During his intervention at the Workshop on the crucial topic: “Induction on Local Content in the Oil and Gas Industry”, the President of the Local Content Association of Mozambique (ACLM), Elthon Chemane, provided valuable insights into several important aspects to be aware of and suggestions on ways forward for opportunities in the O&G industry.
How can we ensure that local content is implemented transparently and have visibility of the benefits considering the current levels of corruption in Mozambique?
Elthon Chemane: To begin with, it is crucial to identify a strategic starting point, similar to the principle of strengthening a country by privileging and leveraging its existing resources. An initial approach would be to exploit the services already available within the country. It is proposed to carry out a “rollout” by means of an IBS (Industrial Baseline Survey), which translates into a comprehensive analysis of the Mozambican business market. This initiative aims to provide a detailed diagnosis, allowing a deeper understanding of the local capacity to offer certain services.
Next, a “ring fence” would be implemented, a piece of legislation that establishes a protective barrier. This legislation would instruct megaprojects to contract services from a specific list of Mozambican companies. It is worth noting that it is not essential for this measure to be imposed by law; the regulator can issue an organic instrument or a policy to achieve this.
It is essential to understand that megaprojects do not necessarily have the intention of doing harm to any country. They often take advantage of situations in which the country is poorly positioned in order to gain benefits. Therefore, the initial focus should be on protecting existing businesses, placing them on the doorstep of opportunities.
From this initial phase, the dynamic becomes a direct relationship between suppliers and buyers, based on the principles of supply and demand. Factors such as price, quality and other crucial aspects come into play during the process of contracting services or acquiring goods.
By protecting established companies, we provide an environment conducive to growth and, consequently, to expanding the number of competitive companies. This progressive method allows us to work with other emerging companies over time, facilitating their development and incorporating them into the opportunities available.
I would like clarification on the point that local content is not corporate social.
If we consider that it is not obligatory for the company not to comply with corporate social responsibility, then what are the advantages of operations in the oil and gas industry for local communities?
EC: Corporate social responsibility is a facet present in all companies, regardless of their size. Many of them implement programs to develop the regions where they operate, contributing to the well-being of local communities. On the other hand, megaprojects often bring high-quality infrastructure to their operators, but these benefits don’t always extend to the surrounding communities.
These actions are not impositions; they require authorization, not resettlement, but corporate social responsibility. Small investments to benefit communities, even if they do not provide direct benefits to the projects, are considered part of this responsibility.
However, it is important to distinguish corporate social responsibility from local content. In the case of the latter, it is a government perspective aimed at ensuring that local companies win contracts. Collaboration between the public and private sectors can include suggestions and programs to strengthen local companies, bringing them closer to business opportunities. The pursuit of certifications, for example, can be a strategy to improve the standards and competitiveness of local companies.
Effective communication and the exchange of ideas generate synergies and initiatives that boost the growth of Mozambican companies, making it possible to quantify tangible improvements, such as the number of local companies involved, growth, improved standards, expansion and other relevant indicators. These benefits, in turn, contribute to the country’s economic development.
Importantly, local content is not about donations or charity. It is a strategic approach aimed at creating tangible and sustainable opportunities for local companies. Evaluating the impact of these initiatives goes beyond quantifying the resources invested; it also requires analyzing how these investments have generated concrete results, such as hiring and purchasing products from local communities, thus promoting a virtuous cycle of economic development.
What is expected to happen in relation to the oil and gas project in Palma? If the project resumes under the current conditions of insecurity, will there be conditions to guarantee the movement of the human and material resources of national companies, air and sea resources, will they be available to SMEs?
EC: With regard to security, we recognize that instability in the project is an uncertainty that cannot be guaranteed by anyone, including me or anyone else. We all look forward to the project overcoming the force majeure clause and actually coming to fruition.
However, it is important to note that even after the force majeure clause has been suspended, this does not necessarily imply continued certainty. The project will continue to face significant uncertainties due to external factors, such as terrorism and attacks, which, even with the implementation of security measures and the creation of minimum conditions, remain beyond direct control.
Nobody wants war, and I recognize that I am not an expert on the subject. However, it is inevitable that, initially, access to the area will be hampered due to the need for 24-hour security. Even with security measures, there are no absolute guarantees of safety. The transportation of cargo and people will continue to be risky until the area is completely secure and free of terrorist threats.
These circumstances will certainly make transportation, logistics and other associated costs more expensive. However, it is crucial to understand that these are factors beyond the control of the project, the government or any other entity. The government, within its capabilities and the support it has received, is committed to doing its best, but there are challenges that have not been overcome so far.
The force majeure clause was implemented to safeguard against situations beyond the control of either the government, investors or communities involved, which could pose dangers to the project, justifying a temporary pause. An assessment is currently underway to determine whether favorable conditions exist, but you should be aware that even after this survey, conditions can evolve over time, keeping the project in a critical and sensitive state for a considerable period.
What is ACLM’s role in supporting this segment of SMEs?
EC: ACLM is currently committed to inducing local content and seeks to offer innovative solutions to support micro, small and medium-sized enterprises. ACLM’s role is to improve the performance of local content by bringing supply closer to demand. This involves actions and interactions with investors, the private sector and the government.
ACLM acts as an intermediary to improve the business ecosystem and support Mozambican companies. Interaction with various stakeholders is key to finding solutions and paths that benefit local companies. At the moment, ACLM has implemented an access to finance program, offering alternative solutions in collaboration with partners.
An example of this commitment is the workshop program scheduled for February 8, focused on supporting companies. One of the main barriers for companies is the difficulty in obtaining financing from commercial banks, due to strict requirements, such as the collateralization of loans in Mozambique, which reaches 120%. This represents a significant challenge for companies with contracts that require capital for execution.
ACLM is developing solutions to tackle this problem and directly support Mozambican companies. The aim is not only to facilitate access to finance, but also to help operators establish businesses with local companies, promoting economic growth and strengthening ACLM’s role in improving the business ecosystem in Mozambique.
How does ACLM view the approval of the Local Content Law as a mechanism to promote the integration of SMEs into the value chain of major projects?
EC: In my analysis, I believe that the implementation of a local content law at this time could lead to significant disadvantages. I repeat, this would be because such legislation would potentially bring with it a number of challenges, making it highly subjective. This is not just an assumption; it represents a real fact. There is a substantial risk of blocking crucial opportunities to adjust and shape strategies in favor of national companies.
Limiting the ability to change a law during the given period, usually around five years, is a valid concern. Megaprojects in the oil and gas industry often operate in challenging contexts, including countries with problems such as terrorism, water shortages, electricity shortages and armed conflicts. For these projects, these conditions are an integral part of the game. They invest where they see business opportunities, except in countries with legislative instability.
The risk associated with implementing an ill-conceived law, which after two, three or four years requires changes, represents a critical factor that could lead projects to withdraw immediately and not return to Mozambique. Legislative instability is considered unacceptable in this context.
Currently, the absence of a local content law can be seen as an advantage. This approach offers companies the opportunity to merge and unite in order to improve their competitiveness in the face of ongoing tenders. It also allows contractors to make exceptions, either by awarding partial contracts for companies to gradually gain experience, or for Independent Management Companies (IMCs) to accumulate knowledge over time and achieve more substantial contracts within the industry.
If a law were to be implemented at this time, it would be compelled to evaluate industry standards, which are protected by international norms. It is important to recognize that the oil and gas industry is self-regulating, with procurement and contracting processes being conducted internationally.
The price of a barrel of oil and the trade in crude oil are dictated by international dynamics. Thus, no individual government can dictate laws in these domains without the risk of damaging its own national interests. The role of governments is to accommodate these projects within the standards of the International Court, seeking to adjust them to extract the maximum benefits and value, always in pursuit of development and to the detriment of national interests. In this sense, legal instruments such as regulations, at this stage, can be useful to gradually shape the regulatory environment.
