Local content: a guidance document for the oil and gas ...

1 Local contentA guidance document for the oil and gas industrySECOND EDITIONS ocialresponsibilityTHE GLOBAL OIL AND GASINDUSTRY ASSOCIATIONFOR ENVIRONMENTALAND SOCIAL IPIECA 2016 All rights part of this publication may be reproduced, stored in a retrieval system, or transmitted in any formor by any means, electronic, mechanical, photocopying, recording or otherwise, without the priorconsent of reproduced courtesy of the following: cover and pages 7, 15, 24, 29 and 32: BP; page 9: James Jones ; page 19: ; page 27: ; page 34: ; page 35: ;and page 58: MNBB publication has been developed to support the implementation of IPIECA s mission and vision. Whilstevery effort has been made to ensure the accuracy of the information, it is intended to provide generalguidance only.

2 It is not designed to provide legal or other advice, nor should it be relied upon as asubstitute for appropriate technical expertise or professional advice. All attempts have been made toensure the information is correct at of the date of publication. This publication does not constitute amandatory commitment which members of IPIECA are obliged to adopt. The views and conclusionsexpressed herein do not necessarily reflect the views of all IPIECA members or the individuals, companiesand institutions that contributed to this reasonable precautions have been taken to ensure that the information contained in thispublication is accurate and timely, this publication is distributed without warranty of any kind, express orimplied.

3 IPIECA neither endorses nor accepts responsibility for the content or availability of any websitereferred to, or linked to, in this publication. The responsibility for the interpretation and use of thispublication lies with the user and in no event will IPIECA or any of its members past, present or futureregardless of their negligence, assume liability for any foreseeable or unforeseeable use made thereof,which liability is hereby excluded. Consequently, such use is at the recipient s own risk on the basis thatany use by the recipient constitutes agreement to the terms of this disclaimer. This disclaimer should beconstrued in accordance with English Floor, City Tower, 40 Basinghall Street, London EC2V 5DE, United KingdomTelephone: +44 (0)20 7633 2388 E-mail: Website: global oil and gas industry association for environmental and social issuesLocal contentA guidance document for the oil and gas industrySECOND EDITION2 Local content : a guidance document for the oil and gas industryExecutive summary5 Section 1: Introduction7 Realizing the potential value of Local content8 Some key terms8 Section 2.

4 Review the Local content context9 Approach to industrial policy and 10industrial competitivenessPolicy, legal and regulatory framework10 Political drivers of host government objectives12 Other stakeholder expectations13 Identifying opportunities and risks for 13value creationSection 3: Establishing a company strategy 15for collaborating with stakeholders on a shared vision for Local content Defining stakeholder roles under 17a shared visionIdentifying the opportunities 17(demand side analysis)Opportunities in the project life cycle17 Characteristics of procurement opportunities19 Characteristics of workforce opportunities22 Identifying the Local capacity 22(supply side analysis)Defining roles and timing23 Exploration phase24 Development phase24 Operations phase24 Decommissioning phase25 Examples of collaborative actions25 Special focus on marginalized/25vulnerable groupsSetting objectives and monitoring progress25 Section 4.

5 Set up the organization to 27deliver value from Local contentEvaluating the business case28 Defining the company s strategy28for Local contentResourcing requirements29 Adapting procurement and contracting31 Communicating opportunities31 Ensuring tendering and contracting 32processes are clearly understoodSupplier pre-qualification32 Involving lead contractors and suppliers32 Identifying and mitigating risks33 Corrupt practices33 Adherence to labour, social, human rights 34and environmental standardsOperations in conflict-affected areas34 Negative impacts of Local content 35development efforts on communitiesMonitoring and evaluation35 Company strategy indicators36 Company action plan indicators36 References and further reading37 Annex 1: Local content concepts43 Annex 2: Framework for policy and legal analysis 47 Annex 3: Stakeholder expectations, roles, 51responsibilities and challenges in Local content developmentAnnex 4: Supply side analysis: baseline study 55and detailed gap analysisContents3 Local content : a guidance document for the oil and gas industryFigures, tables and boxesFigure 1.

6 Local content , for whom and type?12 Figure 2: Varying business arrangements 13counting as Local supplier in host countriesFigure 3: Elements of the multistakeholder 16process to inform a Local content strategyFigure 4: Local content opportunities 17in the project life cycleFigure 5: Development phase18 Figure 6: Illustrative demand and lead times 23for plant techniciansFigure A1: Institutional levels at which host 48countries formulate and enforce Local contentrequirementsFigure A2: Influence of constitution on 49 Indigenous Peoples role in Local contentFigure A3: Phased approach to local60 supplier analysisTable 1: Key questions for conducting a review 11on policy, and legal and regulatory requirementsTable 2: oil and gas project phase 20and demand for goods and servicesTable 3: Factors contributing to the22competitiveness of Local workforce and suppliersTable 4: Example of a company s 30 Local content Action Plan by project phaseTable A1: The various actors and stakeholders 52engaging in the Local content spaceTable A2: Eleven areas of business regulation57measured by Doing BusinessBox 1.

7 Local content indicators in 36international reporting frameworksContentsACKNOWLEDGEMENTS This document was prepared by the IPIECA Local content Task Force under the auspices of the Social ResponsibilityWorking Group. IPIECA gratefully acknowledges the assistance of Ana Maria Esteves, Vera Ogorodnikova and EvelynDietsche of Community Insights Group, the principal authors, in its improve the content and utility of this guidance IPIECA sought stakeholder input on a draft prior to with extensive experience in Local content were asked to share their expert views on the content . While itwas not possible to incorporate all feedback, their contributions were invaluable during the drafting process.

8 Reviewersparticipated in their individual capacity and were not asked to represent or speak on behalf of their respectiveorganizations. The list of stakeholders does not suggest full endorsement of the content . Stakeholders provided their time on a voluntary basis and we thank them for their efforts. StakeholderslMellissa Case, Bechtel lNardi Gianluca, CARE International lChile Hidalgo, FSG lGosia Nowakowska-Miller, International Finance Corporation (IFC)lJohana Dunlop, SchlumbergerlCasper Sonesson, United Nations Development Programme (UNDP)lSilvana Tordo, World BanklWolfgang Kraus, Independent 4 Local content : a guidance document for the oil and gas industryLIST OF ACRONYMSBSAB enefit-sharing agreementCDAC ommunity development agreementEPCE ngineering, procurement and constructionERP Enterprise resource planning FEEDF ront-end engineering and designFIDF inal investment decision FTEFull-time equivalentGDPG ross domestic productGVCsGlobal value chainsHSEH ealth.

9 Safety and the environmentIFCI nternational Finance Corporation ILOI nternational Labour OrganizationKPIKey performance indicatorLNGL iquefied natural gasM&EMonitoring and evaluation NGONon-governmental organization NOCN ational oil companyNPVNet present value NQFN ational qualification framework O&MOperation and maintenance OECDO rganisation for Economic Co-operation and DevelopmentPSAP roduction-sharing agreement PSCP roduction-sharing contractR&D Research and developmentSME Small and medium enterprise TVETT echnical and vocational education and trainingUNCTADU nited Nations Conference on Trade and Development UNESCOU nited Nations Educational, Scientific and Cultural OrganizationVETV ocational education and training 5 Local content : a guidance document for the oil and gas industryOVERVIEWThis document offers guidance on understanding anddelivering Local content in relation to oil and gas has two aims: to offer oil and gas resource developerspractical advice on how they can realize the potentialvalue of Local content ; and to offer all stakeholderssuggestions on ways to help create shared value throughlocal content content good practice is based on the idea ofcreating shared value.

10 In this document , shared value isdefined as a business strategy designed to achieve bothproject competitiveness, and stability and economicdevelopment in the Local community and host can create shared value by generating andgrowing economic opportunities related to theirworkforce, Local supply chain and surroundingcommunities, in ways that also support their bottom a robust Local content strategy is based on countryor regional specifics, a number of general learnings canbe distilled, specifically: lgoals, strategy (plan for delivery), tactics and metricsare country-specific;lthere has to be a long-term, realistic vision anddefinition of success by government and companies; la country s long-term goal should be to diversify theeconomy by growing domestic enterprises capable ofoffering internationally competitive goods andservices;ltransparency is crucial (from bid rounds through totendering); andllaws, regulations and rules should be developedconsistently and support the process; specialattention needs to be paid when differentgovernment bodies are involved to ensure 1In the introductory section, Local content is defined asthe Local resources a project or business utilizes ordevelops along its value chain while invested in a hostcountry.