VP to Guyana private sector: Improve financial standing to bridge funding gap
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Access to finance has been a major deterrent to local businesses looking to service Guyana’s oil and gas sector. After all, the development cost for just one of ExxonMobil’s offshore projects overshadows Guyana’s annual budgets.
Calls have mounted for the government to devise ways to alleviate this proverbial brick wall. The latest came from the President of the Guyana Manufacturing and Services Association (GMSA) Rafeek Khan, who floated the idea of creating a revolving fund to Vice President Dr. Bharrat Jagdeo.
But even before this can be considered, Dr. Jagdeo outlined that the private sector needs to improve its financial standing.
He highlighted many local companies are unwilling to explore partnerships to take their companies public. This avenue would see the sale of company stock allowing the public to own equity in the company, and it could possibly be the “best vehicle” to get funding outside of debt financing.
The Vice President pointed out that many businesses are unable to access loans from the bank because no transparency exists within the company nor adequate records to support it.
“So, it is not just about the government providing funds to businesses – which could happen in the future once the resources are available, but it is about the private sector also taking steps to improve its own accountability at the company level and opening up its horizon to access financing of a different nature. We are open to the idea, but much more work needs to be done at that level,” he emphasized.
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Notwithstanding this, the Vice President pointed out that the government is actively pursuing avenues to see “a greater flow of financing” in Guyana, especially for local companies that have contracts with oil and gas companies or their contractors.
On this front, he revealed that the government has granted a license to one new merchant bank, with applications in the pipeline for several others.
“[The merchant banks] will specialise in, maybe discounting invoices and even providing some… limited financing based on contracts signed with the multinational companies here,” Dr. Jagdeo said. “We plan to be very liberal in licensing these non-depository taking institutions, so you are going to see several new institutions of that nature opening doors in the next few years.”
Read MoreGovt prepared to support, sell crude to small refinery – VP | INews Guyana
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Vice President Dr Bharrat Jagdeo has revealed that the Government, which presently has several proposals before it for setting up a refinery, is prepared to support the establishment of a small refinery, and even sell limited amounts of Guyana’s crude to such a refinery.
During the Guyana Manufacturing and Services Association’s (GMSA’s) mid-year dinner, on Tuesday at the Ramada Princess Hotel, Jagdeo, who was the feature speaker, explained that the Government, in theory, does support the setting up of a small refinery.
“We have a lot of proposals here for refineries. Right now we have several, and we said we’re prepared to sell, because I don’t know which one will go forward. So that if it will lend itself to greater energy security – which is a crucial matter for us – so that we have, in situations of crises the same way we have food crises, that we can have our own domestic supply of gas and everything else; for that reason, we’re prepared to support a small refinery,” Jagdeo said. “But we’ve had discussions with several groups, and we’re prepared to sell a limited number of barrels of crude to the refinery to make that work.”
There is, however, a darker side to refineries that Jagdeo alluded to in responding to questions from the audience. Besides the pollution that comes from refineries, Jagdeo noted, most of the proposals also wanted tax holidays.
Jagdeo also debunked the belief that refineries should be set up on the basis of job creation. In fact, he noted that even with a refinery and a gas-to-shore project complete with a Liquid Natural Gas (LNG) facility, there would not be enough jobs retained to cater to the needs of Guyanese. Those facilities will, however, provide a much-needed boost to Guyana’s push to be industrialised and to have enough gas to export.
“My point is that we’re bringing in a pipeline. The gas will come in. The gas will be used to generate power, the first 50 million cubic. We will have an LNG facility that will supply enough LPG for us to export. We’d have to find an export market for LPG, cooking gas. Then we have another 70 to 80 million cubic feet of gas that will come in. That will be utilised for other industries.
“So, we are going to utilise gas to industrialise and to do a lot of things. We’re talking about fertiliser, fibre, a whole range of other products, downstream industries. So, we’re going to do that. My point was that when you look at all of those investments, you still cannot absorb the number of young people who are looking for jobs,” Jagdeo explained.
As such, the Vice President stressed the importance of expanding the services industry, mining, forestry and other sectors that are more job retentive.
Even as Guyana receives growing interest for small refineries here, Trinidad and Tobago has been touting the availability of Petrotrin – it’s state-owned refinery that is currently under negotiations for sale or lease – to refine Guyana’s oil.
This was revealed by Prime Minister Dr Keith Rowley during a press conference in Port of Spain shortly after returning from a week-long engagement in Guyana, for the Agri Investment Forum and Expo that was held from May 19 to 21. According to Rowley, discussions were held on the possible use of this Trinidad refinery during his engagements in Georgetown.
“If Guyana has oil and Guyana is interested, with someone who we have selected here or are selecting, then those conversations should take place,” Rowley has said.
“It all has to do with a supply of oil to the refinery, which exist and can, with some not insignificant effort, be brought back into operation, if only there is an entity with a supply of oil. That entity is not the Government of Trinidad and Tobago, it’s not Petrotrin,” the T&T Prime Minister posited.
Petrotrin (Petroleum Company of Trinidad and Tobago) was closed back in 2018. At the time, the unavailability of a sufficient supply of oil being produced locally to keep operations going had been cited.
At a press briefing in Guyana before he had departed after the close of the Agri Expo, PM Rowley had explained that due to the lack of an adequate supply of oil locally, the country had to import as much as 120,000 barrels per day to be refined; but, in that process, would incur losses. This situation led to the closure of the facility.
Successive Governments in Guyana have been cautious on the matter of building in Guyana a refinery that is State-owned, resulting in the only takers for this initiative coming from the Private Sector.
The former A Partnership for National Unity/Alliance For Change (APNU/AFC) Government had previously hired a consultant, Pedro Haas, to carry out a feasibility study into constructing an oil refinery. The results of the study did not favour building a refinery, particularly one with a capacity to produce over 100,000 barrels per day.
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Local Content Law: Companies using junior staff to meet senior management quota – Jagdeo
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…but junior staff salaries remain same despite ‘new’ job titles
Despite the Local Content Act, oil and gas companies continue to come up with new ways to bypass the law. According to Vice President Bharrat Jagdeo, companies have now taken to using their junior staff to fill up the legally-mandated quota for senior management staff, all while the junior staff continue to collect their original salary.
According to Jagdeo during the Guyana Manufacturing and Services Association (GMSA) Mid-Year Dinner, the fact that Guyana was able to get the Local Content Act passed very early into the development of the oil and gas sector is significant since many countries only pass their local content laws decades into the business. However, Jagdeo noted that even with the Act, there were companies still trying to dupe the authorities.
“There are many people who are trying to bypass the provisions of the legislation. It has been brought to my attention, for example, that a company that may have had maybe three foreign directors/managers in the old dispensation, now to get past the legislation since there is a 75 per cent management team (requirement),” Jagdeo said.
“To get past that position, they simply take junior staff and change their designations. So, the management team now becomes larger. So, they fulfil that requirement. But it’s just a designation for junior staff. When you look at their salary structure, their salaries have not changed.”
According to Jagdeo, the Government is keeping a close eye on this. He noted that other companies have also gone the route of giving a Guyanese company 50 per cent ownership, but also charge a large contract fee for management services.
Jagdeo noted that the Government’s experiences with managing local content in the oil sector, as well as Guyana’s affiliation with the World Trade Organisation (WTO) and Caribbean Community (Caricom), have dissuaded it from implementing similar policies in other productive sectors.
“So, the profit margin is smaller, to be distributed based on the shares structure. So that is why, to a large extent, if we start going to every sector, it’s not desirable. Because we’re also part of the WTO, Caricom,” the Vice President said.
“And if we start shutting down every sector to foreigners or imposing requirements for their investment in every other area, we can also have reciprocal behaviour for our investors abroad. Or alternately, they can put up trade barriers to prevent our products going into their market.”
Local Content
According to the Local Content Act passed last year, oil and gas companies operating in Guyana, as well as their contractors and sub-contractors, must procure from Guyanese companies by the end of 2022, 90 per cent of office space rental and accommodation services; 90 per cent of janitorial, laundry and catering services; 95 per cent of pest control services; 100 per cent of local insurance services; 75 per cent of local supply of food; and 90 per cent of local accounting services. These are just some of the 40 different services outlined in the first schedule.
The Act also defines a local company as one incorporated under the Companies Act and beneficially owned by Guyanese nationals. Beneficial ownership is defined as owning 51 per cent of the company. Additionally, a local company is expected to have Guyanese in at least 75 per cent of executive and senior management positions and at least 90 per cent in non-managerial and other positions.
In a recent interview with Guyana Times, Natural Resources Minister Vickram Bharrat assured that the Government was committed to taking action against defaulters. He noted that as long as companies fail to satisfy all the criterion for their Local Content Certificates, these would continue to be denied to them.
“We have a Local Content legislation. And like all laws, you have to abide by the laws. And if companies are not acting in keeping with the laws, then obviously there will be consequences as we have seen the non-approval of a few companies because of the fact they did not reach the criteria set out in the legislation,” Bharrat posited.
“You know there are more than one criteria, one criteria speaks to 51 per cent ownership by Guyanese or a Guyanese company, there is another criteria that speaks 75 per cent managerial staff, there’s another criteria that speaks to 90 per cent of general staffing. So, companies need to satisfy all criteria, not only one criteria too, so once the Secretariat is not satisfied that companies are not acting in keeping with the legislation, obviously they will take action,” Bharrat further said.