ENH on Mozambique’s local content strategy

Mozambique

Victor Tivane, the local content director of Empresa Nacional de Hidrocarbonetos (ENH), talks to TOGY about the development of local content standards in the country, strategies for facilitating knowledge transfer and balancing between stakeholder interests. In July 2018, the NOC organised the Conference on Local Content in the Oil and Gas Sector in Mozambique.

This interview is featured in The Energy Year Mozambique 2019

• On Mozambique’s challenges: “The main issue that we face is having a commitment that if the local companies reach a good standard, they will be associated with the project. We need this commitment from all the stakeholders.”

• On stakeholders: “We have different expectations from different stakeholders. The government is looking for industrialisation, IOCs are looking to their investments, the private sector wants to get involved in the oil and gas sector, and the community needs infrastructure, employment and compensation.”

• On models: “When we analyse foreign models, the first thing we need to figure out is whether the economic and social structure of the country is close to Mozambique’s. We also analyse who dominates the upstream industry, whether it is an IOC or an NOC.”

• On sectors: “We have no tradition of working in subsea services, for instance, but we can work in sectors such as catering, accommodation, logistics, etc.”

What have been the main results of ENH’s conference on local content in July 2018?
At the moment we are working on the draft of the local content law, and we have different expectations from different stakeholders. The government is looking for industrialisation, IOCs are looking to their investments, the private sector wants to get involved in the oil and gas sector, and the community needs infrastructure, employment and compensation. This is really the picture on the law on local content.
We have local companies with different deficiencies that disqualify them from being involved in the oil and gas sector. The O&G sector is new in Mozambique, and of course we have local companies without track records and that lack the international standards and quality required by the O&G sector. The delivery time of the products and services requested is so long, and the most important issue is the payment delays.
In that sense, we held the conference to balance the expectations of the different groups involved. Another aspect that we brought up at the conference is understanding the different international models, in order for us to use these models to design our policies on local content. We brought some experts from Trinidad and Tobago, Brazil and Venezuela. We received different pieces of information about international models.
We also brought financial institutions into the conference, commercial banks such as BCI, BIM and Standard Bank. Also, we had a section teaching the participants about the minimum standards in the industry: how to apply for tenders, how to get contracts and what is needed in the companies.

What percentage of local content should be required?
We are talking about 10%, but 10% is not only a percentage. When we talk about 10% mandatory local content, first we need to analyse whether we have the capability to supply around 10% of goods and services. We are discussing around 10%. It cannot be 25%; that would be way too much. It’s our first time to dealing with the oil and gas sector, so we have to learn how to deal with these kinds of companies first.
Also, when we talk about the quality requested by these sectors, it is too huge for our companies. We have no tradition of working in subsea services, for instance, but we can work in sectors such as catering, accommodation, logistics, etc. People think that is just preparing food and supplying the companies, but we have to pay attention to the quality of the food.

What will be the role of international models in shaping local strategy?
We’ve launched an international tender to draft a strategy on local content, aimed first of all at following the international models and creating a benchmark with the economic reality of the country. Another aspect that we request in terms of the strategy is to start by mapping our capability in terms of supplies. We have to understand our current stage. If we know the current situation, we can discuss the percentage of local content. We cannot talk about 10%, 15% or 25% without understanding what our reality is.
We received around 25 proposals, from companies located in America, Europe and even Latin America interested in doing all the local content strategy. We believe we will choose the company in mid-2019.

What countries are you looking at in order to shape Mozambique’s local content law?
When we analyse foreign models, the first thing we need to figure out is whether the economic and social structure of the country is close to Mozambique’s. We also analyse who dominates the upstream industry, whether it is an IOC or an NOC. When we look at the Brazilian models, we know that Petrobras is very dominant. Here, we have to participate in upstream under the terms of the PSA.
Another aspect to take into account is the international agreements that we have signed, for instance the World Trade Organization, GATT, etc.

What are the main programmes that ENH has in place in order to increase local content?
As ENH, we are planning a programme called Linkar. It is still in the pipeline; we are still talking to the stakeholders. This programme will start focused on the Coral South project as a pilot. This project will link local companies, service providers, financial institutions and of course the operators. The objective of the programme will be lifting up local companies. The main issue that we face is having a commitment that if the local companies reach a good standard, they will be associated with the project. We need this commitment from all the stakeholders.
This programme will have four components. The first is the internal intervention component, which will accelerate the transfer of modern technology to local companies. Also, we will have the collective intervention component, which will create a broader and deeper training market. The business link component will facilitate supply links between local companies and the South Coral project. The last one will be financial support to local companies for obtaining and managing contracts. If it is successful, we will apply it to other gas exploration areas.

Who will finance the programme?
The multinational and multilateral institutions, for instance, the African Development Bank or Norfund. Also, we have discussed programme funding with the World Bank and Eni, the main operator. The plan will last for around four years, and we will spend around USD 59 million to support more than 350 local companies.
The programme will be a matching grant scheme. For instance, on each project submitted by the local companies, the programme will pay 80% and the local company will be ask to pay 20%. The main sectors we are targeting include catering, transport, engineering, accommodation, logistics and agroindustry.

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