Oil and gas in Senegal - What about local content?

Senegal has adopted a law on local content in the hydrocarbon sector - this is where the urgency, the oil issues and the priority lie. Make no mistake about it!

Whatever the conditions for granting current permits, oil contracts are drafted taking into account the Petroleum Code (Law 98-05 of 8 January 1998, for current contracts), which the Senegalese opponent considers to be too complacent for the foreign investor, as it does not understand anything about it. It must be recognised that in the mining and oil sectors, there is a proven fact in African countries - they have all adopted attractive policies in favour of foreign investment, and it could not be otherwise, because foreign investors inject a lot of risk capital; something we cannot afford; in addition to having the technology and the means specific to this sector.

For future contracts, the new Petroleum Code (Law n°2019-03 of 1 February 2019) will be even more generous to Senegal. Indeed, let's just recall some improvements in this new law, in which the granting of hydrocarbon titles is done by the principle of calls for tender, a minimum share of the State (in Profit oil) fixed at 40%, according to a profitability factor R and according to the location of the deposit in the framework of production sharing, but also an increase of the Ad Valorem Royalty, which goes from a minimum of 2% to a minimum of 6%. Not least, the new Mining Code stipulates that the resources that used to belong to the state belong to the people, thus giving them new rights of recourse, but also strengthening their rights. It should also be noted that the cost of oil is capped at between 55 and 70%, depending on the location of the oilfields. However, this cost, which is generally determined by the investor, should be subject to mutual control by the parties, as production sharing only takes place after deduction of these costs.

The new code also includes more elaborate provisions on Local Content, which will allow us to take better advantage of our oil and gas resources, which are due to come on stream in 2023 - and a nationwide dialogue will allow us to deepen this Local Content with all sections of the population.

And in our journey to the production phase, it is this opportunity that we need to discuss and perfect for our future emergence.
But what is Local Content?

It is a set of provisions taken within the framework of a law applied in the hydrocarbons sector, in order to promote inclusive growth that benefits the national economy and above all the population. The Association of African Petroleum Producers-Appa (which Senegal should join) defines it as "...the use of the local industrial fabric and local skills in carrying out economic activities in the hydrocarbon, mining, forestry, construction and services sectors, etc.". Brazil, for example, is at 70% local content. In Africa, it is the lowest in the world and the Appa has set itself the objective of reaching 50% local content by 2030, which corresponds to the objective set by His Excellency President Macky Sall, in order to benefit adequately from the benefits of the exploitation of oil and gas resources.

In Senegal, the law on local content aims to promote the participation of the national private sector in oil operations, as well as in all construction, supply and service contracts relating to oil operations. It also makes the transfer of skills compulsory and the authorities have already taken the lead in setting up the Oil and Gas Institute, which will better equip Senegal with human resources specialised in the oil sector.

Some experts even think that foreign companies should leave shares to local companies for a better integration, to the benefit of all parties, as these companies would benefit from more political and even legal protection.

However, Local Content policies are often difficult to implement, because, according to experts, the extractive industries, especially hydrocarbons, are technologically complex; and locally available resources may have difficulty adapting to the demands of international oil production companies.

And it is on these issues that the political class and all layers of society should focus. The law on local content provides for a National Committee for the Follow-up of Local Content (Cnscl) in its article 5, so that Senegalese experts, with solid skills in the relevant disciplines, can implement it. We call on the entire political class and civil society to join the State and the various bodies responsible for managing the new deal, which is the oil resource, for the benefit of the country.

Today we need to move forward, focusing on Local Content in our oil and gas resources. All the "shortcomings" raised today can be addressed in the future under the new Petroleum Code and the Local Content Act.

Cheikh Oumar DIENG
Geological Engineer
Analyst at Melcc