Supply Chains of the Oil and Gas Industry in Tanzania

=Definition Supply Chain= A supply chain refers to the network created amongst different companies producing, handling and/or distributing a specific product. Specifically, the supply chain encompasses the steps necessary to get a good or service from the supplier to the customer. Supply chains include every company that comes into contact with a particular product. For example, the supply chain for most products will encompass all the companies manufacturing parts for the product, assembling it, delivering it and selling it. =Oil and Natural Gas Supply Chains= The oil and gas industry has very long supply chains. Many companies are involved in supplying the materials, components and services at different stages and various extracting, refining and distributing processes for oil and gas. Oil and gas companies source services and supplies from many different countries. These include mechanical and electrical parts, professional services such as project management and legal expertise for drawing up contracts. =Local Oil and Natural Gas Supply Chains in Tanzania=

Natural Gas Policy – 2013
The National Natural Gas Policy states that the natural gas industry in Tanzania should invest to maximise the supply of Tanzanian goods and services. It further recognises that achieving the objective of maximising local content requires the implementation of sound policies, strategies, action plans, continuous consultation amongst key stakeholders and strengthening of the capacity of various institutions such as Local Government Authorities (LGAs) and Community-Based Organisations (CBOs). In this regard, the policy calls on international oil and gas companies to create opportunities for maximising local content.

Local Content Policy of Tanzania for Oil and Gas Industry- 2014
In April 2014, the Ministry of Energy and Minerals published a first draft of the Local Content Policy of Tanzania for Oil and Gas Industry. The policy, once finalised, is to serve as a precursor to a local content bill that will later on become local content legislation. The draft policy opens with the statement: “Natural gas resource found in Tanzania belongs to the people of the United Republic of Tanzania, and must be managed in a way that benefits the entire Tanzanian society.” Two of the five focus areas as outlined in the draft policy address local supply chains: 1.	Procurements and usage of locally produced goods and services: The government will (i) ensure there is a compulsory local content requirement in every invitation to bid for the provisions of goods and services; (ii) ensure that contractors and lead sub-contractors manage risks of local businesses to allow for their participation; and (iii) ensure transparency, value for money and competitiveness in every procurement process undertaken by contractors and sub-contractors. 2.	Fabrication and manufacturing in-country: To increase and maximise manufacturing in Tanzania, the government shall (i) ensure the availability of equity financing to local businesses engaged in fabrication and manufacturing; (ii) ensure that Tanzanians with required skills are available to participate in fabrication and manufacturing; (iii) encourage multinationals to bring their global oilfield services and equipment to Tanzania; and (iv) ensure the development of a consolidated domestic fabrication industry. Furthermore, the draft policy defines a “Local Business” as the one that is incorporated in Tanzania and is wholly owned by Tanzanians or at least 51 percent of the shares are owned by Tanzanians. An interest held by a Tanzanian entity can only be transferred to another Tanzanian entity. Ownership structures of businesses are to be carefully scrutinised to determine the authenticity of Tanzanian-owned shares, taking lessons from other countries that have faced the challenge of “shadow shareholders.”

Opportunities
Various analysts have described different opportunities for Tanzanian companies to participate in the country’s gas sector. According to the Governor of the Bank of Tanzania (BoT), the country’s central bank, Professor Benno Ndulu, local companies have an opportunity to harness the availability of foreign firms and ensure that they partner with them to create win-win situations to bid for tenders in the gas sector. “International companies in the gas sector need quality work. For a local company to gain access in the supply chain they need such assurance to quality of their products and this can only be realised by partnering with foreign firms,” he said. The BoT Governor sees the main opportunities for local companies in participating in the downstream activities where food processing companies and construction, hospitality and even transportation will be needed at the most. Sir John Hicks, Professor of Economics at the London School of Economics, asserts that global companies should source their needs locally and provide institutional support to local firms to help them grow. According to him, it is necessary to build local capabilities using global practices. The focus should be on generating a maximum number of good jobs by integrating local firms into the supply chain of the gas multinationals. A knowledge programme by the World Bank Group identified 15 industry clusters which could benefit most from developing linkages with the gas industry and in particular the construction of the LNG plant. However, the World Bank Group cautions against inflated expectations.

Challenges
The current local supplier base in Tanzania is yet to meet the standards of the oil and gas industry despite its being a new industry in the country. Experience shows that the value of petroleum exploration and production is rarely translated into economic and social benefits for indigenous workers and supply industries, even in the most resource-rich African countries. This is particularly the case in emerging frontiers such as Tanzania. International service providers have existing, well-established relationships with international oil and gas companies which makes it easy for them to displace small local firms from the value chain of the oil and gas industry. Local content goals address these challenges but are inherently aspirational. In recognition of the need for substantial capacity-building in many African countries, local content obligations are typically qualified by caveats. For example, international oil and gas companies are required to prioritise the procurement of local goods and services and the hiring of local service providers, but only to the extent that no better alternatives in terms of price or quality are internationally available. The reality is that local capacity is often lacking, and international oil and gas companies who are (understandably) unwilling to procure sub-standard materials or hire unqualified personnel can easily opt out of their local content obligations.

=References=