Local content policies have little to no teeth-NRGI says laws necessary

Apr 25, 2019 News

By Kiana Wilburg
Quite often, policies which are aimed at ensuring oil companies make maximum use of local goods and services, have limited impact. As such several countries have adopted complementary laws aimed at increasing the size of the local supply and workforce that is used in the oil sector.
Highlighting this was the Natural Resource Governance Institute (NRGI), an independent nonprofit organization dedicated to improving countries’ governance over their natural resources.
According to NRGI, these complementary laws include provisions aimed at increasing local participation via specific requirements to transfer know-how and skills to local enterprises and workers, and the requirement to train the local labor force.
A related legal strategy it said is the requirement to form joint ventures with local public or private companies to ensure in a more direct way that foreign companies transfer knowledge and technology to local companies.
In countries where the State is an active economic player, such as China and Brazil, NRGI said that this approach has been accompanied with an increasing share of public ownership of oil, gas and mining- related industries.
These initiatives also can come from the companies themselves and nongovernmental organizations when they design and support programmes for private sector development. (Examples of this include The Small Business Initiative, Anglo Zimele by Anglo American in South Africa, Chile and Brazil; and Newmont’s business link programmes with the International Finance Corp. in Peru and Ghana.)
NRGI said, “The impact on the local supply depends on the timely coordination of complementary industrial, educational, technological and local content policies.
For instance, if there are no significant educational investments in relevant areas, it would be difficult to identify and train suitable local workers. Furthermore, the local supply needs to be sustainable and ideally internationally competitive in terms of quality, value and scalability. “
Further to this, the Institute said that even after coordinated efforts have been made and significant revenue has been invested, the local industry can remain uncompetitive.
At the sub-national level, NRGI explained that countries such as, India, Kazakhstan, Papua New Guinea, Peru, Philippines and South Africa have mandated spending on enterprise and skills development as part of social funds that companies are required to set up.
In the Philippines, it outlined that the law requires companies to not only produce development plans for the host and neighbouring communities, but also to contribute to “self-sustaining income generating activities, such as but not limited to, reforestation and production of goods and services needed by the mine and the community.”
It said, “Companies also are expected to finance the training of Filipino workers should local skilled workers not be available. In addition, mining companies are required to implement a social development and management program that allocates one percent of the direct mining and milling costs for community development.”

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