Local Content Policy (LCP) Tanzania

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Despite the presence of bountiful minerals and breakthroughs in oil and gas explorations and investments, less economic growth and more impoverished local communities have been hallmarks of many resource-rich African states. To ensure that revenues trickle down, particularly to avoid the so-called ‘natural resource curse’, efforts to have a Local Content Policy (LCP) in the emerging oil and gas industry of countries such as Tanzania are gaining momentum. Indeed, Tanzania published its draft LCP in April, 2014[1] and the Tanzania Petroleum (Local Content) Regulations in May 2017. [2]

Definition

There are several definitions of local content. The Local Content Policy of Tanzania for Oil and Gas Industry (2014) defines local content as “the added value brought to the country in the activities of the oil and gas industry in the United Republic of Tanzania through the participation and development of local Tanzanians and local businesses [particularly] through national labour, technology, goods, services, capital and research capability."[3] The policy further states that the participation and involvement of local businesses may be implemented through: “Workforce development, employment and training of local workforce; and investments in supplier development through developing and procuring supplies and services locally.” [4] The Tanzania Petroleum (Local Content) Regulations (2017) define local content as “the quantum of composite value added to, or created in the economy of Tanzania through deliberate utilization of Tanzanian human and material resources and services in the petroleum operations in order to stimulate the development of capabilities of Tanzanians and to encourage local investment and participation."[5] The regulation further states that the participation and involvement of local businesses may be implemented through prioritizing “acquisition of services by contractor, subcontractor, licensee or any person […], in the first instance, in favour of local service provider or locally manufactured goods, provided that such goods or services are of competitive terms […]”; affording first opportunity of employment to “qualified Tanzanians” and prioritizing “on-job training for Tanzanians” [6] Generally, within the oil and gas industry, local content is recognised as an intervention by a national government to ensure that the majority of the goods and services required at each stage of the oil and gas value chain are locally supplied. [7]

Tanzania Local Content Policy Draft

Policy Aims

The draft LCP stipulates three main issues as central to the realisation of the local content benefits to Tanzanians: [8]

  • Devising strategies for the Local Content implementation with a view to developing a skilled, knowledgeable and sustainable local labour force;
  • Developing appropriate strategies to foster the transfer of technology and knowledge, in addition to investing in research and development in the oil and gas industry; and
  • Creating a mechanism for enabling Tanzanians and their businesses to utilise effectively opportunities to manage, supply goods, services and labour in the oil and gas industry.

To realise these aims, the policy, among others, expects government entities and companies to work together to “support the development of adequate local skills that are necessary to fulfil the strategic and operational objectives of the oil and gas sector.”[9]

Key Focus Areas

According to the policy, there are five key focus areas:[10]

  • Capacity-building and technology transfer;
  • Participation of Tanzanians and Tanzanian-owned entities;
  • Procurement and usage of locally-produced goods and services;
  • Fabrication and manufacturing in-country; and
  • Socio-economic responsibilities.

Policy Objectives

The policy’s main objective is to provide the necessary guidelines to engender maximum engagement of local content and involvement of Tanzanians in the development of the oil and gas industry to ensure Tanzanians optimally benefit from such investments. The specific objectives are as follows:[11]

  • To develop Tanzania’s local businesses to become globally competitive through the empowerment of local suppliers to meet the needs of the oil and gas industry;
  • To transfer appropriate technology to Tanzania for managing and operating the oil and gas industry;
  • To enable local training institutions to provide relevant and appropriate training for the oil and gas industry;
  • To maximise the participation of skilled and unskilled Tanzanians in the oil and gas supply chain and value chain activities;
  • To have local goods and services procured by operators in accordance with terms and conditions of their operating licences; and
  • To support gender-related activities in the oil and gas industry and addressing HIV & AIDS and other infectious diseases.

Legal framework and Implementation

For the implementation of the LCP, the proposed legislations (Local Content, Natural Gas and Natural Gas Revenue Management) need to be enacted and the existing legislations (Income Tax Act and EWURA Act) need some amendments. The Minister for Energy and Minerals is required to consult with the relevant government agencies to propose fiscal incentives to assist foreign companies to develop the technological capacity and the skills of citizens and local Tanzanian companies to establish factories and production units. [12] The draft LCP envisages a Petroleum Regulatory Authority and an independent National Local Content Committee which will oversee its full implementation.[13] Generally, the TPDC has an obligation of monitoring compliance with the PSA Local Content provisions on behalf of the Ministry of Energy and Minerals in accordance with the Petroleum (Exploration and Production) Act of 1980.[14]

Institutional Framework

The policy recognises the following institutions as key players in the implementation of the policy: the Central Government, Local Government Authorities, National Oil and Gas Company, Regulatory Authority, the Bank of Tanzania, Private Sector, Academic and Research Institutions, Media, Civil Societies and Communities.[15] Each player is assigned specific roles.

National Local Content Committee

The policy introduces a national committee whose role shall be to co-ordinate and oversee the full implementation of the policy. Specifically, the policy states that the committee shall: “Supervise, co-ordinate and monitor the implementation of the policy in liaison with sector operators and institutions; appraise, evaluate and endorse for approval the local content plans (feasible Business Plan, Capital Plan, Procurement Plan, Imports Plan, Employment and succession Plan and Capacity Building Plan), and reports submitted by the operators, as well as coordinate with the private sector to enable Tanzanians to take advantage of the available opportunities.” The Committee shall be under the chairmanship of the Ministry of Energy and Minerals and will be constituted by:

  • The Ministry of Trade and Industry
  • The Attorney General
  • The Ministry of Finance
  • The Ministry of Labour and Employment
  • The President’s Office - Policy Reform Unit
  • The Prime Minister’s Office (PMO)
  • The Tanzania Procurement Authority
  • The Tanzania Revenue Authority (TRA)
  • The Tanzania Investment Centre
  • The Ministry of Home Affairs - Immigration
  • The Tanzania Private Sector Foundation
  • The Tanzania Chamber of Commerce, Industry& Agriculture (TCCIA), and
  • Two Representatives from the Civil Society[16]

Tanzania Petroleum (Local Content) Regulations (2017)

Objectives

The regulations’ main objective is the maximization of benefits to Tanzanians through participation in the gas value chain. The specific objectives are as follows."[17]

  • to promote the maximization of value-addition and job creation through the use of local expertise, goods and services, businesses and financing in the petroleum industry value chain and their retention in the country;
  • to develop local capacities in the petroleum industry value chain through education, skills transfer and expertise development, transfer of technology and know-how and active research, development and innovation programmes;
  • to achieve the minimum local employment level and the amount of money spent in the country for the provision of goods and services in the petroleum industry value chain as specified in the First Schedule to these Regulations;
  • to increase the capability and international competitiveness of domestic businesses;
  • to create petroleum and related supportive industries that will sustain economic development;
  • to achieve and maintain a degree of control over development initiatives by Tanzanians; and
  • to provide a robust and transparent monitoring and reporting system to ensure delivery of local content policy objectives.

Participation of local companies

The regulations require licensees, contractors and subcontractors working in the oil and gas industry to give preference to goods and services that are manufactured or locally available in Tanzania. This means that investors need to give first preference to Tanzanian local companies when procuring goods, works and services of any kind. A local company is defined as ”a company or subsidiary company incorporated under the Companies Act, which is one hundred percent owned by a Tanzanian citizen or a company that is in a joint venture partnership with a Tanzanian citizen or citizens whose participating share is not less than fifteen percent”. If the goods, works and services required are not available in Tanzania, such goods and services shall be provided by a non-local company which has entered into a joint venture agreement with a local company. This local company must own at least twenty five percent (25%) of the Joint Venture stake. "[18] The Petroleum Local Content Regulations provides that investors may procure insurance services, engineering services and financial services, from a non-local company if they obtain written approval from relevant authorities. "[19]

Capacity Development

The regulations recognize the necessity to “develop needs assessment of the required capacities to deploy Tanzanian experts in the petroleum industry and identify the areas in which there is no capacity and capabilities and it will not be sustainable for Tanzania to have such a category in place”. Regulation 12(6) requires that when a lack of capacity prevents the employment of Tanzanians, “reasonable effort [is] made to provide training to [them] in that field.” Regulation 18 also requires the submission of a technology transfer plan that requires approval from PURA or EWURA.[20]

The wider regulatory framework for local content in the oil and gas industry

Under the Petroleum Act of 1980, applications for exploration or development licences must include proposals regarding the training and employment of Tanzanians.[21] Moreover, the National Energy Policy of 2003 addresses issues pertaining to local content related policies in oil and gas sub-sector. Broad emphasis is placed on enhancing the local content. What is missing is detailing the level of participation of Tanzanians and Tanzanian-owned companies in these oil and gas deals. The local content provisions are stipulated under Article 20 and 21 of the Model Production Sharing Agreement (MPSA) of 2013 and are periodically reviewed to ensure they are in sync with developments in the industry.[22] The MPSA of 2013 contains the latest local content requirements, but so far they have yet to be adopted into any effective contract.[23]


References

  1. Formulation of local content policy on oil and gas gaining momentum”, “CTI”, retrieved 27 December 2014.
  2. The Tanzania Petroleum (Local Content) Regulations (2017)”, “Ministry of Energy and Minerals”, retrieved 19 August 2018.
  3. Local content policy of Tanzania for oil and gas”, “Ministry of Energy and Minerals”, retrieved 27 December 2014.
  4. Local content policy of Tanzania for oil and gas”, “Ministry of Energy and Minerals”, retrieved 27 December 2014.
  5. The Tanzania Petroleum (Local Content) Regulations (2017)”, “Ministry of Energy and Minerals”, retrieved 19 August 2018.
  6. The Tanzania Petroleum (Local Content) Regulations (2017)”, “Ministry of Energy and Minerals”, retrieved 19 August 2018.
  7. Understanding Local Content Policies in Africa’s Petroleum Sector”, “andrewskurth.com”, retrieved 27 December 2014.
  8. Local content policy of Tanzania for oil and gas”, “Ministry of Energy and Minerals”, retrieved 27 December 2014.
  9. Local content policy of Tanzania for oil and gas”, “Ministry of Energy and Minerals”, retrieved 27 December 2014.
  10. Local content policy of Tanzania for oil and gas”, “Ministry of Energy and Minerals”, retrieved 27 December 2014.
  11. Local content policy of Tanzania for oil and gas”, “Ministry of Energy and Minerals”, retrieved 27 December 2014.
  12. Draft local content policy for the oil & gas industry in Tanzania”, “Lexology”, retrieved 27 December 2014.
  13. Tanzania Publishes First Draft of Long-Awaited Local Content Policy”, “King & Spalding”, retrieved 27 December 2014.
  14. Local content policy of Tanzania for oil and gas”, “Ministry of Energy and Minerals”, retrieved 27 December 2014.
  15. Local content policy of Tanzania for oil and gas”, “Ministry of Energy and Minerals”, retrieved 27 December 2014.
  16. Local content policy of Tanzania for oil and gas”, “Ministry of Energy and Minerals”, retrieved 27 December 2014.
  17. The Tanzania Petroleum (Local Content) Regulations (2017)”, “Ministry of Energy and Minerals”, retrieved 19 August 2018.
  18. The Tanzania Petroleum (Local Content) Regulations (2017)”, “Ministry of Energy and Minerals”, retrieved 19 August 2018.
  19. The Tanzania Petroleum (Local Content) Regulations (2017)”, “Ministry of Energy and Minerals”, retrieved 19 August 2018.
  20. The Tanzania Petroleum (Local Content) Regulations (2017)”, “Ministry of Energy and Minerals”, retrieved 19 August 2018.
  21. Tanzania oil and gas”, “Freshfields Bruckhaus Deringer”, ”, retrieved 27 December 2014.
  22. Model Production Sharing Agreement”, “TPDC”, retrieved 27 December 2014.
  23. Local content policy of Tanzania for oil and gas”, “Ministry of Energy and Minerals”, retrieved 27 December 2014.