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By Dr *REGINALD A. MENGI, TPSF Chair *
*1.0 **INTRODUCTION*
We all agree on the necessity for local participation in the emerging oil
and gas industry in Tanzania. The critical question we need to ask
ourselves is what will pave the way for such participation? In the view of
Tanzania Private Sector Foundation, it must be a deliberately designed
policy that ensures guaranteed levels of local participation in the
industry.
If there is much that has been said recently about local participation in
the Oil and Gas industry it is because of TPSF’s fear that history may
repeat itself; in that, a century after gold and diamond reserves were
discovered in Tanzania, to this date, the majority of Tanzanians are only
playing a marginal role – as artisan miners; low and mid-level employees or
suppliers of minor goods and services to international mining companies.
Accordingly, concrete steps by the Government and Private Sector are
necessary to demonstrate that this phenomenon shall never repeat itself.
TPSF is not in doubt that the Government recognizes the necessity for the
empowerment of Tanzanians. This is clearly contained in the policy the
Government articulated in its National Economic Empowerment Act of 2004
that: “Natural resources, trade, agriculture industry and other economic
opportunities must generate wealth, boost the small and medium enterprise
sector, in order to bring about a sustainable affirmative action and
facilitate genuine and positive economic empowerment to the population of
Tanzanians”. It further states that: “Economic empowerment is a central
means for bringing about economic growth and social justice among our
people that is necessary for the promotion of peace, tranquility and social
stability that has characterized our society”.
Unfortunately, the National Economic Empowerment Act was not implemented in
a manner that would have empowered Tanzanians in the mining sector. In
consequence, Tanzania should not now shy away from this golden opportunity
which will wipe our years of agony caused by the mining sector in this
country. We have been blessed with a second chance and let us fully utilize
it to create sustainable local participation that will benefit future
generations.
*2.0 **ECONOMIC EMPOWERMENT OF TANZANIANS IN OIL AND GAS INDUSTRY*
The overall empowerment of Tanzanians to participate in the oil and gas
industry is therefore crucial and in line with the National Economic
Empowerment Policy, 2004 and the National Economic Empowerment Act, 2004.
The objective is to ensure that we adopt inclusiveness approach to enable
Tanzanians and Tanzanian firms to partner with foreign firms at all levels
of the value chain – upstream, midstream and downstream.**
Tanzania Private Sector Foundation therefore advocates for the enforcement
of the National Economic Empowerment Act 2004 which calls for affirmative
action to enable Tanzanians to participate effectively and productively in
the oil and gas sector rather than remaining spectators. TPSF notes that
the Government has developed a natural gas policy which focuses on
regulating the mid and downstream activities but it has no link to the
National Economic Empowerment Policy. This is a serious weakness that
should be addressed quickly by all of us. It is important to note that the
country has no policy to regulate *UPSTREAM* development in the gas
industry, in particular, the allocation of blocks, which would take into
account the provisions of the National Economic Empowerment Policy, 2004.
*3.0 **THE EXPERIENCE OF OTHER COUNTRIES *
Many countries, including Mozambique, Uganda, Angola, Libya, Algeria, Ghana
and Saudi Arabia are now seeking to create more in value through local
content. The most successful countries that have achieved a national
content level of 40%-80% include Brazil, Malaysia, the United Kingdom, and
Norway. Many others which are struggling to reach 25%-30% include Nigeria,
Angola, Trinidad and Tobago, Saudi Arabia, and Libya.
3.1 *THE CASE OF NIGERIA*
In 2010 the Nigerian National Assembly enacted a law titled “Nigeria Oil
and Gas Content Development Act” whose main objective is to ensure
Nigerians participate effectively in the oil and gas industry. Section 3
(1) of the Act states that Nigerian Independent operators shall be given
first consideration in the award of oil blocks, oil field licenses, oil
lifting licenses and in all projects for which contract is to be awarded in
the oil and gas industry subject to fulfillment of such conditions as may
be determined by the Minister.
As a result of the affirmative action, to-date Nigeria has allocated 52% of
the 173 awarded blocks to Nigerians and 48% have been given to foreign
companies. Nigeria has discovered a total 388 oil blocks. As a result of
this move Nigeria has created wealth owned by Nigerians which can be
confirmed by the recently published list of 30 billionaires of which the
top three are all in the oil and gas business but the list has 14
billionaires investing in oil and gas industry.
*3.2 **THE CASE OF BRAZIL*
Brazil has a law which: aims to grow the local labour market, technology,
and its competitiveness; requires oil and gas companies to contract with
Brazilian suppliers; and has a minimum local content requirement for
exploration projects of 55%.
Ultimately, the local content policy framework in Brazil, due to the
Government’s strategic push and leadership, has seen policies converted
into actionable and measurable impact and the local supplier force has
grown extensively over the last three years.
*3.3 **THE CASE OF ANGOLA*
In its effort to ensure local participation by Angolan suppliers in the oil
and gas supply chain, Angola has identified a number of products and
services which Angolan suppliers have competence in and this group has been
categorized as opportunities for Angolan suppliers ONLY.**
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Because foreign companies have many advantages over local companies, what
Angola has done is to stipulate that when a local company can meet the
time, quality and quantity requirements but is higher on price, they will
be given preference if they are 10% within the required price. 10% may be
too low but at least Angola has been specific in its stipulation.**
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*4.0 **PARTICIPATION OF TANZANIAN LOCAL FIRMS – A PROPOSED CONTRACTUAL
STRATEGY FRAMEWORK*
· To maximize Tanzanian Content in the development of gas projects, a
list of broad contract categories have been identified. Local content must
aim at increasing local participation and develop local capacity towards
international competitiveness. Thus, local content development on the back
of contracts has been identified as the best model to drive capacity
building and local participation. This gives an overview of a strategic
case and proposed contractual framework which will guarantee that local
suppliers in Tanzania participate in this new market.
· Invitations to Tender need to create an environment promoting local
participation. The following activities that will potentially take part in
Tanzania need to be considered for local participation:
o For survey service-based contracts (Environmental Impact Assessment,
Geotechnical/Geophysical Surveys and Metocean Data).
o The Government should identify individual areas of expertise that are
required as part of FEED and assess in which of these Tanzanian firms have
competence (i.e. risers, flow lines, PLEMs, umbilicals, manifolds and
foundations, subsea control system and Xmas trees). All FEED work carried
out shall include the use of all available materials, facilities and
installation equipment locally available in Tanzania. This will be a
crucial evaluation criterion in all FEED contract packages.
o When it comes to Detailed Engineering Design work, the international
contractor should go into a joint venture/partnership with competent and
capable Tanzanian engineering companies with a capacity to deliver on small
elements (work packages) that can be locally executed. These must however
be domiciled in the country. These alliances must show clear evidence that
they support technical growth and improve their capacity to compete for the
contracts.
o Other areas of focus that the Tanzanian Government must mandate
1sttier construction contractors
to sub-contract to Tanzanian firms must include roads, mechanical and
electrical works, painting, insulation, machine operation and building
services.
o The Government must require suppliers of subsea hardware to carry out
their Systems Integration Tests in Tanzania.
o Fabrication has been identified in several countries as a major area of
focus in Local Content Development. The Government should ensure that
piles, decks, anchors, buoys, jackets, pipe racks, bridges, flare booms and
storage tanks will be fabricated locally as far as possible. It is said to
take at least 5 years to develop a fabrication yard and competence from
scratch. With the production date set for 7 to 10 year timeline, this calls
for fabrication development initiatives to start YESTERDAY. We are already
running behind.
o Like Norway, Tanzania should require for Research & Development Centers
be established in Tanzania. This will ensure that technology transfer takes
place.
· The emphasis therefore is towards knowledge transfer so that in
future these firms can compete independently and even act as mentors to
other Tanzanian companies that lack technical capacities to be globally
competitive.
· Tanzania signs PSA with the operators but it is not the operators
who do most of the work. A big chunk of the work is being done by what is
being referred to as Tier 1 Suppliers. How then does the Government ensure
that these Tier 1 Suppliers do create an environment that accommodates
local participation? It is a common practice in countries where is a local
content policy that it is the operators who have the responsibility to
ensure that Tier 1 Suppliers do create this environment. Operators are made
accountable for their Tier 1 Suppliers.
*5.0 **ISSUE OF CAPITAL AND EXPERTISE *
Tanzanians fully recognize that exploration and extraction of minerals be
them gold, oil or gas requires “rare skills” and vast amount of capital.
This creates considerable reliance on foreign investors. On the other
hand, Tanzanians have their vast mineral resources, which the foreign
investors do not have and at this time Tanzania offers an attractive
climate for their investment. Thus, Tanzanians (not only through their
Government but also through their Private Sector) would be bringing their
mineral resources (gold, oil, gas etc.) to the table and, likewise, the
foreign investors bring their “rare skills” and vast amount of capital
(which is what they have) to the table in agreed proportions. This is what
partnership is all about! So, this notion of Tanzanians being weak and
lacking capital is imaginary and should be discarded. The minerals are a
huge part of the capital. The issue is how the Tanzania Private Sector can
be facilitated to access the mineral resources of their country.
Partnership between Tanzanians and foreign investors can and should be
facilitated by the Government through its declared policy of empowerment
and affirmative action (National Economic Empowerment Act no. 16 of 2004)
and our oil and gas sector presents historic opportunities. The most
important factor is for Tanzanians to have the capacity to effectively
negotiate with foreign partners to ensure balanced partnership agreements.
*6.0 **THE ISSUE OF TPDC SHARES FOR TANZANIANS***
There was an announcement at the Oil and Gas conference by the Honourable
Minister of Energy and Minerals that Tanzanians shall participate through
the purchase of TPDC shares when such shares shall be offered to the
public. The major shortcoming of this arrangement is that it will have
denied Tanzanians opportunities to develop the capacity that will enable
them to participate in all aspects of the developments of the sector and
internalize such capacity in the domestic private sector for present and
future generations.
*7.0 **WHOM TO EMPOWER*
A question raised most – both within and outside the Government – is how
the Government will choose who, among Tanzanians, it shall empower. There
may well be some merit in this question. Yet, this question arises more
when it comes to allocation of upstream oil and gas operations to
Tanzanians. Less pronounced, however, is that in addition to Public
Procurement Policy (which includes some preferential arrangement to local
suppliers), the Government has already stated its commitment to ensure that
the “midstream and downstream” gas development shall be dominated by
Tanzanian Private Sector. In consequence, there is no reason why the
criteria applicable to choose the Tanzanians for empowerment in “midstream
and upstream” oil and gas operations, should also not apply to choosing
them for allocation of oil and gas blocks. It may be fair to add that
Tanzanians aspiring especially for oil and gas blocks should have entities
based on an inclusive (rather than an individual) shareholding structure
with demonstrated capacity for partnership with foreign investors. It is
important to emphasize two things: countries benefit more in terms of
technology and transfer of skills if foreign investment involves joint
ventures with local companies and secondly, foreign investors are more
attracted to a country where local investors have a reasonable stake in
their economy.
*8.0 **CONCLUSION*
What makes gas a curse is the policies not the product itself. Taking loans
on future earnings is one of the traps. Tanzania should not fall into this
trap of being offered huge loans that it can use its future earnings from
this industry as collateral. We want the earnings of this industry to be
used to develop and build Tanzania into becoming a Middle Income Country
and most importantly benefit the future generation.
TPSF is known for its particular interest in seeing local participation in
exploration activities and owning blocks. It is through the local content
policy that this can be achieved. An example of how it can be done is
through local companies forming Joint Ventures with a Tier 1 Supplier. This
will automatically reduce the risk factors and give local participants a
stake in this crucial resource.
There are no two countries or situations which are exactly alike; but if
history and experience is of any guide, one thing is abundantly clear:
countries that have succeeded in creating prosperity for their people
through their mineral resources (Botswana, Norway, Malaysia to mention a
few) are those that not only ensured maximum local content in the process,
but also empowered their people to effectively participate in the upstream,
midstream and downstream of the resource development. Additionally, these
countries observed a high level of transparency in the development and
management of their mineral resources and accountability to their people of
their actions pertaining to their mineral sector. The choices for Tanzania
are clear! Tanzania should emulate the winners to ensure prosperity for its
people.
End