Mines and energy minister Tom Alweendo believes that among the challenges that could derail the effective implementation of a local content policy for the oil and gas sector is corruption.
However, he was quick to add that to mitigate corruption in this sector and to ensure that in-country value creation reaches ordinary citizens, it will require transparency in all operations.
“We must be fair and transparent with our employment procedures, procurement processes, and in exercising oversight over the policy implementation. The more we are transparent in our operations, the higher the chance of realising the objectives of this local content policy (LCP),” said Alweendo yesterday at the opening of a two-day national Petroleum LCP workshop in the capital.
Namibia has struggled with a high youth unemployment rate, high levels of poverty and inequality.
Local content can be defined as the active participation of the Namibian workforce and entrepreneurs in the upstream oil and gas sector through training, employment and local procurement of goods and services.
The LCP workshop has become ever more relevant as Namibia recorded its third major offshore light oil discovery earlier this year.
Yesterday, Alweendo reiterated that oil and gas discoveries in commercial quantities hold great potential to transform the domestic economy beyond taxes and royalties that would accrue to the State, hence the introduction of the LCP.
In designing Namibia’s LCP, he urged for a culture of entitlement and inclusivity to accompany the transparency aspect.
The minister noted that lessons from other oil-producing nations show that excluding the majority of people from meaningfully benefiting from the lucrative oil and gas sector has resulted in huge social inequality which fuelled social discontent and unrest.
“I have reason to believe that our institutions, our political system, and our legal framework are such that there is no reason why the oil discovery should not be a blessing. What we need to do, however, is to manage the resources with a clear understanding that the resources belong to both current and future generations,” emphasised the minister.
He added that designing an LCP is complex, and that it should reflect Namibia’s realities and priorities. The country needs an LCP to facilitate economic diversification and deepen both backward and forward linkages from various segments of the oil and gas sector value chain, thereby fast-tracking industrialisation.
For that to happen, Alweendo said the LCP must have elements that promote job creation for Namibians, accelerate industrialisation through in-country value creation and strengthen local entrepreneurship through enterprise development, and skills and technology transfer.
“It shall thus be a requirement for international companies that would participate in the Namibian oil and gas sector to be fully conversant with the LCP. One of the most important roles the government, through the mines ministry, must play is to ensure that we have an effective monitoring and evaluation system in place. Without an effective monitoring and evaluation system, we will not know if the policy is delivering on its objectives. We will not know when we need to modify the policy,” he said.
Liberation
At the same occasion, petroleum commissioner in the ministry, Maggy Shino, said on the upstream side of the industry, Namibia has 34 exploration licences issued to date that are active, with one production licence and two reconnaissance licences.
Shino said excitedly that it has been a form of liberation for Namibia to confirm oil discoveries.
“It has been a very long and bitter journey for our country in terms of exploration. In history, the first exploration well was in 1974, which resulted in the Kudu gas field that is yet to see the surface of the Namibian soil because of the dynamics in the industry. The advantage of the oil and gas industry is that if it’s there, it remains and does not disappear. And that is why we talk of our Kudu gas field as still a giant we have in Namibia,” observed the commissioner.
The Kudu gas field is located about 130km offshore in 170m water depth. The production licence was awarded in 2011, under a joint operation agreement (JOA) between BW Kudu with 95% and Namcor with 5%. The development of a gas-to-power station remains a possibility in the foreseeable future.
Shino added that Namibia is appraising the three oil discoveries to ascertain the commercial viability. Current industry estimates indicate that the Venus discovery alone could hold two billion barrels of oil.
The global industry actually perceives Namibia as a high exploration-risk nation due to the lack of supporting infrastructures for the industry, combined with the fact the discoveries are in the rough Atlantic, which creates a number of uncertainties for operators.
“If you don’t have strong institutions, if you have a weak regulatory framework, if you don’t have rule of law and if you have a lack of transparency, the oil industry is going to break this nation,” Shini cautioned.
However, a leading Namibian wealth management outfit, PSG Namibia, said Namibia will only reap the rewards of these discoveries after a few years.
“Namibia is set to receive massive oil revenues only after 2030 when oil giants would have recovered their exploration and development costs, and Namcor had repaid its share of the costs. Given that the first production of crude oil is only likely from 2028, potential government oil revenues will be relatively limited before 2031, but it could rise markedly thereafter if the oil price remains strong,” reads a PSG Namibia report titled ‘Namibia Economic Focus February 2023’.
In addition, oil companies still have to confirm the technical and financial viability of the discoveries. Despite this, some analysts made bold predictions that the size of the Namibian economy could double by 2040, and that government could earn more than US$3.5 billion (approximately N$53.5 billion) from oil fields in peak production annually in royalties and taxes. – mndjavera@nepc.com.na