The Draft Upstream Petroleum Local Content Policy 2023

Mines minister Tom Alweendo launched the Draft Upstream Petroleum Local Content Policy on 11 May 2023. Below is the full draft.

1 Introduction 

The Government of the Republic of Namibia (GRN) recognises that the petroleum sector can become an important vehicle for economic development where good governance and policies exist. 

However, the GRN also recognises that despite the possible benefits to the economy of such developments, petroleum resources do not automatically confer wealth on the people of the host nations where they are found. 

Although the petroleum industry can generate much wealth, such wealth does not typically spread through the host nation's economy as readily as that created by other industries. 

Petroleum resource extraction typically requires significant capital, technology, and expertise investments. 

Namibia, as a host nation starting to develop its petroleum resources, lacks some or most of the instruments to undertake such investments (including, for example, suitably qualified local expertise and locally produced goods), forcing the country to rely on outside support from foreign or international companies for these. 

This, in turn, can create social and political unrest in the host nation as wealth from the emerging petroleum industry may end up in foreign hands more readily than benefitting Namibia and her people. 

Through the indigenisation of knowledge, expertise and technologies, the overall goal of the petroleum sector is to ensure the exploration and successful development of the country's petroleum resources for the benefit and welfare of all Namibians. 

The petroleum licence conditions require the use of local Namibian service providers, which is part of the reporting obligation of the licence. 

Therefore, Namibia must put appropriate policies in place to capture and retain the value created from petroleum resources, including through a focus on local content and equity participation. 

STRUCTURE OF THE POLICY 

The National Upstream Petroleum Local Content Policy provides a framework to maximise value to Namibia from the development of the petroleum sector. It outlines the Government's expectations on how Namibians will participate and benefit from activity in the sector. 

Part 1 provides the background within which this policy was introduced to address the unique challenges facing the Namibian economy and its citizens in this highly capital-intensive and technical industry. It further sets forth reasons why this policy needs to be adopted and links it to other developmental policies seeking to achieve the same goals. 

Part 2 of this Policy sets the guiding principles, vision, mission, and goals. 

Part 3 of the Policy identifies and explains the key policy objectives and strategies. 

Part 4 of the Policy describes the high-level framework for implementing the policy. 

2 Background 

Petroleum exploration activities by international oil companies (IOCs) resumed immediately after independence in 1990, with the first licensing round being held in 1991. 

While licensing rounds successfully attracted IOCs to Namibia, they were less effective under low crude oil price market conditions, particularly those prevailing during the late 1990s. And so, the five-year period licensing rounds ceased in 1999 when the country adopted an open licensing system as an alternative to bidding rounds. 

Currently, several international oil and gas companies carry out exploration activities through joint venture arrangements with one another and/or together with the National Petroleum Corporation of Namibia Ltd (Namcor). 

Overall, 22 oil and gas wells have been drilled offshore Namibia, 19 since independence. These comprise 15 exploratory wells and seven appraisal wells in the Kudu gas field area. 

In addition, 10 exploratory wells have been drilled onshore. Presently, offshore 2D seismic survey coverage is about 147 000 line kilometres, and license operators have acquired more than 40 423 km² of 3D seismic data. 

After several years of extensive exploration, Namibia realised two first oil discoveries. The first discovery was made in early 2022 by Shell, QatarEnergy and Namcor in the deep-water well in the Orange Basin, offshore southern Namibia. After that TotalEnergies, QatarEnergy and Namcor followed with another significant discovery of light oil with associated gas on the Venus prospect, located in the Orange Basin offshore southern Namibia. 

As a result of the recent discoveries, Namibia must adopt a policy that will clearly define local content and set out clear and comprehensive plans for local content to ensure that Namibians benefit from their natural resources. The recent discoveries will benefit the Namibian economy as Royalties and Taxes will be paid to the Government and by creating employment for Namibians. Furthermore, the licence holders will be obliged to procure goods and services from Namibian companies, enabling Namibian companies to participate in the sector and maximising benefits for the Government. 

The upstream petroleum sector is a high-risk, capital-intensive, technologically driven enclave with long investment horizons. The search for hydrocarbon resources (exploration phase) can take several decades before it yields significant discoveries and includes the acquisition and interpretation of geological data (e.g. seismic surveys) and the drilling of exploratory wells, which, if successful, is followed by appraisal wells and various technical assessments to determine economic viability. 

When there are commercial discoveries, building infrastructure and facilities to process and export petroleum (development phase) from a field can take 5-10 years for oil. It can be materially longer for gas (due to associated commercial complexities). 

The duration of the production period depends significantly on the amount of the resource that has been discovered and can vary significantly, ranging from 20 to 50 years or more. Undertaking an exploration programme requires specialist knowledge (e.g. subsurface drilling) and, depending on the scope, can exceed US$100m, with costs increasing significantly if activities are offshore. 

Development costs can easily amount to billions of US dollars and require very specialist technical expertise (e.g. geologists, petroleum engineers, facility engineers) and equipment (drilling rigs). 

These technical and financial requirements represent high barriers to entry, particularly for developing countries, and result in high levels of import content for these specialised goods and services with relatively low levels of local employment. The petroleum sector's "enclave" nature means a minimal linkage with the domestic economy. 

The sector tends to operate independently of other economic activity in the country. These characteristics present unique challenges for the sector to contribute to a country's economic development. Many countries have developed policies to overcome these challenges and increase the benefits of developing finite petroleum resources. 

These are often called "local content" or "in-country value addition" policies. Over time the approach to local content has evolved from a fairly narrow view of corporate social responsibility towards a more holistic view of the economic value that can be added to the national economy through expanding the value chain within the country (backwards, forward and sideways linkages) as well as increasing the way nationals participate in the industry. 

Successful economic transformation requires a careful assessment of where the value accretive activities within the sector are and a targeted approach to developing in the country. Thus, local-content policies have become a key priority of host governments and industry players. Rationale Since independence, Namibia has not adopted any policy related to local capacity building in the petroleum sector. 

The country's hydrocarbon potential is estimated to be between [300 - 500] billion barrels of oil equivalent, and recent exploration activity has shown some positive signs. 

Therefore, Namibia must adopt a policy that will set out clear and comprehensive plans for capacity building for all Namibians and allow the sector to contribute to the economy. The policy is therefore aimed at assisting Namibia to manage its resources better and ensure that Namibians benefit by creating backward and forward linkages. It is globally accepted that one of the major requirements to ensure that petroleum resource management produces good outcomes is core policies. 

As this is the Policy's Rationale, the outcome will be better management of petroleum resources, employment creation, capacity building and using Namibian goods and services. 

Alignment 

This policy is a tool to develop the capacity of Namibians to participate strategically in the petroleum sector. This aligns with the broad objectives of Vision 2030, which provides for public and private actors to pursue capacity building with the utmost vigour. This policy further aligns with the Harambee Prosperity Plan (HPP), which seeks to support establishing local production capacity [downstream inputs and supplies] in targeted industries and supporting efficient, inclusive, and sustainable local sourcing schemes. 

In addition, the policy aligns with Namibia's 5th National Development Plan (NDP 5), which seeks to Achieve Industrial Development through Local Procurement. The Growth at Home Strategy of NDP 5 encourages the public and private sectors to buy local products. This will benefit the economy in many ways, including reducing import bills, improved the balance of payments and employment creation. 

The Petroleum (Exploration and Production) Act 2 of 1991, under Section 14, provides the license-holder to employ Namibian citizens who possess appropriate qualifications and to use products, equipment and services available in Namibia. 

The same provisions are also found in the Model Petroleum Agreement under Clauses 22 and 23, which form the contractual basis between the GRN and the successful licence applicant. This policy further aligns with the National Energy Policy, whose objective is to create opportunities to increase the share of local content providers throughout the Namibian energy industry and promote local participation in the Energy sector's multiple value chains. 

This local content policy ensures that the upstream petroleum sector contributes to the goals of the above policy instruments. It is there to develop the capacity of Namibians to participate strategically in the petroleum sector. To this end, a Local Content Plan will be created, allowing the International Oil Companies (IOCs) to transfer their technology, knowledge, and skill and add value to the country. 

4 Guiding Principles 

The Government commits to ensuring that activities and decisions regarding the local content policy will be made under the following principles:

A progressive approach focused on areas of the highest impact The Government recognises that policies designed to increase local content must consider the sector's sustainability. A phased approach is imperative for success. 

The policy must offer flexibility to respond to changing circumstances, such as geological risk and market conditions. The Government appreciates that local capacity must be developed for effective participation and will identify and prioritise strategic sectors for development. 

The Government expects that local content requirements will increase progressively as human and physical capital is developed and the local businesses are better prepared to participate in the petroleum supply chain. The Government recognises that local participants must be competitive as economic efficiency in developing resources is a critical prerequisite for maximising the net benefit to Namibians.

This policy commits to employ a combination of prescriptive legal measures and non-prescriptive approaches, such as performance targets, economic instruments and negotiated agreements to facilitate its implementation.

Resolute health, safety, labour, and environmental standards Given the risks associated with the petroleum sector and the potentially devastating impacts when not managed effectively, the Government is relentlessly clear that all participants in the industry will be held accountable to environmental laws and international best standards practices. 

As such, local content will not be pursued at the expense of quality, health, safety, labour, and environmental standards. Intergovernmental and industry partnerships 8 Ministry of Mines and Energy National Upstream Petroleum Local Content Policy - 2021 The Government recognises that a vibrant and efficient petroleum sector requires an effective partnership between the State and Investors. 

A clear and predictable regulatory, legal and fiscal environment that provides for the transparent and fair treatment of investors will continue to remain a feature of the sector in Namibia. 

The private sector is expected to drive the sector in pursuit of profitable, sustainable, and optimal resource extraction. Strategies and actions developed to increase the participation of Namibians and value addition to the country will be undertaken in a spirit of cooperation and coordination amongst stakeholders. 

Transparency and Accountability 

Modern principles of transparency and accountability will be applied to all aspects of the design and implementation of this policy. It is recognised that without appropriate checks and balances in the system, poorly designed local content policies can inadvertently lead to non-compliance, value leakage and rent-seeking activities. 

For example, efforts in this space will include transparency in the licencing process, contract awards and beneficial ownership. It will also seek to minimise rent-seeking opportunities by avoiding unrealistic targets and ensuring a transparent decision-making process. 

Upholding international best practices 

The Government resolves to apply international best practices in the petroleum sector's governance and maximising value addition to the people of Namibia. This will require engaging with others to learn from their experiences and remaining current with industry challenges and responses. Specifically, concerning local content development, the Government will adopt best practices in implementing measures for increasing local value addition. 

Policy Direction 

5.1 Vision 

An internationally competitive upstream petroleum sector in Namibia that maximises the benefits to the country from its petroleum resources through meaningful and sustainable participation by citizens and local companies across all areas of the value chain. 

5.2 Mission 

This policy lays the framework for maximising the benefits to Namibian citizens from petroleum resources through the enhancement and development of strategies that will target phased participation of Namibian labour, goods and services, companies, ownership and financing along the value chain. 

5.3 Goal 

This policy supports the development of local expertise in the upstream petroleum sector by enabling the development of an internationally competitive Namibian workforce and companies in the upstream petroleum sector to participate in a meaningful and sustainable way across the value chain and supporting NAMCOR in becoming a world-class upstream operator. 

Policy Objectives and Strategies 

This Local Content Policy lays the framework for maximising the benefits to Namibian citizens from petroleum resources through the enhancement and development of strategies that will target phased participation of Namibian labour, goods and services, companies, ownership and financing along the value chain. 

The National Upstream, Local Content Policy objectives are to: 

1. Provide a clear and stable regulatory framework for Local Content requirements 

2. Identify specific sectors for the development of local capacity 

• Maximise employment and development of Namibians 
• Maximise the participation of local suppliers along the value chain 
• Ensure the transfer of technology, knowledge and skills 
• Promote Namibian ownership and financing at all levels of the sector 
• Strategies The strategies of this policy are set forth herein to explain how the objectives will be implemented. 
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3.1.1 Providing a clear regulatory framework for local content requirements The Government of Namibia shall provide a clear and stable regulatory framework for local content so that investors understand Government's objectives and can support local content development. In formulating the regulatory framework to support the policy, there is a choice as to whether specific targets are used or whether they are set as "soft targets". 

The Government clearly states that the use of prescriptive targets should be done carefully and matched to the country's capability to avoid unrealistic expectations and inefficiencies. At present, Namibian's petroleum sector does not justify such an approach. The regulatory framework should, however, provide flexibility for introducing such when appropriate. Any move towards legislated specific targets will be based on empirical assessment, consistent with international practice and done on a graduated basis after consultation with the industry. 

The regulatory framework's use of standard definitions and reporting templates improves transparency and ease of administering and lends itself to effective monitoring and benchmarking of implementation across companies. 

Strategies: 1) Clearly define local content and what it entails 2) Review and update existing regulatory framework to ensure that local content requirements align with the country's best interest and international best practices. 

3) Ensure that local content development is a criterion for awarding Permits, Licences and Contracts. 

4) Ensure that local content requirements are also applicable to subcontractors. 

5) Require submitting an annual local content plan as a requirement for holding a Licence. 

6) Ensure there are strong, adequately resourced institutions to effectively develop, monitor and enforce local content requirements as the industry evolves.

 7) Require public disclosure of beneficial ownership and shareholding structure on companies bidding for oil and gas contracts. 

8) Develop standard reporting templates and guidelines for reporting local content. 

3.1.2 Identification of specific sectors for the development of capacity 

The potential for local content varies during the lifecycle of the industry as it is capital-intensive and technologically driven, and the inputs used at various stages (exploration, development, production) can be quite different and usually sourced via global supply chains. 

As such, the petroleum sector is typically characterised by a high dependence on foreign labour and companies given the capital, specialist skills and experience required and the limited availability of such in local labour markets. 

As a frontier region, specialist skills in Namibia are fairly limited, and activity is relatively small. However, if large discoveries are made, there could be a significant ramp-up of activity and the associated demand for skills, goods and services – many of which would be new to Namibia. 

Workforce development must be done parallel with the industry's progress to avoid a significant skills shortage or the development of an excess labour force without a demand. 

Addressing this issue will require the industry and Government's coordinated efforts to address existing and future skills deficiencies. To maximise the benefits of the country's hydrocarbon resources, a strategic approach to developing the local market to supply the sector must be at the heart of the Government's approach. 

Successful implementation will require developing the 'right' capabilities for individuals and companies to participate in the sector. This will require an assessment of the capacity gaps at present (i.e., the existing "state of play") and consideration for the scenario where large discoveries are made. Such analysis should lead to understanding which skills are needed immediately and which areas are worth pre-investing and developing capabilities for the future – especially if skills are transferable to and or complementary with other sectors (e.g., logistics, mining). 

The policy must also be aligned with the broader industrialisation strategy and existing initiatives to avoid duplication and ensure a consistent and coherent approach. 

This will require a coordinated effort amongst government entities, ministries and agencies responsible for related issues such as education, employment, environment, anti-corruption, innovation, industrial development, natural resources, planning, trade, transport and infrastructure. 

The key is understanding the nature of the opportunity for Namibians – which specific products/services or sectors can be targeted and over what time horizon (e.g., based on specific triggers). 

Diagnostic studies will be undertaken to identify strategic sectors and activities in the petroleum industry and where there are linkages with other sectors in the economy. 

The GRN will ensure the targeted development of local capabilities in these areas, ensuring coherence between local content requirements and the pace and schedule of the petroleum sector's activities. 

Strategies: 

• Collaborating with industry, academic & vocational training institutions, and other stakeholders to conduct appropriate studies to identify strategic sectors for targeted capacity building of local firms to supply the sector, including financial and support services. 
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• In collaboration with industry, academic & vocational training institutions, and other stakeholders, conduct appropriate manpower studies to identify the current and future skills/competence gap for targeted training and development of individuals. 
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• In the event of material discoveries, evaluate the potential for providing local training centres vs leveraging regional facilities. 
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• Ensure coordination amongst government entities across sectors to identify sub-sectors/activities with the greatest impact on the nation. 
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3.1.3 Maximising Employment and Development of Namibians 

The Government of Namibia recognises that the total direct employment opportunity from the petroleum sector is less significant than in other sectors. Notwithstanding this, the Government resolves to maximise the employment opportunities for Namibians and will focus on ensuring that Namibian citizens can effectively participate in the sector. The Government is committed to ensuring that Namibia has an adequately trained workforce to supply the industry. 

A comprehensive review of the current and expected manpower demand will inform the focussed development of particular expertise, including vocational skills. Targeted and measurable efforts shall be made for the training programmes intake to represent Namibian society, with particular emphasis on gender and previously disadvantaged persons. 

The Government expects participants in the sector to recognise that employing Namibian citizens is important in meeting the country's development needs and that their recruitment, training and development actions should reflect such. The current regulatory frame work stipulates preferential employment of Namibian citizens having appropriate qualifications. 

It is consistent with the most popular measure of local content - the number of nationals employed as a proportion of total full-time equivalent (FTE) employees. Whilst easy to compute and monitor, this metric needs to provide information on the extent to which nationals can progress in career development or the magnitude of local employment share of benefits (professional and managerial salaries being higher paying than unskilled positions). 

The Government will, therefore, also include additional perspectives such as skills (management /core technical/unskilled) and gender groupings. The Government will require that Namibian citizens fill all unskilled jobs and that, over time, there is an increased representation of Namibians in professional technical and managerial positions. 

In the event of significant discoveries, a realistic phased approach for managerial and technical positions will be taken in collaboration with the industry and other stakeholders. 

In addition, measures will be taken to mitigate any practice in contravention of or against this policy's spirit, specifically preventing fronting. The Annual Local Content Plan will include a Human Resources section encompassing recruitment, training and development. The principles of NEEEF must guide it under its Management Control and Employment Equity pillar and its Human Resources and Skills Development Pillar.

This will be the primary mechanism for monitoring and enforcing local content requirements associated with the labour force. 

Strategies: 

• Actively implement legislation stipulating that employment opportunities are publicly advertised and that Namibian citizens with appropriate qualifications are preferred. 
• Ensure that meaningful training and development of Namibian citizens is a requirement for operating within the sector. 
• Use Training & Development contributions to fund targeted skills development. 
• Require submitting an annual local content plan (as a requirement for holding a Licence), including a Human Resources section to cover Namibians' recruitment, training and development. 
• Ensure coordination between the petroleum sector regulator and other agencies concerning recruiting expatriates. 
• Ensure appropriate mechanisms are in place and effectively monitored to accelerate the transfer of skills and knowledge. These shall include but are not limited to mentorships, understudies, succession plans and secondment programmes. 
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3.1.4 Maximising the Participation of local suppliers along the value chain 

The Government will seek to promote solid economic linkages to local suppliers of goods and services. 

To achieve this, the Government will utilise a targeted approach for procuring local goods and services under the Entrepreneurial Development Pillar and the Value Addition, Technology and Innovation Pillars under NEEEF. 

Efforts will initially be on specific subsectors with limited technology and investment barriers, focusing on products and services that are already produced or can be produced. 

As the sector and local capability develop, and as appropriate, Government will also support the expansion into more areas of the supply chain. This will be done to promote competition and the emergence of an efficient domestic supply chain. 

The Government expects and will require participants operating in the petroleum sector to actively support the development of local providers of goods and services. 

The Government also expects and will require all participants in the sector to adhere to internationally accepted standards of health, safety, labour, human rights and environmental protection. 

To enhance the competitiveness of local firms, there will be deliberate efforts to create partnerships with experienced companies to maximise knowledge and skills transfer. 

The Annual Local Content Plan will include a section on procurement. It will be the primary mechanism for monitoring and enforcing local content requirements and efforts associated with developing and using local companies. 

Strategies: 

• Ensure that legislation stipulates preference for Namibian suppliers of goods and services on competitive standards and terms. 
• Require the submission of an annual Local Content Plan (as a requirement for holding a Licence), which will include a Procurement section to cover the development and participation of local firms. 
• Require contracts to be unbundled, as much as economically and practically feasible, to match local enterprises' timing and financial and human capabilities. 
• Require contracts to be advertised locally (where appropriate), ensuring local enterprises' access to all tenders.
• Require tender evaluation processes to place a weighting on local value-added. 
• Where appropriate, facilitate information sharing on procurement practices and standards to local providers. 
• Require the Regulator to maintain a database of local pre-qualified suppliers. 
• Encouraging the formation of partnerships, joint ventures and other commercial arrangements to maximise knowledge transfer from experienced companies to local enterprises. These arrangements will be subject to local law. 
• Facilitate access to financial services for local firms with particular support to SMEs. 

3.1.5 Ensuring the transfer of technology, knowledge and skills 

The transference of technology and knowledge is not an end but a means to allow Namibian citizens and local companies to participate meaningfully in the petroleum value chain. The sector is characterised by its technological complexity. 

The Government, therefore, sees it as an important aspect of realising and delivering value to Namibia. There are explicit policy measures to foster knowledge transfer to the local workforce (Objective 3) and local businesses (Objective 4). In addition to these, the Government also expects that in so far as practically possible, all efforts will be made to deploy and develop facilities, technology, research, and development in the country to promote and accelerate the development of Namibian citizens' local companies. 

1) Strategies: Seek Research and Development opportunities in consultation with the industry and local education institutions (e.g., vocational institutions). 

2) Encourage exchange programmes to accelerate knowledge transfer and build "know-how" between government agencies and companies. 

3) Require operators to disclose technology and knowledge transfer efforts in the annual Local Content Plan. 

3.1.6 Promoting Namibian ownership and financing at all sector levels: 

In contemplating means for Namibian participation in the ownership of companies, the Government recognises the capital intensity, inherent uncertainty, and volatility of the petroleum sector and the impact this has on companies' financial performance. In addition, as the industry is relatively new, participants may not be aware of potential opportunities or specific industry requirements. 

The Government resolves to promote activity such that Namibians' equity participation is sustainable through the inevitable market fluctuations and cycles. This requires a thoughtful and long-term approach. A company will be considered "local" if it is incorporated under the laws of Namibia, with at least 51% of its equity held by citizens and whose principal place of business is in Namibia. 

In assessing the level of compliance with the local participation requirement, specific care will be taken to mitigate and guard against the practice of fronting. Concerning ownership of upstream acreage (i.e., working interest in licenses), bearing in mind the capital and technological requirements and the associated risk/reward profile, the Government will seek to promote NAMCOR as the key vehicle for participation. 

As such, the Model Petroleum Agreement and legislation will expressly provide for NAMCOR's right to participate in each licence through a negotiated carried interest. 

Additionally, the Government mandates minimum levels of participation by local companies in each license through a negotiated carried interest. Significant efforts will be made to encourage and support local investors to actively participate in the sector's development along the supply chain. 

The Government will undertake collaborative analysis to ensure that targeted clusters are identified, and support is provided for these clusters under existing channels, for example, the Ministry of Industrialisation and Trade (MIT), Business Incubation Processes and the Small and Medium Enterprises (SME). Access to finance is a common barrier for local firms to participate in such a capital-intensive industry. Whilst efforts will be made to address this issue within existing national initiatives, the Government also recognises the relative immaturity of the Namibian financial sector. It will continue to look at international best practices to identify innovative structures that can be implied in the national context. 

The Government will also seek opportunities within the sector to enhance the financial markets. 

 1) Strategies: 

Ensure that NAMCOR has an exercisable option to participate in upstream activities. 

2) Ensure Namibians' equity participation in companies involved in petroleum operations, including promoting joint ventures and other ownership arrangements between local and foreign firms. 

3) Promote innovative structures and financing mechanisms to support local businesses in the sector. 

4) Develop measures to support and nurture investments in the sector by local SMEs. 

Implementation Framework 

This section describes the high-level framework for implementing this policy. This policy is intended to guide developments in key areas associated with increasing value to the local economy and is envisioned as a long-term document. 

The Government will monitor global and national developments and review this policy as required. The approach recognises that the industry is still in its early stages in Namibia, and many pre-conditions for successful implementation of local content measures do not yet exist. Therefore, it importantly provides a framework that addresses all key levels for increasing value to Namibia. 

It is envisioned to be applicable in the current exploratory phase and the event of major discoveries. It has been developed through a consultative process with key stakeholders and incorporates lessons learnt and international best practices adjusted according to country conditions. 

Institutional Arrangements for Implementation 

To ensure the effectiveness of the Namibian Local Content Policy (LCP) Framework, it must be complemented by clarity on responsibilities for execution and appropriate resources for implementation and monitoring. 

The Government is committed to incorporating the various aspects of developing local content into existing institutions rather than creating new agencies. It believes this is efficient and will aid in the sustainability of efforts. 

The key institutions include MME, PETROFUND, The Ministry of Environment, Forestry and Tourism, National Planning Commission, Academic & Research Institutions, NAMCOR, the Private Sector, the Community, and the Media.