The starting point is for national authorities across the region to establish clear, transparent and comprehensive local content laws that can provide guidelines on LCRs, particularly in the oil and gas sector. Such laws should, amongst other things, provide clear definitions of key concepts such as local, local content, local company, project sum and in-country value. There is also a need to clearly identify the skills, competencies, technologies and economic activities that a country wants to improve or build upon as part of local content implementation. Such clear definitions will reduce ambiguities with respect to the scope and content of LCRs. Local content laws can also be very helpful in addressing overlaps and limitations in other domestic laws that could hinder the successful implementation of LCRs.77 For example, procurement laws that have elaborate provisions on procurement procedures may hinder the coherent implementation of LCRs and may result in misalignments and risks if they do not clarify if such procedures apply in the oil and gas sector. The adoption of clear and specific LCRs could provide opportunities for a country to harmonise LCRs with existing laws to avoid overlap and mismatch. Most importantly, the local content legislation should establish a designated institution or focal point as a one-stop shop for LCRs. This would help simplify the processes and procedures for seeking and obtaining regulatory permits and investment approvals; it would also serve as a rallying point that could foster intergovernmental coordination and linkages amongst the many institutions that currently play important roles in the delivery of local content initiatives.
To provide adequate institutional support for CPC to achieve LCRs and goals, it is important to establish a focal institution, committee or administrative unit that will coordinate the design, approval and implementation of local content plans across the life cycle of a project. While such a focal institution can be established as a supervisory committee of a petroleum contract, a more long-term approach is to establish a national local content agency or unit that will oversee LCRs in multiple sectors of the economy. Apart from serving as a one stop shop that will streamline the approval processes for local content implementation, such an institution would also provide methodologies and tools for operators to report and monitor their compliance with LCRs so as to minimise disputes. By empowering and establishing a focal institution on projects, investors across multiple sectors can obtain relevant information and develop a standardised approach to tracking, monitoring and complying with LCRs. A coordinated approach can also reduce duplication and overlap, conflicting regulations, increased administrative costs and delays. Adopt collaborative contract terms on LCRs As part of contract negotiations, national authorities and CPC need to jointly define at the outset what constitutes success in terms of local content and value addition. The scope of objectives must be specific, measurable and achievable to avoid ambiguities and misalignments. Rather than adopting a rigid and inflexible approach, a collaborative approach that clarifies the expectations of the government, while providing the CPC with the flexibility to develop its local content plans and procurement procedures could achieve greater results in the MENA countries. Also, rather than stipulating blanket and unrealistic timeframes, countries, in defining LCRs and ambitions, must recognise that the timeframe for delivering in-country value may vary from project to project and could be affected by political and other factors not envisaged during contract negotiation. The negotiation stage is also a great opportunity for an CPC and the government to agree up front on the costs and tradeoffs of complying with local content initiatives over time. As earlier noted for example, complying with product mandating requirements could mean project delays or higher costs on the part of the CPC, especially when suitable and reasonably priced alternatives are not immediately available locally. This can change the profit margin of a project or affect the timeline for petroleum operation activities. These tradeoffs must be very well considered during contract negotiation stages to avoid long-term misalignments and contentions and to achieve a mutually beneficial and realistic contractual framework. For example, if the government insists on a local content timeline, fiscal terms such as profit oil and recovery costs, amongst others, could be amended to protect the margins of the CPC, while achieving the aggressive LCR timelines stipulated by the government.
One of the outstanding elements of the Saudi IKTVA programme, and the Oman ICV Strategy is that, unlike other regimes in the region, they both establish reporting obligations and fixed key performance indicators (KPIs) that mandate suppliers to provide quarterly status updates and annual reporting on the scope and level of compliance with LCRs. Periodic reporting of targets, accomplishments and strategies provides a collaborative opportunity for both parties to mutually evaluate the feasibility and efficacy of LCRs and to explore approaches that can improve performance and deliver shared wins for both sides. Timely and effective communication can reduce the likelihood of disputes as it allows both parties to explore if, and how, a company is achieving LCRs. KPIs could also provide a basis for renegotiating or amending LCRs when established targets may be difficult to achieve. It is therefore imperative for both parties to agree upon, and incorporate, KPIs and reporting requirements with respect to LCRs during contract negotiations, rather than just stipulating that LCRs must be achieved.