By Elias Mhegera – Experts in the extractive industries have called for African leaders to indulge a total inclusion strategy of the local population when introducing investment projects in order to avoid hostility from the local population.
The call came in the wake of a two day seminar of experts in oil and gas under the name of Africa Gas and Liquefied Natural Gas (LNG) Conference 2014. The two days conference at the Double Tree by the Hilton in Dar es Salaam on September 2nd and 3rd, attracted international experts in the field of extractive industries and investors.
“It is important to include the affected populations from the survey and exploration stages, up to the extraction and transportation stages, this is because there are infrastructural demands in the petro-chemical industries which will affect them in all the three stages of extraction, transportation and to the receiving ends.” said Nuno Remane an expert from Mozambique.
There were over 80 delegates present at the summit, all of them relevant to the gas and LNG industry. The summit was conducted in an interactive manner whereby 13 expert papers were presented but also individual’s testimonies in the successes and challenges in this industry were narrated.
Explaining more on the Mozambican experience Remane said that his country has been identified with high gas potentials to the likes of Algeria, Nigeria and Russia. He explained that in order to make people see this project as part of their dreams there was a lot of involvement of the media, supply of documentaries and various seminars which were conducted in all the involved areas.
He said that in order to ensure that there is transparency the civil society was involved through relevant NGOs in environmental issues, public consultation and all these were allowed to say something taking into consideration that these are the main stakeholders in knowing the associated risks and therefore attaining due diligence in the whole project.
Expertises that were involved ranged from the site engineering, infrastructural demands, to political, economic and social implications of such projects. Apart from insistence on the importance of Social and Environmental Impact Assessment (SEIA), also it was insisted on importance of the inclusion of the local populace.
Apart from lectures there were group discussions which came up with recommendations on what should be adopted by National Oil Companies (NOCs) and International Oil Companies (IOCs) as well. It was argued that the IOCs given the fact that they emanate from the developed countries which have advanced technologies should be given incentives so that they can enhance negotiation skills to the hosting countries.
Also the IOCs should facilitate for in-house trainings of all the relevant sectors. Moreover, it was suggested that there must be a lot of community public relations whereby the locals must be enlightened on the benefits of such projects rather than bulldozing them as it happened in Mtwara, southern Tanzania in the recent past.
The governments were counseled to manage expectations of the people and conduct the whole exercise with transparency and integrity in order to attract trust of the people. Education on the importance of gas and oil should be passed over gradually from secondary education to tertiary institutions.
As long as gas projects involve large populations of people, it was advised that every one of the concerned should be given an awareness pertaining to their areas of relevancy. Therefore all groups from security companies, Police Force, cleaners, food providers to should have a dosage of knowledge of what these projects are and how they can benefit from them.
A Ghanaian expert Dr Joseph Yeddu said that there is a need to respect the people in all the chain of command: from extraction, processing to the distribution. “All these are important because if eventually gas causes pollution then you can be told to stop the whole project, and therefore the whole investment becomes useless.” he warned.
Dr Yeddu who is a prominent researcher and an energy economist by profession, says that environmental issues in the eco-system and repercussions to the atmosphere must be considered beforehand. He cherished the business in oil and gas if at all there is proper management. He defended his assertion by saying that everywhere when there is equitable share in the extractive industries yields there is always a modernized lifestyle.
Consumption of gas itself can turn the society into a modernized one through job creation, use of refrigerators, and construction of modern facilities like roads, schools, and exchange of culture, whereby also more money comes to the economy.
Talking on the challenges that have been facing these projects he said that at times investors and local populations are overambitious, tax regimes are unfavourable, lack of transparency, poor legal systems and regulation mechanisms are the main causatives of the downfall of these projects.
Dr Babu Ram, Chief Power Engineer in Energy, Environment and Climate Change Department at the Africa Development Bank says that gas is favourably becoming one of the topical debates in the energy sector globally. He insists that experts must conduct regular meetings in order to understand the dynamics of the gas industry in Africa.
He reminds that piping of gas is becoming a catalyst for regional integration and harmonious relations. For instance the Mozambique-South Africa pipeline passes in transit though Zimbabwe therefore determining to a large extent diplomatic relations between these three countries. He also highlights on the Trans –Saharan Gas Pipeline Project.
This is the 4,300 km pipeline which is proposed under the New Partnership for Africa’s Development (NEPAD), initiative to connect to gas resources in Nigeria and Algeria and transport them to consumers accessible from the pipeline along its route and at its terminal point on the Mediterranean coast of Algeria.
Paul Hogarth, upstream commercial team leader for BG Tanzania who spoke on the Tanzania Gas Market said that gas provides for a viable and reliable energy source, but it as well, involves massive costs when the project is of deep sea drilling.
He however assured of substantial opportunities for expansion of the market for both LNG and for the Compressed Natural Gas (CNG) as well. He mentioned other areas of potential markets for gas in power generation, residential demands, fertilizers and ethanol. He also sees other advantages associated with Foreign Direct Investments (FDIs) like monetization of the economy, and job creation.
However, he warns that due to high costs of production it is difficult to predict that residential or domestic demands will be the focus of this power generation project. He highlights how infrastructural demands have increased the cost of production.
For his part John Schepis who is the director of infrastructure and marine, at the Worley Parsons, Perth Australia said that there is a need of a comprehensive preparation in order to avoid poor interpretations but also to consider the weather aspect.
“Many projects have been affected by poor planning, power source delivery, capacity of the main players and poor management in the oil fields. All these demands a lot of infrastructural consultation before they take off, they must be fully integrated, and they need a well deigned master plan.” he warned.
He challenged that these projects must come up with explanations of which solutions they are going to bring, who owns it (the project) , what are the requirements, and the degree of information available. He added that eventually selection of any contracted company must be done transparently.
Talking about the regulatory regime was Felix Ngamlagosi, the Tanzania’s Director General of Energy, Water and Utilities Regulatory Authority (EWURA).
He said that Tanzania has embarked in a series of measures in order to protect both producers and consumers of both petroleum and gas products. Through this initiative there has been an introduction of both the Government Consultative Council (GCC) and the Consumer Consultative Council (CCC).
Moreover, in order to ensure there is fairness in competition Tanzania has as well established the Fair Competition Commission (FCC) and the Fair Competition Tribunal (FCT). He explained further that these bodies have been created in order to ensure that there is protection of investors’ interests as well as those of the local businesses.
“Through these mechanisms we have changed various scenarios, we have eliminated adulteration of petroleum, we have guaranteed government’s interests and those of investors, fairness, stability, and predictability have been harmonized.” he commented.
He boasted further that these successes have been attributed by a series of stakeholders’ consultative meetings, discussing public enquiry reports and a general understanding of accepting various opinions, both supporting and opposing ones.
Ms Lindiwe Mekwe the Acting Chief Executive, Petroleum Agency of South Africa (PASA), said that the Republic of South Africa (RSA) has ensured that gas and petroleum products contribute to the economic growth of the country. In fulfilling this, it has formulated laws which protect workers, the environment and the maintenance of the regulatory framework.
While Chris Bredenhann who is a partner Africa Oil and Gas Advisory Lead, PWC, Cape Town South Africa spoke at length on the local content aspects. He said that local content in gas and oil in Africa indulges in all factors that might impact in this business.
He mentioned the top issues as opportunities for local companies to participate in the business, potential benefits to the hosting countries involve utilizing the companies and resources. He further mentioned that the Corporate Social Responsibility (CSR) must guarantee provision of a contribution to certain societal needs and compliance through employment structures whereby locals must be employed in certain cadres.
“The local content goes to as far as allowing the host government to have certain powers in the operation of a company, and knowing the associated risks. This entails also maintaining good relations with the government and local communities in order to maintain the business sustainability.” he commented.
He further explained that the local content aspect entails job creation, increasing collaboration, introducing regulations for health and safety to employees in this sector, and knowing the business barriers to the local companies and if they can meet them. Further the investor must study the supply chain and consider the policy objective. And most importantly there must be a Local Content Development Plan (LCDP) well in advance.
For her part Ms Ethel Teljeur, Partner, Competition and Regulatory Economics Practice, Genesis Analytics, South Africa said that regulations are important because they enhance business confidence on the part of an investor and they facilitate in approving the right charges. She added that regulations define volumes of resource use and categorization.
She also outlined an importance of a flexible price model, which can help in determining regulations as well. These also have to do with long-term contracts, flexible, justifiable and transparent regulations. She remarked that these are essential in skills transfer on sharing of risks, associated liability and operational cultural issues.
Richard Tainton from VP International, Wentworth Resources Tanzania revisited the Mtwara incident where the local population resorted to resistance which led to loses of some lives. He acknowledged that Mtwara Energy Project is a one of the living examples that you cannot leave out the people where you want to establish the gas and oil projects.
He encouraged for the involvement of the people so that they can know the benefits of their project. He said although lack of knowledge was the main cause of commotions but it is well known that oil and gas projects are beneficial in terms of power supply, promotion of agriculture and provision of markets.
For his part, Are Brautset Head of Legal Affairs, Statoil Tanzania said that gas extraction needs a long term planning; there is a high demand of a lot of FDI, need of coordination of the value chain until maturation and development. He called for the importance of involving the stakeholders’ alignment, and the engineering work which can take up to five years.
He revealed that there are many associated costs including those of facilitation, training sessions, and land acquisition procedures. He added that overall charges come from resettlement, title and lease terms. Apart from work permits and other labour issues.
Ms Lizel Oberholzer Director, Norton Rose Fulbright said that economic development is the core issue of any government and therefore gas and oil are supposed to bring profits through these investments. She said that South Africa is the second largest user of petroleum from Egypt while the rest of her demands are imported from OPEC countries.
She therefore said countries like Tanzania have potentials of becoming exporters of gas to her country as along the project viability is analyzed well.
Paul Eadley-Taylor an expert from oil and gas, Southern Africa, Standard Bank said that people’s representatives must be involved in scrutinizing new projects. For instance the NGOs should look at the lifecycle of an investment, they should look at the fiscal engagement and involvement of the government in terms of the gains, with an intention of ensuring that money remains within the hosting country.
“It is the NGOs which verifies if at all social transformation through tax and revenues. Other components are job creation and employment, and that employment is done to reliable people.” he added. He also mentioned that Mozambique can be the best model to be copied.
Through contributions participants called for African leaders to respect their subjects whenever implementing investments in oil, gas and mining. Moreover, they called for construction of permanent structures which can benefit the local populations in so many ways like hospitals and schools.
Also they called for expert help in developing local contents; purchasing involvement should go on to the alarming of the offshore developments. They called for importance of capacity building to the local partners including security actors, banks, and other groups of people’s representatives which will be involved in producing the local content depending on the economies of the area.
They warned that it has been a common practice that government of the day which holds all the powers in the negotiation and transaction processes to the extent of ignoring the public, private-partnership.
Also participants called for the need of diversification of energy sources because of reduction of tariffs and that studies of the supply chain must be conducted before hand in order to give confidence to the investors. But also they called for the legal recognition of the independent power producers (IPPs)
Moreover, they called for both the NOCs and IOCs to share the task in imparting skills to the local populace around investments from compliance to the laws, cultural and, operational issues, accountability and business prospects in general.