Fact or fiction: harmonizing and unifying legal principles of local content requirements

Source: Journal of Energy & Natural Resources Law

Volume 34Issue 3, 2016 pages 337-360

By Berryl Claire Asiago

Abstract

The ambition to develop oil and gas activities continues to determine what policy instruments governments formulate in the process. Presently governments tend to overhaul their outdated regulatory frameworks in order to secure socio-economic developments for their citizens. One recent policy that has attracted global popularity is the local content requirements in the oil and gas sectors.

Local content is a policy tool utilised by governments to generate economic benefits for the local economy, which go beyond fiscal benefits. Local content means the value addition brought to an economy. It includes achieving certain local percentages of labour, goods and services within the oil and gas sectors.

Conversely, while there is little variance over the reasons why countries encourage the use of local content, there is hardly a universal definition of what ‘local’ actually covers, nor is there agreement on what the ‘content’ should be.

Notably the ongoing debate over the implementation of local content objectives remains a controversial subject among industry stakeholders.

Consequently, implementing local content requirements does not mean business as usual; in fact achieving certain local percentages of labour, goods and services supplied may not always suffice for projects in the upstream sector if the capacity might run out in countries with a limited industrial base.

This article therefore aims at harmonising and possibly unifying a range of instruments as applied in various petroleum regimes with the possibility of assessing an enabling environment through critically evaluating the controversial requirement.

Further, this article argues that despite the fact that local content has a universal application, the actual practice (implementation process) varies from country to country and often is based on a number of issues including sovereign goals and strategies which vary considerably as will be discussed throughout the article.

Finally, the article attempts to make recommendations that would attain the ultimate goal of a viable local content policy which should be to create jobs at home rather than abroad, by enhancing sustainable industrial growth and national wealth.

Berryl Claire Asiago is a PhD candidate and doctoral researcher at the University of Eastern Finland (UEF) law school.

Author: OilNews

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