Onshore, offshore

10 December 2013

Can Tanzania’s local suppliers benefit from its new gas resources? Neema Lugangira Apson thinks they can –  after some much-needed changes.

The oil and gas industry in Tanzania is relatively young, and involves a number of stakeholders – oil and gas companies, local suppliers, 
and the government.

Liquefied Natural Gas (LNG) is obtained when natural gas is cooled to a temperature of -262 degrees Fahrenheit. There are four main elements in the LNG supply chain; exploration and production, liquefaction, shipping and transportation and ‘re-gasification’ (turning LNG back into gas). Since the gas found in Tanzania is deep-sea offshore, there will be two types of 
supply chains – offshore and onshore, which 
is what I have examined.

Tanzania has discovered 43 trillion cubic feet (tcf) of gas resources, which has proved to be commercially viable as an LNG project. An investment of about $14 billion (£8.6 billion) is expected to be made for the LNG plant alone.

My recent MBA research project sought to answer how local suppliers can be developed to efficiently and effectively participate in Tanzania’s proposed LNG supply chain. I strongly believe sustainable local supplier development can be achieved when the oil and gas industry works together with local suppliers and the government.

I tried to answer three questions.

● What are the expectations of the oil and gas companies and their global service providers?

● What is the capacity of local suppliers to respond to the demand-side needs?

● What is the institutional context the demand-side and supply side need to look into?

In analysing the needs of the industry, it was possible to match this with what local suppliers are actually supplying. These services include logistics, catering, and cleaning services, among others. These are non-core activities, but for Tanzania to truly experience value-added benefits, local suppliers need to participate in core activities, such as engineering design, waste management and inspection services.

It is important to highlight that although the non-core activities were being provided by local suppliers, it was not possible to fully establish if these were truly ‘local’ suppliers due to a lack of clear definitions. What is local? What is local content?

What are local goods? What are local services? Who are local suppliers? Is a foreign company registered in Tanzania, a local supplier? Or is being a local supplier dependent on the ownership of the company by a native Tanzanian, with a stake of 51 per cent? It would be advantageous for the government to distinguish what these terms mean as that will make it far easier when analysing the metrics.

With reference to the third question, I looked at countries with local content-specific regulations, such as the Norwegian city of Stavanger, and at Tanzania’s infrastructure. The key findings were:

●    Tanzania needs to refer to countries that already have local content policies in place like Norway, Brazil, Malaysia, Kazakhstan, Nigeria, Angola 
and Trinidad & Tobago. It needs to come up with a local content policy that will be relevant to its own context and situation.

●    The town of Stavanger in Norway should be taken as a textbook example of best practice to local content development and management.

●    Tanzania needs to reduce the costs of doing business and improve its infrastructure, competitiveness and also the ease of doing business, making its business environment conducive to the new oil and gas industry.

●    Tanzania needs to establish access to financial programmes that local suppliers can benefit 
from to enable them to invest in becoming providers to the industry.

●    Although Tanzania is a member of the World Trade Organization, it should enact a local content policy, using the infant industry argument, with the aim of developing a strong competitive local supplier base.

Key supplier challenges

Local suppliers in Tanzania face numerous challenges trying to access and work in this infant industry. These include a lack of knowledge, lack of industry pre-qualification such as QHS/HSE, years of service, VAT registration, tax policies, lack of access to finance, high interest rates and poor infrastructure.

The following are the key limitations to implementing a local content policy in Tanzania.

●    Defining local content. What is local? What is local content? What are local goods? What are local services? Who are local suppliers?

●    Local content requirements need to be pushed down to the first-tier suppliers

●    Local content percentage targets need to be realistic

●    Local content development and monitoring needs to be done by a separate authority

My findings resulted from these five root causes:

●    Local suppliers are underdeveloped

●    A lack of links between industry and local suppliers

●    Poor public expectation management

●    Internal inconsistencies in view of local procurement strategies

●    Infrastructure challenges

What needs to be done? My key recommendations:

The oil and gas companies need to conduct  market research to understand the current local capacity and gaps, local supplier development programmes and a supplier database must be established, in-house local procurement strategies are needed and local procurement must be driven down to the tier one and two suppliers.

Local suppliers need to take the initiative to understand the industry and also what it takes to become a supplier and prepare themselves for that.They must identify capacity challenges, analyse barriers to entry and seek solutions, enter into partnerships with the aim of capacity-building and invest in their own training and development.

The Tanzanian government also has a role to play in developing clear definitions of what the terms local supplier, content and goods and services mean. They need to review current infrastructure, policies and framework; review and align the education system to industry requirements, enact a local content policy and establish a separate authority for monitoring and evaluation. Local content policy needs to be informed, realistic and credible and the project region needs to be developed to be like Aberdeen in the UK or Stavanger in Norway.

It is very important to recognise that countries such as the UK, Malaysia, Brazil, and Norway all took at least 15 years to develop fully competitive local supplier bases, proving this requires a long-term transformation. Tanzania is no different.

And in fact it could even take longer due to the point at which it is starting from. Its level of infrastructure, education, economic situation is lower. Local supplier development and local content is not a sprint, it is a marathon. 

This position can be based at our headquarters in Dover or any one of our overseas offices.
Between £50,000 - £60,000 depending on experience
Megger Group
East London
East London Waste Authority
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