Senegal’s New Local Content Laws
Published 9th July 2021
by David Stent, Content Manager, Energy Council
Senegal has taken the time to reconsider and revise the legislation regulating the country’s blossoming oil and gas sector. Although gas have been produced in Senegal since the 1960s, the recent oil discovery in the offshore Sangomar field and the extensive gas discoveries in the Greater Tortue Ahmeyim field suggest a prosperous new era for resource exploitation.
The oil and gas sector has been governed by the 1998 Petroleum Code and the Local Content Law, outlining the local linkages projects must adhere to and support in order to operate in the sector. These laws were most recently updated in 2019 to reflect the rapid growth of the local industry in light of promising offshore explorations, and are now drawing increased attention as the projects find their feet following the Covid-19 downturn.
A New Legal Framework
While the ‘Revised Petroleum Code’ is used to define a company’s operating presence and access to resources, for instance reducing the exploration licenses from 25 years to 10, as well as the economic framework for production sharing and royalties.
The ‘Local Content Law’ defines the support to the wider local economy through the oil and gas activities: “Local content in the petroleum sector refers to all initiatives taken to promote the use of national goods and services as well as the development of national labor, technology and capital participation in the entire oil and gas industry value chain.”
This framework ensures that oil and gas operators annually submit a content plan that outlines their use of either local or international contractors, service providers or suppliers. In each step a company must show that they have made efforts to utilise Senegalese personnel and companies, if they have the necessary qualifications and capacity to complete that work.
Why Local Content Laws Matter
Since international oil and gas companies often operate from abroad, especially when working in Africa – Senegal has enthused that any service providers or sub-contractors in the petroleum sector open a local subsidiary through which to attract Senegalese investment.
Another condition states that all goods must be acquired locally as long as the local price and quality can be matched to the international costs and standards. And that all tenders must be processed through the government-regulated online platform.
Senegal has also ensured that there is ‘preference to be given to Senegalese firms in respect of all financial and intellectual services’. By ensuring that capital moves through Senegal for these multi-billion dollar projects, the wider market can benefit from a more robust banking sector that has aligned itself with international best practices. The government believes these laws will foster a market-driven competition within the sector, that will assist in growing the oil and gas sector as it maximizes their new offshore discoveries.
Questions Hang Over Enforcement
While the Local Content Law provides a broad framework for international engagement with the local economy, many of the finer details have been left to future reviews and updates of the existing legislation.
All the updates to the Revised Petroleum Code and the new Local Content Laws became immediately enforceable as of April 2019, and can be enforced through a unilateral ‘cancellation of contracts, supply prohibitions or penalties’ – although none of these actions have come into force as yet.
This raises questions in regard to the ‘principle of legal predictability and security’, how companies can navigate the market without the assurance that their previous actions will not be penalized by updated laws that do not give appropriate time and space for change. If none of the above penalties have been actioned, then there exists an unpredictability to how the laws will be enforced.
This issue is further complicated by the lack of mandate of the National Committee for Monitoring Local Content (CNSCL) to enforce these new laws, despite the declaration of timeframes for corporate compliance. As the CNSCL is not yet fully operational, the question of authority is in flux. The 15-member body must still define the framework of their operations and this leaves operators with ongoing uncertainty.
A Bright Future Ahead, hopefully
Senegal, like several other African states, has recently come into the fortune of major oil and gas discoveries leading to an increased belief in these states that these can challenge chronic underdevelopment. Local content laws previously lacked the verve and belief that local industry could match international standards, however Senegal’s lengthy experience in the sector reflects a new found ambition to promote the capabilities of local industry.
There are certainly challenges that come with a maturing sector, the struggles of bureaucracy are normal and expected, it remains to be seen if these measures will bring the correct changes that will lead to Senegal’s development.
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