Local Content: A game of numbers
Some Ugandans are not satisfied with local content clauses in the 2013 Petroleum Act, and want to see detailed, separate regulations. Here is a round-up of the situation in some other African oil-producing countries.
Ghana passed the Petroleum Local Content and Local Participation Regulations, 2013 (L.1.2204), in November last year, amidst stiff opposition from the oil companies operating in the country. The companies argued that they had outstanding agreements with the Ghana government which were now threatened by the new law.
The law requires new foreign exploration firms entering the Ghanaian market to have at least 10 percent local ownership, and targets having an impressive 70-80 percent locally-trained management and technical staff in the oil and gas sector by 2023.
The law is tilted strongly in favour of Ghanaian businesses, envisaging they can provide up to 50 percent of goods and services to the oil and gas industry in five years’ time; and up to 90 percent within 10 years.
In additional to giving first consideration to Ghanaian independent operators in the award of oil blocks, oil field licenses, oil lifting licenses and other contracts, the policy stipulates that during bid evaluation, where bids are otherwise equal, the bid containing the highest level of Ghanaian content shall be selected.
Operators in the oil and gas industry are also expected to use local goods and services as much as possible, even if they are up to 10 percent more expensive than imported ones.
The law further provides for the creation of a fund-the Oil and Gas Business Development and Local Content Fund-to support Ghanaians.
The Nigerian Local Content Act was signed into law in April 2010 and is now being hailed as the country’s single most important piece of legislation since oil production started fifty years ago.
According to some government reports, as a direct result of this Act, 87 percent of all oil and gas contracts in the country were awarded to local contractors in 2012.
The Act defines a local Nigerian company as one in which at least 51 percent of its shares are held by Nigerians, and actively seeks to increase indigenous participation in the Nigerian oil and gas industry through utilization of local services and goods.
It now mandatory for operators in the industry to provide a viable succession plan whereby Nigerians will understudy particular expatriate positions for a maximum period of four years, at the end of which the positions shall become Nigerianised.
Operators are also required to procure legal and insurance services only from Nigerian registered firms, and maintain their bank accounts within Nigeria as well as retain a minimum of 10% of their total revenue accruing from Nigerian operations in country.
One of the most significant achievements of this Act has been the creation of the Nigerian Content Development Monitoring Board (NCDMB) whose mandate is to monitor the development of local content in the Industry.
Through this Board, all operators, project promoters, contractors and any other entity engaged in the Nigerian oil and gas industry are required to do all their fabrication and welding activities in country.
Already, some of the pipes used in the industry presently are made in Nigeria.
With the first draft of Kenya’s petroleum laws expected in parliament soon, Kenya is yet to have a local content regulation in place.
But the issue of local content has already turned political, with Turkana County MP James Lomenen on the spot, after leading a group of about 400 locals to break into the perimeter of the Twiga 1 drilling camp in Turkana County.
The protesters accuse Tullow of discriminating against them by denying them jobs and other opportunities. Yet Tullow maintains that more than 800 of the firm’s 1,400 employees are from the Turkana region.
Hon. Lomenen, whose company’s supply contract had earlier been terminated by Tullow, reportedly led the protesters who forced their way into Twiga-1 camp causing damage worth more than $90,000.
According to government, local content is one of the salient issues that will be extensively discussed when the draft laws eventually make it to parliament. In the meantime, the Ministry of Energy has announced plans to recruit engineers and take them for “graduate level” training.
Kenya already has a National Oil Company as well as a non-operational crude oil refinery but the commencement of oil production will create many more jobs which, which with targeted training, can be taken up by locals.
Report by Chris Musiime