The Natural Gas Local Content Policy:

A Focus on the Stakes of Communities

in Gas Producing Areas and Unexplored Potentials

By
Prof Handley Mpoki Mafwenga,
MINISTRY OF ENERGY AND MINERALS (TMAA)

TANZANIA'S NATURAL GAS ECONOMY: OPPORTUNITIES AND UNCERTAINTIES WORKSHOP

ORGANIZED BY JET FOR THE EDITORS’ FORUM ON THE EXTRACTIVE INDUSTRY
HELD AT MILLENNIUM SEA BREEZE HOTEL, BAGAMOYO ON 24TH TO 25TH
SEPTEMBER, 2015
A: Meaning of Local Content and Principles of LC
What is a Local Content?
• The added value brought to the country(URT) in the activities
of the oil and gas industry through the participation and
development of local Tanzanians and local businesses through
national labour, technology, goods, services, capital and
research capability [Local Value Addition].
• (It is) VALUE ADDITION leading to SUSTAINABLE DEVELOPMENT
and culminating also in JOB CREATION, ECONOMIC GROWTH,
ENVIRONMENTAL PROTECTION AND LONG TERM GAINS.

“The degree of local ownership, control and financing by

citizens of a nation, in a specific venture or entity that
promotes and enables the optimal use of in‐country
human resource, materials and services”.
A: Meaning of Local Content and Principles of LC
LC develops conditions between the EI and the host country
local economy through;
1. Vertical linkages: linkages between the EI and companies
that are not engaged in oil extraction that include;
Backward Linkage: supplying input to the local economy
through transfer of technology, the generation of value-
added in domestic supply sectors, the creation of local
employment opportunities, and increasing local ownership
and control
Forward Linkage: processing the sector’s output prior to
export through, for example, the establishment of refineries,
petrochemical industry, and the production of fertilizers
A: Meaning of Local Content and Principles of LC
2. Horizontal Linkage: linkage between foreign investors and
other extractive companies in the same industry, e.g.
technology agreements with local or international natural
resource firms or joint venture collaborations with local
companies.
The Principles pertaining to Local Contents encompass:
1. Competitiveness Principle: the ability of a domestic supplier
or contractor to supply goods or services in an international
market which could be entirely within the domestic
economy, with foreign and local firms competing against
each other in open competition.
A: Meaning of Local Content and Principles of LC
2. Protectionism Principle: intended or unintended economic
policy of restraining trade between countries through
methods such as tariffs (taxes) on imported goods, or
restrictive import quotas and regulations designed to
discourage imports. The setting of Local Content targets
would fall within the category of restrictive import quotas.
[Infant industry, Market Power i.e Foreign coys are
uncompetitive on base price, Social Impact i.e where local
content regulations is as a form of compensation for the
adverse socio-economic impacts of oil, and gas investment
on local communities and vulnerable groups]
A: Meaning of Local Content and Principles of LC
3. Comparative Advantage Principle: pervades key
decisions and assures contracts are awarded on a
competitive basis. This is the key principle of
procurement – The Golden Thread E.g. Clause in PSA
could reads;
“Give preference to local contractors and locally
manufactured materials and equipment so long as their
performance, quality and time of delivery are
competitive with international performance and prices”
A: Meaning of Local Content and Principles of LC
The golden thread of
procurement is the
principle of contract award
on an ‘internationally
competitive’ basis

The Golden Thread: “local companies will not be treated

differently with regard to quality, price, delivery, etc”.
B:Why Local Content?
1. Monitor the project delivery: Local Content is also becoming
a strategic consideration in project delivery.
2. Facilitate Commercial Or Public Policy Objectives: Local
Content regulations, such as reporting requirements, may
be fairly caring, whilst others may facilitate commercial or
public policy objectives to be substantively modified.
3. Rising Expectations: Due to new competitive landscape of
diminishing supply and increasing demand for energy
resources, companies in the oil and gas industry face rising
expectations to do more than simply mitigate negative
impacts, serve as sources of tax/royalty revenue and act as
good neighbours (CSR).
C: Some Highlights of Local Content in Tanzania
• Specific requirements for Local Content within existing
primary legislation in the petroleum sector are weak
• Obligations in Production Sharing Contracts (PSAs) on Local
Content are stronger. However, the PSAs
I. lack clear definitions around Local Content,
II. contain limited guidance on how Contractors’
expenditure might align with Government policy to build
the domestic industrial base so that Tanzania citizens
and suppliers can participate in the petroleum industry,
and
III. limit TPDC approval of commitments to Local Content to
the training, employment and staff progression of
nationals within the Contractors immediate organisation.
C: Some Highlights of Local Content in Tanzania
• The current laws and regulations lack mechanisms for
accountability to assure implementation of Contractors’ and
TPDC’s commitments to Local Content
D: CURRENT POLICY AND STRATEGIC FOCUS FOR TANZANIA
STRATEGIC PYRAMID

VISION /
POLICY Local Content Policy

Goal 1: Increase Employment

Goal 2: Reduce Costs GOALS
Goal 3: Enhance Operational
Efficiency  High Performance Culture
INITIATIVES  Operational Excellence
 Integrated Performance
Management
• National skills / gap assessment  Capital Expenditure
• Legislative Review / PROJECTS
Recommendations
• Develop strategic Partnerships
between GOVT & MNC’s
• etc
 14

E: Trade and Investment Treaties As Prohibition for LC

Trade and Investment Treaties restrict domestic local
content policy discretion through WTO which Aims at
lowering tariffs and non-tariff barriers by:
• Limiting performance requirements related to trade
in goods (TRIMs Agreement in 1995): local content
measures are explicitly prohibited if these oblige the
purchase or use by an enterprise of products of
domestic origin or from a domestic source, whether
this be specified in terms of particular products, the
volume or value of products, or in terms of a
proportion of volume or value of local production.
E: Trade and Investment Treaties As Prohibition for LC
• Limiting performance requirements related to trade in
services (GATS Agreement in 1995) “all WTO members should
accord services and service providers from other WTO
members treatment no less favourable than that provided for
under the common terms, limitations and conditions mutually
agreed within the WTO”.
• Limiting performance requirement related to government
procurement (The plurilateral Agreement on Government
Procurement (GPA Agreement) in 1996) “intended to counter
internal political pressure to discriminate in favour of domestic
suppliers of goods and services over foreign competitors, and
thereby open up government transacted business to
international competition”.
E: Trade and Investment Treaties As Prohibition for LC
Why Prohibited?
• it is considered as a protectionist measure: The host country
likely wins, the trading partners likely lose
• Exclusion to the Rule: under WTO, Special and Differential
Treatment (SDT) for developing countries, allows for some
discrimination, eg transition countries, Least Developed
Countries
• In the Upstream, Midstream and Downstream, there are very
different opportunities of local content development. In up-and
midstream, relatively few people are employed as compared to
downstream
• Tanzania is estimated to export 95% of its (new) gas.
Categorization of Interests in the Decision
Making Process
F: Development of Industrial Clusters Can Promote
Increased Local Content [Local Content Drivers]

Petrochemicals
Exploration & Refining
Development &
Processing Power & Water

Fabrication Services
Training Research

Electrical Infrastructure Maintenance

F: Development of Industrial Clusters Can Promote Increased Local
Content [Local Content Drivers]
1. Capacity Building and technology transfer;
2. Participation of Tanzanians and Tanzanian owned entities
[The Tanzania Mainland and its people and Business which
is incorporated under the applicable laws of Tanzania and is
wholly owned by Tanzanians or with at least 51% of shares
owned by Tanzanian Nationals and is registered to offer
goods or services in the oil and gas industry];
3. Procurement and usage of locally produced goods and
services [goods obtained, produced or manufactured and
have after-sales services in Tanzania Mainland and Services
provided in Tanzania Mainland];
4. Fabrication and manufacturing in-country; and
5. Socio-economic responsibilities.
F: Development of Industrial Clusters Can Promote
Increased Local Content [Local Content Drivers]
6. Research & Development
• Active government participation (facilitation, funding etc.)
proves effective in supporting establishment of world class,
leading edge research institutions that contribute to more
efficient development of domestic resources and
capabilities
• Leadership by resource development companies of applied
research and experimental development proves to be more
effective than by direct government involvement
G: THE MAIN CHALLENGES
1. Lack of human capacity and education skills,
Developing Countries’ Perspective: skills shortages hinder the
incorporation of local workers into the extractive industries and
the development of an industrial base necessary to spread the
benefits of these sectors to other areas.
Operating Companies’ Perspective: skills shortages can cause
the delay of new projects, increase costs and even hamper the
fulfilment of local content requirements.
2. Poor infrastructure,
A weak infrastructure prevents the expansion of the
manufacturing base. Public utilities as roads, railways and air
transport, telecommunications, electricity and water supply
constitute an environment which is more or less enabling for
To address the lack infrastructure, host countries must focus on:
I. building the appropriate legal, institutional and regulatory
framework,
II. managing different forms of private involvement and
financing,
III. looking for support in investment promotion agencies for
foreign investment, and,
IV. taking into consideration social factors related to the
investment in infrastructure.
3. Weak industrial base [Building Solid IB],
EI must be based on existing domestic capabilities in
manufacturing and services. However, in many countries the
industrial base is weak, narrow, has poor access to technology,
financing and information, and consequently, is not competitive
in the international industry context.
4. Poor governance and inadequate business
environment.
Rich natural resources countries lack an enabling
business environment to stimulate local business
creation.
H: HOW TO ADDRESS CHALLENGES
Lack of human capacity and education skills:
 Enhance general educational base through local
capacity building (to support development in the long
run) including designing primary, vocational, secondary
and university education syllabus suitable to support the
development in different areas and levels of
specialization.
 Enhance vocational and technical training;
 Ensure availability of school accreditation; and
Increasing demand for higher skilled workers in the
industry.
 improving the direct participation of the local workers
with companies in the industry value chain.
H: HOW TO ADDRESS CHALLENGES
Poor infrastructure,
Governments should attract a greater involvement of the
private sector - including local and transnational companies
(TNC) - in infrastructure financing, investment, ownership and
management, and concentrate their efforts in providing a clear
regulatory and legal framework, as well as proper stimulus to
private participation. Govt should focus in
(i) building the appropriate legal, institutional and
regulatory framework,
(ii) managing different forms of private involvement and
financing,
(iii) looking for support in investment promotion agencies
for foreign investment, and,
(iv) taking into consideration social factors related to the
H: HOW TO ADDRESS CHALLENGES
Poor governance and inadequate business environment.
 Provides an appropriate legal, regulatory and institutional
framework in which companies, local and foreign, have the
incentives to invest and develop productive activities;
 Gives enough guarantees to prevent corruption and rent
seeking behaviour;
 In line with the international initiatives, promotes
transparency and accountability in the extractive sector, with
different treatment of business confidentiality and
government sovereignty issues. Two well-known approaches
are the Publish What You Pay (PWYP) campaign and the
Extractive Industries Transparency Initiative (EITI)
H: HOW TO ADDRESS CHALLENGES
Improving Workers participation in EI, Boost local capabilities
through:
Research and Development (R&D) programmes, funds and
specialized institutes.
The link between major companies and local universities and
training institutes is key to design programmes with the
proper syllabus to meet the skills requirements of the
industry, as well as for the development of on-the-job training
programmes;
Introduction of local content provisions for training and hiring
national workforce at different levels of the value chain; and
Creation of industry linkages and extensive supplier
development programmes, including training, product
development, testing and factory auditing.
I: POLICIES AND RULES GOVERNING LOCAL CONTENT VALUE
CHAIN
The Local Content Policy of Tanzania for Oil and Gas Industry – 2014
The 2014 draft local content begins 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.”
Model Production Sharing Agreement (MPSA)
Article 21 (c): The contractor in consultation with TPDC within
six months of the grant of a development licence must
implement the training and employment proposals of
Tanzanian citizens; must ensure the transfer of management
and operation functions to Tanzanian nationals within the
period not exceeding 5 years of the start of commercial
operations
Model Production Sharing Agreement (MPSA)
ARTICLE 20(b): Give preference to the purchase of Tanzanian
goods, services and materials provided such goods and materials
are of certified standard and quality in accordance with TBS,
TFDA, or any other relevant authority
ARTICLE 20(d): Make maximum use of Tanzanian service
companies and contractors at certified standards and
competitive prices and terms
ARTICLE 20(i): Ensure that sub-contracts are scoped to match
the capability of local enterprises and manage risk to allow
their participation
ARTICLE 20 (j): Maximise the level of usage of local goods and
services, businesses, financing and employment of Tanzanian
nationals
Model Production Sharing Agreement (MPSA
ARTICLE 20(m): Give equal treatment to local enterprises by
ensuring access to all tender invitations and by including high
weighting on local value added in tender evaluation criteria
ARTICLE 21(a): Employ Tanzanian citizens having appropriate
qualifications to the maximum extent possible. In this
connection, the oil company in consultation with Government
and TPDC must propose and carry out an effective training and
employment programme for Tanzanian employees in each
phase and level of operations
Under the MPSA, if domestic demand exceeds the TPDC’s total
entitlement to profit oil or gas, the contractor may be required
to sell its share of profit oil or gas in Tanzania on a pro rata
basis with other producers in Tanzania (except the TPDC).
The Petroleum Act 1980
A development licence must include conditions requiring registered
holder to supply petrol to meet the local needs of Tanzania. Applications
for exploration or development licences must be accompanied by
proposals with respect to the training and employment of Tanzanian
citizens.
National Development Vision 2025, [Driving Forces For Realization Of Vision]
The utilization of domestic resources
“should be utilized to build adaptive capacity for promoting economic
activities that enjoy comparative and competitive advantages with a view
to minimize the impact of external economic shifts and shocks”
Transformation of the economy towards competitiveness
[The diversification of the economy must be based on a dynamic
industrialization programme focused on local resource-based industries
(agro-industries) and capable of meeting the needs of other sectors …….]
GOOD GOVERNANCE AND THE RULE OF LAW
Promoting democratic and popular participation
[“Deliberate efforts must be made to empower the people and catalyse
their democratic and popular participation. The strategy should entail
empowering local governments and communities and promoting broad-
based grassroots participation in the mobilization of resources, knowledge
and experience ………”.]
The National Petroleum Policy of Tanzania 2014
One of its Specific Objectives [(viii) To maximize national benefit by
promoting local value addition and building local competencies…….]
Sub-Article 3.1.2.4: Local Content and Capacity Building
i. Ensure that training needs assessment is carried out to identify the
capacity and competence required in the upstream sub-sector.
iv. Ensure that contractors/operators prepare and implement acceptable
succession plans for the transfer of technological know-how and skills
relating to petroleum operations
The National Petroleum Policy of Tanzania 2014
v. Encourage local companies to enter in partnerships with
international companies to acquire technology transfer and
develop competence in Tanzanian companies.
vi. Ensure that fabrication and manufacturing industries,
wherever feasible, are established in the country and that
Tanzanian goods and services are given preference in
petroleum operations.
National Empowerment Policy and Act 2004
National Empowerment Act, 2004: Preamble …..”Now Therefore, with a
view to promoting rapid economic growth that will facilitate broader
economic ownership by Tanzanians deliberate measures are taken to
establish structures and mechanism to redress the existing economic
inequalities among various of the populations….”
National Empowerment Policy and Act 2004
Definition of Economic Empowerment (Section 3)
“Economic empowerment” means deliberate and affirmative
actions and measures undertaken by the Government for the
purpose of promoting and enhancing knowledge, skill,
economic prowess and financial prudence of Tanzanians to
enable them to meaningfully participate in economic activities
and includes all plans, strategies, policies and measures taken
to achieve the goal, be it by public or private sector
National Empowerment Policy , 2004
Clause 3.3:“The primary objective of the policy is to provide general
guidelines which will ensure that the majority of the citizens of Tanzania
have access to opportunities to participate effectively in economic
activities in all sectors of the economy……”
National Empowerment Policy , 2004
Clause 3.2 (iii)
• Policy is intended to address all economic empowerment
needs of the individual citizens of Tanzania and local
companies in which Tanzania citizens hold not less than fifty
percent of the shares.
• Facilitate the improvement of the quality of locally made
products, reduce the cost of production and raise the skills
level used in productive activities
Sub-Clause 4.4.3 (iii): Assisting learning institutions and
companies to render material assistance that will encourage
most Tanzanians to undertake technical training in institutions
that meet their needs. Cost Sharing Approach should apply with
the objective of encouraging more citizens of Tanzania to
enhance their technical skills
Sub-Clause 4.7.2: The Government will ensure that market
information is made available to Tanzanian producers, develop
local markets and improve access of Tanzanian products in
neighbouring countries and in the global market.
Sub-Clause 4. 7.3 (i): Ensuring that local companies are given
preferential treatment when the Government awards
procurement tenders
Five Year Development Plan (2011/12 - 2015/16)
One of the Five Core Priorities of Plan’s strategy to unleash
Tanzania’s latent growth potentials: “Industrial development
specifically targeting industries that use locally produced raw
materials such as textiles, fertiliser, cement, coal, iron and
steel, as well as development of special economic zones, using
public-private partnerships”;
Natural Gas Policy, 2013
Clause 3.1.7: Local Content and Capacity Building : The Government shall;
Ensure that the local communities benefit from the natural gas activities
in their respective localities.
Work with IOGCs to ensure opportunities for supply of goods and services,
employment and investments are made available to Tanzanians; that the
capacity of Tanzanians is developed in the natural gas value chain through
skills development, transfer of technology and applied research
• Work with IOGCs to explore possibilities that companies
participating in natural gas value chain are listed on the DSE
• Establish oil and natural gas centre of excellence and
strengthen capacity of the training institutions to impart
requisite knowledge skills and innovations to Tanzanians.
2nd NSGRP/MKUKUTA 2010/11 - 2014/15 (NSGRP/MKUKUTA II).
Balance of payments:
Addressing the import side prudently in order to reduce the
import bill. Interventions in this area relate to promoting
consumption of locally produced goods and services to out-
compete imports, and curtailing dumping of imports, such as
counterfeits known to be of poor quality and in some cases
unfit for human consumption
 THANK YOU

CONTACTS: mafwenga2000@yahoo.com; hmafwenga@tmaa.go.tz +255758888884;

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