that 51% of a company be owned by Guyanese.

But according to the Vice President, foreign companies are creating joint ventures with local companies to merely achieve the 51%, much to the detriment of local stakeholders.

“If they establish a joint venture, the joint venture has very little assets, so the Guyanese would have 51%  and the foreign company 49% but the capital is then put in as a loan to the company, the equipment is often put in as a leasing arrangement, so you have to pay from the proceeds, the gross income, all of those things before you have enough profit to declare a dividend…and often it is done at inflated rates, so the crème, the bulk of gross income before dividend is declared from net income,” the Vice President explained.

A Local Content Certificate issued to a Guyanese company also paves the way for that company to receive preferential treatment in the award of contracts by the oil companies and their sub-contractors.

The legislation covers 40 areas, but according to Vice President Jagdeo, the area related to the Guyanese ownership requirement is also being bypassed by some oil companies and their sub-contractors.

“We have seen some of the first-tier contractors particularly outsourcing some of the activities because their reporting relationship is not strong enough, outsourcing a lot of the areas that are carved out already for Guyanese in the legislation,” he explained.

He said while the mandatory 45-day payment arrangement is working in favor of local businesses, there is room for improvement and the Government will host consultations to address possible amendments to the Local Content Act.

Mr. Jagdeo also said the Government has learned a lot since the passage of the legislation. He said the administration will be working with all stakeholders to strengthen the legal framework.

According to the Vice President, the Government has been working to strike a balance to safeguard the investments of both international and local investors even as it boosts the capacity of Guyanese in the sector.

He, however, warned Guyanese against taking extreme positions.

“The same people who argue and say more should come to Guyana then they also want no opportunity to come to Guyana by shutting down the industry, and so we are not going to succumb to that….People need to speak up and join that debate because if we allow the fringe to succeed in its debate, it harms all of us, and all of our interest, and therefore, we must collectively raise our voices not in support of the Government but in support of analytical views and reasoned views,” the Vice President said.

The Local Content Summit was organized by MBW Energy Support Services Inc. with support from the Government of Guyana. It is being held under the theme ‘Sustaining Supplier Development through Local Content Partnerships.”

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