Build capacity of SMEs to benefit from oil discovery

An oil rig in Turkana County. Kenya has not put in place laws and institutions to support local content in the oil and gas sector. FILE 

 

By George Wachira

In Summary

• Energy ministry should learn from Ghana, which is keen on local content development.

For the business community and professionals “local content” is of immediate interest in respect to the ongoing oil and gas exploration.

Local content is defined as the services, materials and labour supplied by local firms and individuals to the oil and gas sector. This is in contrast to foreign supply of the same.

Services and materials are required as soon as an investor commits to search for oil through exploration, drilling and finally production development if quantities of hydrocarbons are confirmed commercial.

Whereas it may take about four years to pocket the initial cash from oil production, services and materials are required immediately exploration starts. Local content is a major input into GDP and a major

employment generator. Local content expertise has the capacity to be “exported” to other countries with less developed oil and gas activities.

However, a nation can miss full benefits of local content if the government does not create laws, regulations, and institutions to promote, develop and monitor the same. Kenya does not need to re-invent the wheel as we can copy and paste what Ghana has done in the past few years.

Whereas Norway may be considered the global leader in hydrocarbons resource governance, Ghana is the current best practice in Africa. Ghana discovered oil only in 2008 and is already exporting it.

The fact that Ghana’s oil finds were offshore meant that there was less delay in developing and monetising the resource. Onshore resource developments, as in Uganda and Kenya, take much longer.

My interest is, however, in local content development in Ghana. A couple of weeks ago Ghana inaugurated the Enterprise Development Centre (EDC) in the coastal city of Takoradi as a key institution for operationalising the local content component of their national Petroleum Activities Policy.

The EDC targets to empower small and medium enterprises (SME) to take advantage of opportunities available in the emergent sector, thus ensuring participation by locals in the oil sector.

According to the Minister of Energy and Petroleum, Mr Emmanuel Armah Kofi Buah, the EDC will ensure that SMEs get a fair share of large oil and gas investments which will translate into transformation of Ghanaian business, job creation, and overall expansion of the economy.

Kenya is losing time of organising local content because we do not as yet have in place laws and institutions supporting the concept. Although Kenya only discovered oil last March and has not established commercial volumes, this should not be an excuse for inaction.

We should urgently set-up a local content “help desk” at the Ministry of Energy and Petroleum to offer basic guidelines to enterprising Kenyans who do not know where or how to make an entry into the oil and gas market.

When oil and gas volumes are confirmed commercial, Kenya will need to establish more permanent institutions to guide and monitor local content. There will be need to segment local content into both onshore and offshore enterprise sections with offshore efforts based at the coast.

A lot of exploration activities are taking place in our coastal waters and many potential local content participants are not sure how to make an entry into materials and services supplies.

A recent forum organised by National Oil of Kenya (NOCK), funded by Wily Olsen of Norway, classified local content into three: specialist services , direct services and indirect services. Specialist services are technical and high on capital and operating costs.

Special services

They include seismic services, rig hire, and well services. We would expect foreign involvement in special services provision in the short to medium term, with gradual local content development through partnerships.

Direct services include field construction (civil, mechanical, and electrical), construction materials and spare parts, inspection, international freight services, and environmental services. We expect to see more local companies making an entry in this sector

.

Indirect services include freight forwarding, customs clearance, waste management, security, catering, camps and accommodation, equipment hire, fuel supply, provision of unskilled labour, personnel transport, medical, legal, etc. Local firms should fully participate in this sector.

It is important that the oil and gas sector receives wider inter-ministerial attention so as to maximise economic benefit to the economy through development of local content, especially SMEs which will require credit and training.

Development of local content is a shared responsibility between oil and gas principal investors and the government.

However, it is only after investors confirm commercial quantities of the fuel that can we expect them to substantially engage in longer term local content development.

Wachira is the director Petroleum Focus Consultants.