Casing for Petroleum Sector Local Content Policy

South Sudan is already lagging behind in terms of expected benefits from its petroleum industry. This is in part because of a failure to develop and implement a policy on local content.

Casing for Petroleum Sector Local Content Policy

By Opoka Christopher Arop

The term local content is increasingly used in petroleum contracts to ensure that the company is hiring local labor and procuring local goods and services from the host country instead of using imported goods and services or foreign workers.

Another term used in petroleum negotiations is national content, which often brings to mind a much more localized geographic area�" project affected area instead of a host country in general.

It must be stated that narrowing national content in terms of geography or ethnic majority in the petroleum production area has many disadvantages not only to minority groups living within the petroleum producing area, but also negative implications on overall feasibility of petroleum services provider companies to meet international demand with localized labor.

It is also important to make clear this early that local content is not a substitute for social welfare or corporate social responsibility (CSR).

Does South Sudan have a local content policy and laws? [The answer is a no, if we do, it must be shoved somewhere in a shelf!] Some African countries in the petroleum sector have done what nations like Holland, Norway, United States, Russia and many others have done during the earlier years of their oil discoveries.

In Ghana, they have the Local Content and Local Participation Policy (2010) that is specific to the petroleum sector. This has posited Ghana as an example footprint for local content deliberations all-over the African continent.

Why is local content generally not discussed in great detail, save for a couple of sentences? The reason is that the subject is replete with challenges, many of which are often ignored by both parties to petroleum contract agreements. Even civil society actors have failed to some extent to understand the difficulties and prescribe working solutions.

Minimal high level education; here we find that there are not enough educated South Sudanese with adequate knowledge and skills suitable for the petroleum sector. Literacy rates and graduate turnout are generally low in the whole country. Quality of graduates produced is also not competitive to international or regional standards. The relatively new petroleum sectors on the African continent and the fact that the petroleum sector is not labor intensive like most sectors of the African economy (agriculture, manufacturing, textile industry etc), compounds the problem further.

For example, the Afghan Amu Darya Basin Contract says the following: “The contractor agrees to as far as possible to train and employ qualified Afghan nationals … and … will undertake the schooling and training … for staff positions, including administrative and executive management positions. The contractors and sub-contractors to do the same.”

This demand should be explicitly made clear to all actors in the petroleum sector, including civil society, environmentalist groups, government agencies (national oil companies), and international oil companies (IOC) and their sub-contractors. It is thus easier to pinpoint expectations and make demands to specific groups without creating a series of legal/contractual deliberations.

Mentioning local content is one part of the appeasement case, but how civil society coalitions on oil and extractives and government line ministries are able to monitor contractor compliance to local content provisions is relatively left untouched. Local content is often left at the mercy of various levels of interpretations and several interpreters. The following is a new approach:

Percentage of local personnel; There is need to break down required personnel into job category with an increase over time. This process must take into account avoiding arbitrary selection of percentages without hindsight of quantity and quality of human resources. The percentages must be realistic and achievable.

It is also important to reach a base for such calculations in determining percentage of part-time or full-time employees or full-time equivalents or general head count.

Specify job categories; Due to skilled-labor nature of the petroleum sector, deliberate efforts must be made to specify different categories of jobs allocated under local content �" skilled, unskilled, technical, administrative, clerical, management etc and this provision must indicate specific interpretations of what these mean and the qualifications needed.

Use of local content specific to entire life and specific times of a petroleum project; Petroleum is rarely found on the surface of the earth as such much more scientific and data-intensive techniques are used. The uncertainty in oil discovery is reason why most African countries do not have policies and laws in place before an oil boom. However, local content use must consider the different phases in petroleum production industry.

The exploration phase which requires different levels of technology and skill must be taken into account, so as not to use local labor only for land clearance activities. Well exploration, well discovery and well appraisal leading to commercial discovery are all phases that are skill specific. This means government policy must anticipate these stages as a first step in the effective and cumulative use of local labor.

Development and production phases of the petroleum industry make the bulk of local content percentage allocations. However because of absent skilled personnel, local content is more often assumed to be below calls for professionalism and experience.

Decline in commercial production which signal the economic limit of production are a sign for the abandonment phase. The decommissioning of wells will reflect environmental considerations and impact on communities and livelihoods. However, if local content is not cumulative enough to allow local content opportunities to understand the entire process (toxicity of chemicals on soil, water, animals, plant life etc), as well as the budgetary considerations for this phase, it is possible for local communities to assume there is no money in and for decommissioning as a start, and consequently lose interest because they do not have enough knowledge to own this last uniquely impacting phase.

Submission of local content employment plan, for government [with consent of civil society coalitions on oil and extractives] approval (or include this in the annual work plan): The South Sudan petroleum industry complexity created by the secession and independence from the Sudan is and cannot be an excuse for a failure on the part of the government and the oil contractors to oblige to this requirement. For example, in the Ghana Petroleum Agreement in respect of the deep-water Tano Contract Area, it states the following: “… contractor shall submit to GNPC (the National Operating Company�"NOC) an employment plan with number of persons and the required professions and technical capabilities prior to the performance of such operations.”

It is therefore important that the shift of petroleum ownership from the government of Sudan to the government of South Sudan need to show the following changes as well: Reappraisal and redevelopment phases, NOT only paper work; The contractor is typically obliged to submit a work-plan for activities it wants and thinks are necessary to conduct in the following year. This is a core part of a petroleum contract because it gives the state more role in the decision making process of what activities will be conducted each year. There cannot be an exception to this rule. And the secession of the two countries cannot/should not be excuse for laxity.

Case in point: Until September last year (2013), South Sudan’s deputy minister for Petroleum when asked how much oil was on the South Sudan side after the secession, she could only mention figures from contracts as early as 1970’s verifiable in her opinion by international figures for Sudanese oil reserves as a whole.

They are called “Work obligations”, “Exploration work obligations”, “minimum expected exploration work commitment” or “annual work and budgets”; in many petroleum contracts, and whatever they called, they must be able to allow control on annual work programmes and budgets by host governments and supervision of a general development programme and the costs associated with such works.

Questions must also be asked of the likelihood of imposing foreign foods on South Sudanese, or the fear of introducing foreign workers to South Sudanese foods. While I was at GPOC, the food was clearly Asian, Indian to be specific, with hot chilli and cooked by an Indian Chef. This is clearly for the interest of Asian workers at the GPOC site; what about the local content, many of whom have not travelled beyond Juba, let alone East Africa, to be able to embrace foreign foods?

Where is the South Sudan Petroleum Local Content policy, a question to the committee on energy and mining in the national parliament and what is the capacity of the national Petroleum and Gas Commission to produce such policy?