Anthony Paul
I am from Trinidad and Tobago. Our industry is over 100 years old, and we’ve been funding it for more than 100 years. We’ve also been producing natural gas for more than 60 years now.
We have an old oil and natural gas industry. But we understand how the industry works from that point of view. Major multinational companies in oil and gas publish sustainability reports annually and show how they were regenerated from the sale of oil, gas, and other products.
Suppliers or third-party suppliers get over 80% of the revenue. In other words, the oil and gas that you and I produced is sold, and the product is sold, and the suppliers benefit by 80%.
Companies and governments get 3%—over 3% of that value. That is why local content is so important. But the question is, are we targeting the revenue from local content or just the jobs?
You can get jobs, but if you quantify jobs rather than the value of the jobs, you might be missing a point.
This particular company was getting more than US$250 billion a year in revenue, 70% of which came from downstream. The point is that once oil and gas leave your shores or the fields, the value is almost three times higher.
Is your policy upstream sufficient to capture the value that might be available downstream? If this downstream activity is happening out of your country, how do you participate, or can you participate?
Are these worth going after? If so, what are your objectives and the approach to implementing them to target these sources of value? You may have a tax regime that includes royalty and taxes and additional profit taxes.
If companies are very profitable, what does that mean? This means that for every US$100 of revenue, supplies get US$80 or more. The government will take about US$10.25, which is quite good.
However, if local content were to get 12.5% of that supply chain, you would double the government tick. That would look like 15% of the total. The idea is there’s a lot of money to be made from local content.
When I look at this policy’s aims, I see that it seeks to develop a competitive Namibian workforce and companies across the value chain and support them in becoming world-class operators.
That is perfect, very noble, and what we should do. Are you considering the scale, scope, and duration of the activities happening in Namibia?
Are you factoring in the characteristics of what’s happening? In other words, Namibia has discovered oil and potentially a lot of natural gas.
Is Namibia considering, for instance, natural gas to have the plan to develop that gas, and how much of that in the country can have local content and awareness?
You know, procurement for major projects is a long-term endeavour. You have to plan early on if you want to get local content.
Local content only comes when somebody locally is employed, or a local company provides a good service.
We try to do local content by potentially giving locals preferential treatment, for instance, saying you will use locals once they’re available.
But no matter what, only locals can be employed or given a contract if that local can deliver. In other words, there must be the competency and capacity to do it.
How do you enable that in an industry new to your country? You must, therefore, invest in developing that.
The question is, what capacity should you invest in? How many people should you train, such as reservoir engineers in the fabrication and wildland? How do you know who to build, how, and when they should be ready? And how do you know which ones to choose?
The key is a precise analysis of demand and supply. In addition, you must analyze your capacity and ability to increase capacity to meet growing demand.
In other words, what institutional constructs exist for training and development? Any policy that gets into doing that must have reasonable access to the information around the projects, starting with the geology and which discoveries have been made, which might be converted into developments, which will be transformed into production and what the potential is for going beyond that.
That is an understanding of how oil companies work and having these skills to analyse along with them. Once you’ve got that, you will all want to get, as the policy says, to maximise local content, employment, and local goods and services. The reality is that not everybody can do all of it. How do you choose where to focus? How do you decide which are the most important to prioritise?
An analysis of all the industry’s skills, services, and goods needs. What’s the whole spectrum? Which ones should Namibia target? Because they align, as I’ve heard earlier, with Namibia’s aspect, national development goals and sector development goals.
But more importantly, which of those will the investment that you make pay returns which are, in other words, sustainable and viable? Some goods and services are required for a short time.
It may require a significant investment, which may not pay back. There’s also a notion, and it’s a reality, that the industry is high capital, technology, and risk. But when you break it down, that high technology is only in parts of the sector, parts of the activities.
Parts of the sector also have high capital. The risk is also on the investor in the upstream, meaning the operator or the contractor.
The subcontractor’s risk is that the significant companies doing this work don’t pay them or they don’t deliver their goods and services. The risk profile is different for contractors than for the major investors. And that’s where the policy comes in.
A policy needs to consider these things to be adequate for implementation. It must have analysed the demand and supply situation so you can prioritize where you want to go. Then, the principles will be set, and the main stakeholders will play their role in place. And as we heard, no policy delivers itself. It must be delivered to the regulatory and institutional frameworks.
In other words, laws, licenses, contracts, regulations, and instruments vary depending on the specific activity involved. And that must have an institutional framework with people to ensure these are the right ones.
They are working, and they get the individuals you want. There are many stakeholders involved in different roles. Stakeholders are engaged in capacity building, financing, local suppliers, etc. So, who is helping them understand their roles and what they need to develop and produce what is required? That requires coordination.
And I’m happy that the ministry has taken charge of this and is driving it. And a coordination process is critical to the success of this local content policy.
An important part is the institutional capacity regarding what information agencies need, what competencies they need, and how they work together.
Coming out of that or driving that is the appropriate control mechanism. In other words, are they mandated and authorized to conduct their roles the way they want?
Now, people think a policy in some places, not here, is sufficient. Once you have a policy, you can convince the operators to play along.
Now, if you’re a realist, you know investors and anybody seek their interests. If you think negotiating opposition is good, ask yourself whether you can out-negotiate the other party. And if you think so, then that’s a good strategy.
If you don’t think so, you should do something that makes it easier for everybody. And that is creating, and I see this in a policy, clear and consistent legislation, regulations, and the things that go below that.
The things below would be things like permits or guidelines. Those things only come about if you understand the activities involved. And that’s where domain expertise is essential.
For instance, local content starts when a tender comes out, and locals are invited to bid. But if you wait until then, I can tell you from experience that it is part-related.
Central project design burns in the way procurement strategy and even the operational philosophy from the design stage.
Suppose the design stage does not consider local content and, most importantly, local capacity development during those stages.
In that case, you will get what has been the tradition in old-fashioned oil and gas laws and contracts.
You will say local goods and services, provided they meet international standards of constant quality and timeliness.
But guess what? If you are in a new country, you will never be competitive in anything except the low levels of goods and services. It would help if you built into your local content strategy and mechanisms for capacity building at every stage.
Every tender that comes out will have a higher capacity in the domestic market. You’re building every time you go along. Your strategy has to be designed with knowledge of procurement, line up with significant project management, with all significant companies managing your contractors and their contracts, and how they build human capability.
One of the things that goes into local content is a struggle in countries like ours. It’s the ability to get competitive financing.
Our markets tend to have banks focusing on debt rather than a robust equity market.
One of the challenges our investors face is understanding the risks involved. When building a local content strategy, we must create a communication strategy to help others understand the risk.
For instance, if an investor came in, a local investor said, I want to get involved in supplying vessels to service the offshore sector, the offshore facilities, the FPS tools, or whatever you have.
Then, that contract was rewritten to meet the domestic market. In developed markets, the companies will go out for 10-0, a three-month or six-month contract. No local will get financing from a banker for that kind of contract.
However, that demand may be there for five years or 10 years. Can there be a contract that has a five-year timeline that is premised on performance? The way companies procure business services is critical. And that is something the government and the policy should aim to address.
There’s a lot to be gained from the oil and gas sector. And I hope the policy goes beyond the upstream to the whole industry, given the possibility of value there.
It’s essential to get the base right and to grow beyond that. But it’s also necessary to set your targets high enough that you have something to aspire to.
In the words of Michelangelo, if you aim high and fail, your words or aim low and meet your targets.
Anthony Paul delivered this presentation at the Local Content Conference at Luderitz in April 2024.
