African countries made it clear at an oil conference in Accra, Ghana, last week that foreign oil companies would be under mounting pressure to meet “local-content laws” — including hiring a percentage of workers locally — if they want to tap the continent’s oil reserves.
“Nigeria has a great future — and corporates who want to be part of that future will have to consider Nigerian local content because it’s not going to be game as usual from now on,” said the general manager of the Nigerian Content Development Board, Wole Akinyosoye.
“Local content” has become a catchphrase among key players in the oil and gas industry, meaning anything from quotas for local employment of senior managerial staff and oil rig workers, percentages of local ownership and control of operations in oil fields to contracts being awarded to local companies for the provision of equipment, goods and services.
Countries such as Brazil, Norway and Malaysia have all used local-content laws to create jobs and fuel domestic economic growth.
But the concept had become popular in Africa only in recent years because of new Âdiscoveries and the rising oil price, said Willie Olsen, a senior adviser with Instok Norwegian Oil and Gas Partners. “The aim is to create more jobs and develop the industrial base. You understand why this policy comes, but you have to ask: will the policies work?”
Nigeria is the loudest and most controversial voice on local content as Africa’s biggest oil player, producing 2.3-million barrels of crude a day, according to the International Energy Agency. Last year, after the government passed the Nigerian Oil and Gas Industry Local Content Development Act, oil majors voiced their objections.
The Act gives Nigerian independent operators first consideration in the awarding of oil blocks and oil-field licences. It specifies that exclusive consideration should be given to Nigerian-owned service providers. The law also requires oil companies and industry service providers to train Nigerians.
The legislation also specifies the required percentage of construction materials, drilling services, use of transport and information technology, and that finance and insurance must be locally owned or based.
Many analysts regard Nigeria’s local-content requirements as among the highest in the world, ranging from 75% to 100% in many areas. Implementation in Nigeria will be overseen by a local monitoring board to be set up next year and percentages are expected to increase gradually.
Some analysts are concerned that this emphasis on local interests could scare off oil companies and investors. Olsen thought it unlikely that Nigeria would accomplish its goals.
“The biggest issue with the high local-content environment, with the competition for the resources, is: will the firms go to West Africa or will they go to countries with huge opportunities and less restrictions?” said Olsen. “I don’t think oil companies will go, but it could lead to higher costs and to some of the main contractors setting up shop in other countries that are easier to operate in.”
At a conference hosted by the Nigerian Association of Petroleum Explorationists, held last year after Nigeria’s local-content laws were passed, Mark Ward, managing director of ExxonMobil Nigeria, asserted that the implementation of the government policy was hindering the development of new deep-water oil projects.
Ward was quoted in the Nigerian newspaper 234Next as saying that the government needed to engage more with international oil companies in their development of local-content requirements.
“Nigerian content development needs to be paced, realistic and collaborative,” said Ward. “Its imposition could stifle both the total number of in-country projects and the development pace of projects.”
Countries such as Angola have also passed controversial legislation in terms of local content; Gabon and the newest African oil producer, Ghana, are in the final stages of drafting legislation. Ghana’s draft Bill sets a target of 90% local content by 2020 but is subject to revision. —