THE LAW AND ISSUES REGARDING LOCAL CONTENT REQUIREMENTS IN TANZANIA OIL AND GAS OPERATIONS VIS-À-VIS RELATED INVESTMENT

 

• The Tanzania Petroleum (Local Content) Regulations, 2017. An in-depth look and analysis
• A focus on investors aiming at provision of goods, works and services in oil and gas projects
• A quick synopsis of the general local content requirement
• A guide to the preferential aspect of local content and other criteria for sourcing services in support of oil and gas activities

Introduction:
This is a brief but thorough update of the provisions of the Petroleum (Local Content) Regulations, 2017 (hereinafter referred to as “the Petroleum Local Content Regulations”) regarding provision of works, goods and services by non-local entities.
On the eve of the inception of the East African Crude Oil Pipeline Project stretching 1,445 kilometers from Kabaale Uganda to Chongoleani Tanga, Tanzania; our Breakthrough Attorneys Oil and Gas division took part in a one day Workshop meant to sensitize the EACOP Project as well as the stakeholders around the oil and gas sector internationally and domestically as well.
One among the many issues covered in the workshop is the role that the local society can play in the outlay of the entire project’s tiers. As a matter of investment sensitization and public awareness, we at Breakthrough Attorneys deemed it fit to prepare this brief note on the pertinent questions regarding the involvement of the indigenous in oil and gas projects in general.

Assorted Services That May be Available for Local Investors (Service Providers) in the construction of the EACOP Project:

AGI Construction Labor	MEDIVAC	Portable Generators Maintenance
Masons	Pipeline Labor	Road Flagmen
ATV Rentals	Road Boring	Crew Personnel Transport (Buses)
Catering Supply & Delivery Services	Portable Water & Waste Water Treatment Units	Construction Camp Food Preparation Personnel
Civil Engineering	Road Construction	Environmental Monitoring
Civil Works (Grading, Leveling, Spoils Removal)	Construction Camps Administrative Personnel	Field Inspectors (welding, electrical, civil, etc.) Transport Vehicles
Construction Camps Maintenance Support	Construction Camp Medical Personnel	Foundations Labor (Rodbusters, Formwork, Concrete)
Construction Camps Administrative Personnel	Lab Testing Soils compaction compression	Lab Testing Soils, compaction, compression
Customs Clearance	Security (7/24)	Equipment Specialty Mechanics
Road Maintenance and Repair	Safety Inspectors	Equipment Maintenance
Equipment Operators	Escort Vehicle Services	Field Engineers (ME, CE, IE, EE)
Shipping Containers and Crating	Logistic Services Welder Qualification	International Freight Forwarding
Soils and Asphalt Transport	Survey Crews	Temporary Office Personnel
Transport Vehicles	Water Trucks (Dust Control)	Water Well Services
Tanks (<50kcm) Plate Welders	Helicopter and Fixed Wing	In Country Equipment Rentals
Vehicle Parts	Waste Disposal	Vehicle Rentals

 

General Statement on Local Content Requirement
The spirit behind local content requirement is set through Regulation 8 which is wholly reproduced as follows:-

“8. A person conducting petroleum activity shall ensure that:
(a) a qualified Tanzanian citizen is given priority in employment and training in any matter relating to the petroleum activity;
(b) preference is given to goods and services provided, manufactured or locally available in Tanzania in accordance with the provisions of the Act and these Regulations; and
(c) a Tanzanian citizen is given priority in any matter relating to the technology transfer, research, development and innovation in any petroleum related activities.”

In regulating “local content” our Breakthrough Attorneys oil and gas experts wish to further draw a roadmap on the preference structure for activities in the oil and gas industry.

Local Content Requirements Regarding Goods, Works and Services Provided by Non-Local Companies:
Regulation 15 (1) of the Petroleum Local Content Regulations requires licensees, contractors and subcontractors working in the oil and gas industry to give preference to goods and services that are manufactured or locally available in Tanzania.

Our Oil and Gas experts’ analysis of this Regulation is that investors in oil and gas industry need to give first preference to Tanzanian local companies when procuring goods, works and services of any kind. A local company is defined by the Petroleum Local Contents Regulations to mean a company or subsidiary company incorporated under the Companies Act, which is one hundred percent owned by a Tanzanian citizen or a company that a Tanzanian citizen or citizens whose participating share is not less than fifteen percent (15%).

Our experts expound further that where goods, works and services required are not available in Tanzania, such goods and services shall be provided by a non-local company which has entered into a joint venture agreement with a local company (one registered in Tanzania and with a Tanzanian holding between 15% to 100% of shares) This local company must own at least twenty five percent (25%) of the Joint Venture stake. This is provided under Regulation 15 (3) of the Petroleum Local Content Regulations.

Note: See our simplified breakdown of shareholding compliance for provision of services, goods and works in the table at the foot of this article

Local Content: Other Forms of Equity Percentage When Preferred
Regulation 15 (4) of the Petroleum Local Content Regulations provides that, a non-local company which intends to provide goods, work and services to a licensee, contractor and subcontractor may enter into other business arrangement which will guarantee local participation of at least ten percent (10%) shares, interest or equity of the contract value for provision of the works, goods and services. This is however further regulated as per our analysis below.

Approvals and Credentials Building
Before entering into any other business arrangement (Regulation 15(4) Supra), a non-local company is required to obtain approval from Energy and Water Utilities Regulatory Authority (hereinafter referred to as “EWURA”) for downstream activities and Petroleum Upstream Regulatory Authority (hereinafter referred to as “PURA”) for upstream activities.

The implication of Regulation 15 (4) of the Petroleum Local Content Regulations is that where the joint venture arrangement (for 25% local JV stake holder) has failed, a non-local company may provide goods, works and services through other business arrangement, but ensuring that a local stake is not less than 10%, subject to approval from either EWURA or PURA depending in the nature of the activities.

Regarding procurement of insurance services, engineering services and financial services, the Petroleum Local Content Regulations provides that investors in oil and gas industry may hire or retain a non-local company prior to obtaining written approval from relevant authorities.

Bidding and Evaluation Process that involves a non-local Company:
Regulation 30 (1) of the Petroleum Local Content Regulations requires a licensee, contractor and subcontractor to establish and implement a bidding process for the acquisition of goods, works and services that will give preference to a local company.

A contract for provision of goods, work and services shall not be awarded based solely on the principle of the lowest bidder.
During evaluation of bids a non-local company that contains highest level of local content shall be selected.

Where a non-local company is required to provide goods, works and services to a licensee, contractor and subcontractor, it is required by law to form joint venture with a local company that shall own shares of at least twenty five percent (25%) in the joint venture.

Where a licensee, contractor and subcontractor has conducted a competitive, fair and transparent bidding process yet has failed to obtain a local company to partner in procuring of goods, works and services may enter into other business arrangement that will guarantee local participation of at least ten percent (10%) of interest or equity of the contract value for the provision of goods, works and services. This process is subject to approval from EWURA for downstream and midstream activities and PURA for upstream activities.

 

The table below clarifies participation of non-local entities service providers in oil and gas industry in Tanzania.

S/N	Aspect (In Preference Order)	Ratio (of local equity)	Applicability
1.	Local Entity.	15% – 100%	These companies can by virtue of being registered in Tanzania, bid for provision of services. Under the law, these should be preferred first.
2.	Non-Local Entity in procurement of works, goods and services.	25% of shares owned by local company (aspect 1 above) in a Joint Venture arrangement with a non-local company.	These are the second preference, if the oil and gas operator cannot get a satisfactory service provider in aspect one above
3.	Non-Local Entity in procurement of works, goods and services.	10% of share interest to local Tanzanians.	If the two aspects above do not work for the oil and gas operator (in particular order of preference) then such an operator can source a non-local entity which will enter into another arrangement with a local company with the equity ratio of 10% to the local entity. In this scenario, the sourcing of such a service provider must be approved by either EWURA or PURA depending on the nature of the oil and gas activities to be serviced

 

Conclusion:
At one hand the Petroleum Local Content Regulations emphasises that investors in oil and gas industry should retain services provided by indigenous Tanzanian companies while on the other hand it leaves room for non-local entities participation where the capacity of the local service providers is not up to the standard required. The good thing is that, the Regulations have ensured that, even in those instances, the non-local entity invited to give services to the oil and gas companies, must associate (in any form as given) with the local entity. This ensures many positive things to the local entity and the Tanzanian society in general, including financial growth, retention of profits within the country rather than expatriation of income in the event all or larger percentage of equity is held by a non-local company; technology transfer and hence capacity for local companies as well as personnel and so forth.

 Breakthrough Attorneys offers a competitive crude oil, gas and natural resources team studded with experienced lawyers in processing license, ownership rights, contracts, compliance and attached matters.

 Important Notice:
This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, Breakthrough Attorneys, its members, employees and agents do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.