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Ideas & Debate

‘Local content’ in oil production crucial

Kenyan companies, enterprises, and
Kenyan companies, enterprises, and professionals will also need early sensitisation of the available economic opportunities and how to access them. FILE PHOTO | NMG 

Since discovery of commercial oil in 2012, there has been numerous conferences and studies on how Kenyans can prepare to sufficiently participate in the economic opportunities (local content) offered by the emergent upstream oil industry. Commercialisation of oil is now very near, but have we created sufficient capacity for local content?

Economic opportunities in the form of jobs (skills and labour), materials supply, and support services will peak with the construction of oil production facilities in Turkana and the export pipeline to Lamu. When the ongoing FEED (Front End Engineering Design) studies for the two projects are finalised, the investors will likely make their Final Investment Decisions (FID) prior to end-2019 allowing construction to commence early in 2020 and finish in 2022 in readiness for first oil export via Lamu.

Local content will comprise of construction sub-contracts issued by the main EPC (Engineering Procurement Construction) contractors in areas of civil, mechanical, electrical and plumbing. Suitable local skills will therefore require availing, creating or enhancing through training.

There will be logistics requirements in clearing, transporting goods and equipment from the port to construction sites. Local construction materials like cement, aggregate will also be required in large quantities.

Support services will include catering to feed large numbers of workers; local passenger transport; air transport services; provision of petroleum fuels; security, and medical support. Accommodation and indirect services in and around Lokichar will turn the town into a beehive of day and night activities.

It is a regulatory requirement that Kenyan local content is optimised in line with percentages prescribed by regulations. Attempts are made to distinguish between “national content” (sourced from Kenya), “local content” (sourced from County), and “local/local content” (sourced from immediate communities).

The most critical readiness handicap is that Kenya is yet to pass the Upstream Petroleum Act which provides legal, regulatory and institutional frameworks for local content implementation. It is also likely that the necessary capacity within the petroleum ministry and its agencies to steward and monitor local content compliance has not been established.

The Cabinet Secretary responsible for petroleum has an urgent homework to give us the law and regulations to avoid holdup in local content (and 2022 first oil) implementation. Clear and achievable local content regulations are a key input in investors’ FID because local content impacts project costs, implementation schedules, and also regulatory compliance.

From experience gathered from other major projects in Kenya, economic opportunities for local communities have often resulted in disruptive conflicts. We need to proactively engage all relevant stakeholders in local content planning to avoid potential conflicts and project disruptions.

Facilitation of local content is a joint responsibility among the Ministry of Petroleum, investors, and the counties hosting the projects. The three stakeholders should form a local content joint working committee with the objective of implementing realistic and balanced levels of national and local content, bearing in mind need for socio-economic value addition.

Kenyan companies, enterprises, and professionals will also need early sensitisation of the available economic opportunities and how to access them. This can be done through the media and public/community forums. The idea is to provide transparency and fairness in local content access, while avoiding last minute surprises.

I am aware of various ongoing efforts by the oil investors, oil source counties, the Lapsset Authority, technical training institutions, donors, and NGOs to specifically prepare local communities for the coming oil projects, especially in areas of transferable basic skills and enterprises. It is now time to ensure that these activities are aligned and ready to mobilise for various project needs in the next one year.

Specifically the Turkana County government has a critical role to play to ensure smooth incorporation of local content participation by working very closely with the investors and their contractors.

When the three-year construction is over, and oil exports are flowing, the oil production and pipeline operations will require only few employees due the technological nature of the operations. These persons will also require sourcing and training.

I believe that increased local content focus is now urgently required, to avoid unforeseen delays in meeting the 2022 first oil target.

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