Understanding Local Content Policies in Extractive Industries
Local content policies in the oil, gas, and mining sectors aim to maximize the use of local resources, services, and participation for economic development. Definitions and objectives of local content vary, impacting policy outcomes and stakeholder priorities. This overview explores the significance of local content, varying circumstances, and objectives in different regions such as Nigeria, Ghana, and Trinidad & Tobago.
- Local Content Policies
- Extractive Industries
- Economic Development
- Stakeholder Priorities
- Resource Utilization
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Conference on Local Content Policies in the Oil, Gas and Mining Sectors - Extractive Industries for Economic Diversification Hilton Vienna Danube, Vienna, Austria September 30 - October 1, 2013 What is Local Content? - An Overview Anthony E. Paul, Association of Caribbean Energy Specialists, Trinidad & Tobago
What is Local Content? What is Local Content? Overview Presentation Overview Presentation Objectives- A.Session Objectives: Definitions of local content vary widely. Different definitions of local content drive policy outcomes. 1. What do we mean with local and content ? 2. Are we merely talking about locally registered firms? 3. Or are we referring to different levels of value addition, geographic location, and national participation? B.Presentation Objectives: 1. To frame the issues by illustrating: a. The varying objectives on local content, b. The circumstances that underpin these variations and c. The commonality between different perspectives. 2. Using these similarities to suggest a definition that can lead to a common target setting and measurement approach Anthony E. Paul, Association of Caribbean Energy Specialists 2 2
Varying Objectives Local Content & Participation Objectives, though often common, may vary in priority and by actor (country or investor): 1. In country/region value retention 7. National/local economic sustainability Cross-sector benefits Use local raw materials and manufactured goods improved services for business & public Infrastructure development Enhance local/national technology availability Enhance local/national research, development and innovation capacity Improve balance of trade Support regional integration Investor Benefits: Access to wider talent & services pool Cost reduction License to operate 2. Value addition (inputs & outputs) Human Capacity development more & better jobs Internationalisation of individuals Business Capacity Development Increase local business competitiveness Internationalization of businesses Sector sustainability Improve local capital markets Accumulate capital locally Reduce cost of capital Institutional Capacity Development Improved sector governance Cost transparency 3. 4. 5. 8. 6. Anthony E. Paul, Association of Caribbean Energy Specialists 3 3
Varying Circumstances 1. Country/Region 2. Industry 3. Business Environment 4. Other Actors 5. Priorities Anthony E. Paul, Association of Caribbean Energy Specialists 4 4
Local Content Varying Circumstances, Varying Definitions Nigerian Content: the quantum of composite value added to, or created in, the Nigerian economy by systematic development of capacity and capabilities through the deliberate utilization of Nigerian human, material resources and services in the extractives industry Ghana: Local Content refers to the quantum/percentage of locally produced materials, personnel, financing, goods and services rendered to the oil industry and which can be measured in monetary terms. Local Participation refers to the level of Ghanaian Equity Ownership. Trinidad & Tobago LC&P Objectives Local Content - maximising the level of usage of local goods and services, people, businesses and financing. Local Participation - maximising the depth and breadth of local ownership, control and financing, in order to increase local value-capture from all parts of the value chain created from the resource, including those activities in which nationals, local business and capital are not currently engaged, at home and abroad; Local Content and Participation - collectively referred to as local value-added - will be defined in terms of ownership, control and financing by citizens of Trinidad and Tobago. WB, Local Content Policies in the Oil and Gas Sector Local content is the share of employment or of sales to the sector locally supplied at each stage of this chain. Anthony E. Paul, Association of Caribbean Energy Specialists 5 5
So What is Local Content? It depends or does it? Can we define a moving target? Anthony E. Paul, Association of Caribbean Energy Specialists 6 6
Commonalities Normalising Local Content for Definition To achieve its objectives of enhancing the benefits to local economic and social development, Local Content must be: Enabled by Supply chain development (training, supplier development, procurement practices and governance) Delivered through the procurement of goods and services. Local can refer to: National Sub-national: Affected Community (village/town) Region around operations (e.g. Peru) Province/State (Canada/Australia) Content refers to ingredients or component parts Suggested Definition: Local Content is the input to activities directly involved in operations along value chain, which are provided by nationals. Anthony E. Paul, Association of Caribbean Energy Specialists 7 7
Measuring Local Content Simplicity is beautiful, but: Developing a measurement system is challenging Measurement and reporting can become an administrative burden Process of monitoring and compliance should be reasonable, consistent and simple to implement. Suggested Measurement: As in all businesses, inputs to all petroleum and mining activities (projects and operations) are ultimately measured by their cost. Contributions to local economic and social development can result from income to a variety of factors of production: Land (& raw materials) Labour (skilled & unskilled, manual & intellectual) Capital (debt & equity) Local Content can therefore be measured by: income received by locals revenues accrued by owners of land and resources income streams to local shareholders and creditors Anthony E. Paul, Association of Caribbean Energy Specialists 8 8
Discussion - What is Local Content? Other Questions Raised: Questions posed: 1. We have been doing local content for a long time, is definition important/necessary? Definitions of local content vary widely. Different definitions of local content drive policy outcomes. 2. If it is a moving target, can we really define it? 1. What do we mean with local and content ? 3. Is the purpose of a Local Content definition to know: i. What it is? ii. How to do it? iii. What it takes to do it? iv. What it causes/creates? v. How well we are doing? 2. Are we merely talking about locally registered firms? 4. Do we want/need a single definition for enablers, inputs and benefits or separate definitions for each? 3. Or are we referring to different levels of value addition, geographic location, and national participation? 1. Should definition be quantitative or qualitative or both? 2. Is it adequate to define Local Content and Participation by the value of local inputs? Anthony E. Paul, Association of Caribbean Energy Specialists 9 9
