Local Content 2016

Local content
A guidance document for the oil and gas industry

SECOND EDITION
Social
responsibility
THE GLOBAL OIL AND GAS

INDUSTRY ASSOCIATION
FOR ENVIRONMENTAL
AND SOCIAL ISSUES
www.ipieca.org
IPIECA 2016 All rights reserved.
No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form
or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior
consent of IPIECA.
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This publication has been developed to support the implementation of IPIECAs mission and vision. Whilst
every effort has been made to ensure the accuracy of the information, it is intended to provide general
guidance only. It is not designed to provide legal or other advice, nor should it be relied upon as a
substitute for appropriate technical expertise or professional advice. All attempts have been made to
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Local content
A guidance document for the oil and gas industry
SECOND EDITION
The global oil and gas industry association for environmental and social issues
14th Floor, City Tower, 40 Basinghall Street, London EC2V 5DE, United Kingdom
Telephone: +44 (0)20 7633 2388 E-mail: [email protected] Website: www.ipieca.org
Contents
Executive summary 5 Section 4: Set up the organization to 27

deliver value from local content
Section 1: Introduction 7
Evaluating the business case 28
Realizing the potential value of local content 8
Defining the companys strategy 28
Some key terms 8 for local content
Section 2: Review the local content context 9 Resourcing requirements 29
Approach to industrial policy and 10 Adapting procurement and contracting 31
industrial competitiveness Communicating opportunities 31
Policy, legal and regulatory framework 10 Ensuring tendering and contracting 32
processes are clearly understood
Political drivers of host government objectives 12
Supplier pre-qualification 32
Other stakeholder expectations 13
Involving lead contractors and suppliers 32
Identifying opportunities and risks for 13
Identifying and mitigating risks 33
value creation
Corrupt practices 33
Section 3: Establishing a company strategy 15 Adherence to labour, social, human rights 34
for collaborating with stakeholders on a and environmental standards
shared vision for local content Operations in conflict-affected areas 34
Defining stakeholder roles under 17 Negative impacts of local content 35
a shared vision development efforts on communities
Identifying the opportunities 17 Monitoring and evaluation 35
(demand side analysis)
Company strategy indicators 36
Opportunities in the project life cycle 17 Company action plan indicators 36
Characteristics of procurement opportunities 19
Characteristics of workforce opportunities 22 References and further reading 37
Identifying the local capacity 22 Annex 1: Local content concepts 43
(supply side analysis)
Defining roles and timing 23
Annex 2: Framework for policy and legal analysis 47
Exploration phase 24 Annex 3: Stakeholder expectations, roles, 51
Development phase 24 responsibilities and challenges in local
Operations phase 24 content development
Decommissioning phase 25 Annex 4: Supply side analysis: baseline study 55
Examples of collaborative actions 25 and detailed gap analysis
Special focus on marginalized/ 25
vulnerable groups
Setting objectives and monitoring progress 25
2 Local content: a guidance document for the oil and gas industry
Contents
Figures, tables and boxes

Figure 1: Local content, for whom and type? 12 Table 1: Key questions for conducting a review 11
on policy, and legal and regulatory requirements
Figure 2: Varying business arrangements 13
counting as local supplier in host countries Table 2: Oil and gas project phase 20
and demand for goods and services
Figure 3: Elements of the multistakeholder 16
process to inform a local content strategy Table 3: Factors contributing to the 22
competitiveness of local workforce
Figure 4: Local content opportunities 17
and suppliers
in the project life cycle
Table 4: Example of a companys 30
Figure 5: Development phase 18
Local Content Action Plan by project phase
Figure 6: Illustrative demand and lead times 23
Table A1: The various actors and stakeholders 52
for plant technicians
engaging in the local content space
Figure A1: Institutional levels at which host 48
Table A2: Eleven areas of business regulation 57
countries formulate and enforce local content
measured by Doing Business
requirements
Box 1: Local content indicators in 36
Figure A2: Influence of constitution on 49
international reporting frameworks
Indigenous Peoples role in local content
Figure A3: Phased approach to local 60
supplier analysis
ACKNOWLEDGEMENTS
This document was prepared by the IPIECA Local Content Task Force under the auspices of the Social Responsibility
Working Group. IPIECA gratefully acknowledges the assistance of Ana Maria Esteves, Vera Ogorodnikova and Evelyn
Dietsche of Community Insights Group, the principal authors, in its preparation.
To improve the content and utility of this guidance IPIECA sought stakeholder input on a draft prior to publication.
Individuals with extensive experience in local content were asked to share their expert views on the content. While it
was not possible to incorporate all feedback, their contributions were invaluable during the drafting process. Reviewers
participated in their individual capacity and were not asked to represent or speak on behalf of their respective
organizations. The list of stakeholders does not suggest full endorsement of the content.
Stakeholders provided their time on a voluntary basis and we thank them for their efforts.
Stakeholders
l Mellissa Case, Bechtel
l Nardi Gianluca, CARE International
l Chile Hidalgo, FSG
l Gosia Nowakowska-Miller, International Finance Corporation (IFC)
l Johana Dunlop, Schlumberger
l Casper Sonesson, United Nations Development Programme (UNDP)
l Silvana Tordo, World Bank
l Wolfgang Kraus, Independent
LIST OF ACRONYMS
BSA Benefit-sharing agreement
CDA Community development agreement
EPC Engineering, procurement and construction
ERP Enterprise resource planning
FEED Front-end engineering and design
FID Final investment decision
FTE Full-time equivalent
GDP Gross domestic product
GVCs Global value chains
HSE Health, safety and the environment
IFC International Finance Corporation
ILO International Labour Organization
KPI Key performance indicator
LNG Liquefied natural gas
M&E Monitoring and evaluation
NGO Non-governmental organization
NOC National oil company
NPV Net present value
NQF National qualification framework
O&M Operation and maintenance
OECD Organisation for Economic Co-operation and Development
PSA Production-sharing agreement
PSC Production-sharing contract
R&D Research and development
SME Small and medium enterprise
TVET Technical and vocational education and training
UNCTAD United Nations Conference on Trade and Development
UNESCO United Nations Educational, Scientific and Cultural Organization
VET Vocational education and training
Executive summary
OVERVIEW goods and services from companies residing in a host

This document offers guidance on understanding and country and/or community. Local content may also
delivering local content in relation to oil and gas projects. include operations carried out in partnership with local
It has two aims: to offer oil and gas resource developers entities, development of enabling infrastructure, the
practical advice on how they can realize the potential improvement of domestic skills capacity, or the
value of local content; and to offer all stakeholders improvement of local technological capabilities.
suggestions on ways to help create shared value through
local content development.
SECTION 2
Local content good practice is based on the idea of This section reviews the context for local content,
creating shared value. In this document, shared value is exploring ways through which governments may
defined as a business strategy designed to achieve both incorporate local content into industrial policy and
project competitiveness, and stability and economic efforts to develop or improve competitiveness. It
development in the local community and host country. describes policy, legal and regulatory frameworks that
Projects can create shared value by generating and governments may consider and common political drivers
growing economic opportunities related to their behind host government objectives. It also looks at the
workforce, local supply chain and surrounding local content expectations of other stakeholders, and
communities, in ways that also support their bottom line. considers the implications if and when these diverge
from the expectations of government and/or resource-
While a robust local content strategy is based on country producing companies. Section 2 closes by reviewing
or regional specifics, a number of general learnings can opportunities and risks for shared value creation.
be distilled, specifically:
l goals, strategy (plan for delivery), tactics and metrics
SECTION 3
are country-specific;
l there has to be a long-term, realistic vision and
Section 3 focuses on strategies for collaboration in the
definition of success by government and companies; development of a shared vision for local content, the
commitment this requires from stakeholders, and the
l a countrys long-term goal should be to diversify the
opportunities it offers. It is aimed at companies,
economy by growing domestic enterprises capable of
governments, international suppliers and contractors,
offering internationally competitive goods and
financing institutions, chambers of commerce and others
services;
that decide to work together on a shared and achievable
l transparency is crucial (from bid rounds through to vision for local content.
tendering); and
l laws, regulations and rules should be developed This section identifies the local content opportunities
consistently and support the process; special related to the demand side of a project throughout its
attention needs to be paid when different life cycle, from exploration, planning, engineering, and
government bodies are involved to ensure alignment. construction and operation to decommissioning (the
demand side). It then focuses on the local capacity
challenges to local content development (the supply
SECTION 1 side). This section suggests that the gaps between
In the introductory section, local content is defined as supply and demand can be addressed by formulating
the local resources a project or business utilizes or specific enterprise and skills development programmes
develops along its value chain while invested in a host as part of the collaborative strategy.
country. Its main componentsthe primary focus for
this guidanceare the direct and indirect employment
of nationals in the workforce, and the procurement of
Executive summary
Section 3 closes with a discussion of stakeholder roles REFERENCES AND FURTHER READING
and a review of the processes for setting objectives and
A References and further reading section lists various
monitoring progress.
sources of information referred to throughout the
document, and provides links to a range of additional
SECTION 4 resources relevant to each main section.
Establishing an organization capable of delivering value
from local content is the focus of this final section. It ANNEXES
describes how companies can undertake a business case
The document includes extensive annexes comprising a
evaluation, analysing the costs and benefits of local
range of useful tools and practical information, and links
content, in order to develop a balanced and collaborative
to additional resources.
local content strategy. The document presents the types
of local content activities that may be relevant at various
phases in a project life cycle, together with the internal
organizational considerations that can help to
strengthen the effectiveness of programme
management. It then describes procurement and
contracting methods that companies have found to be
effective in local content development.
This section also examines the identification and

mitigation of risks linked to corrupt practices. It stresses
the importance of ensuring that local content initiatives
are implemented in a transparent manner and include a
strong due diligence programme, along with appropriate
safeguards and mitigations.
Section 4 closes with a discussion of the need for local

content programmes to be supported by meaningful
monitoring and evaluation systems. This will enable
managers to track progress, demonstrate results and
make adjustments as needed to improve outcomes.
Section 1
Introduction
This guidance document has two aims:

l To offer oil and gas resource developers
practical advice on how they can realize the

potential value of local content.
l To offer all stakeholders suggestions on ways
to help create shared value through the

development of local content.
Section 1
Introduction
REALIZING THE POTENTIAL VALUE OF SOME KEY TERMS

LOCAL CONTENT Local content is understood to be the local resources a
Many resource developers and their host countries project or business utilizes or develops along its value
identify and target local content objectives as ways to chain while invested in a host country. This may include
create and share value from oil and gas developments. employment of nationals, goods and services procured
Host countries may use local content as part of an from companies resident in the host country,
industrial policy aimed at delivering benefits beyond the partnerships with local entities, development of enabling
payment of royalties and taxes. For their part, many oil infrastructure, the improvement of local skills and
and gas companies take a strategic approach to local capacity of local businesses, or the improvement of local
content efforts in recognition of the wider business technological capabilities.
benefits of creating and sharing value between
themselves, local communities and countries; these This guidance document focuses on the main
companies do not view local content obligations simply components of local content, i.e. the employment of
as issues of regulatory compliance or as risks to be nationals and the procurement of goods and services
managed. from companies residing in a host country.
Local content good practice is based on the idea of Definitions of local content vary greatly across, and within,
creating shared value. In this document, shared value is host countries. National content, Indigenous content,
defined as a business strategy that views the community content, shared value, in-country value,
competitiveness of a company and the vitality of the local participation and industrial benefits are some of
communities where it operates as mutually dependent. the different terms used, while there is also the concept
Projects can create shared value by generating and of supplier diversity. Variations in definitions can be
growing economic opportunities related to their local recognised, at least in part, by identifying the intended
supply chain and communities, which also support their beneficiary, and assessing what specifically is being
own bottom line. This guidance document supports this sought. Resource developers have to manage the
spirit of shared value and outlines an approach that variations in country-specific definitions of local content.
encourages producer countries, resource developers, Equally, governments and other stakeholders need to
their supply chain and other stakeholders to work understand the differences when making comparisons
collaboratively. It provides a framework that recognizes between countries.
the interdependence of each partys efforts and the
factors affecting them, and that mid-course Other key terms used in this document are:
recalibrations may be needed by all stakeholders as they l Resource developer and company: these are used
learn together what does and does not work. interchangeably, and refer to an oil and gas company.
The terms apply equally to national oil companies
(NOCs) or international oil companies (IOCs).
l Producer country: this defines a country involved in
the extraction of oil and gas or processing of oil and
gas products.
Section 2
Review the
local content
context
Section 2
Review the local content

context
A local content context review can help a company l What role has the host government decided to play
decide: in meeting its local content objectives? Is it actively
l if engagement in that country is a sound decision; engaged in helping specific companies or groups of
companies?
l if there is potential for local content efforts to add
mutually beneficial value; and l Are there viable forums where industry and other
stakeholders can engage with the host government to
l how to work with stakeholders.
promote policies that support shared value creation?
l How competitive is the host countrys resource base,
A local content context review typically provides: and how diverse and competitive are its non-
l an understanding of the host countrys current resource sectors and industries?
industrial capacity, its approach to industrial policy l How aware are the host government and other
and the attention it gives to competitiveness of its stakeholders of the influence of institutional
industrial sectors; frameworks on the competitiveness of industry?
l an assessment of local content-related policies, laws
and contractual obligations; and
POLICY, LEGAL AND REGULATORY
l an understanding of the stakeholders expectations.
FRAMEWORK
Host governments may pursue local content objectives
APPROACH TO INDUSTRIAL POLICY AND and/or enforce local content requirements through a
INDUSTRIAL COMPETITIVENESS variety of instruments and at various institutional levels.
Host governments consider many things when Table 1 presents the policy arena within which
designing local content objectives, including the government objectives are typically translated into local
countrys general industrial policy and competitiveness content requirements. A systematic review of these
of its industrial sectors. Historically, host government levels helps companies understand and organize host
industrial policies have generally been informed by one countries local content objectives and requirements (a
of two views: one view is that governments should detailed framework can be found in Annex 2).
minimize interventions, leaving entrepreneurs to make
investments based on market forces; the other is that A review can reveal challenges to practical application of
governments should take a strong lead in selecting requirements in dynamic political situations. For example,
particular industries in which companies should be objectives of current local content policies (level 2) may
investing, and in determining what inputs should be not be supported by existing regulations (level 4), which
used and what outputs should be produced. However, a were designed to support previous policy goals.
more prevalent contemporary view is that governments Companies may also find that local content clauses in
and markets complement each other: governments contracts and agreements (level 5) signed in the past
provide the institutions and infrastructure that allow can be misaligned with more recent local content
markets to work efficiently and competitively. policies and regulations.
Answering the following questions can help one Furthermore, parallel institutional arrangements may
understand a host governments approach towards, and co-exist within a single location. For example, a
capacity for, supporting the creation of shared value: subnational government may develop a local content
policy alongside Indigenous Peoples negotiating local
content contributions as part of their engagement with
resource developers.
Section 2
Review the local content context
Table 1 Key questions for conducting a review on policy, and legal and regulatory requirements
LEVEL INSTRUMENT QUESTION
Level 0 International l What international agreements has the country signed that affect local content?
agreements and norms
l What international norms and policy ideas are influencing the public policy arena?
Level 1 Country constitutional l How is the country organized, politically and administratively? At what level(s) of
features government do local content expectations and objectives arise? Which public sector
entities are in charge?
l Are there any (semi-)autonomous social groups with collective and constitutionally
recognized claims to resources?
Level 2 Policy environment l How does the national government define local content?
and objectives
l What role does government define for itself, and for the private sector, in pursuing
its local content objectives and meeting citizens expectations?
l What industrial policies does the country have that are relevant to the development
of its oil and gas sector? How coordinated and collaborative is the countrys
approach to the formulation and implementation of industrial policies?
Level 3 Legislation l Does the country have specific local content legislation? Are local content-relevant
stipulations covered more generally in sector legislation?
l Is there more general legislation also affecting local content (employment law, taxes,
tariffs etc.)?
l Is there legislation concerning specific socio-economic groups (e.g. Indigenous
Peoples or women), with local content implications?
Level 4 Regulations l Does the country have specific local content regulations?
l Do sector regulations contain specific local content obligations?
l Are there other regulations that affect local content?
l Do subnational governments set and enforce local content-relevant regulations?
Level 5 Government contracts l Do model/negotiated production-sharing contracts (PSCs) contain local content
and agreements relevant references?
l Can parties to PSCs (e.g. national oil companies (NOCs), national privately-owned
companies with political connections, etc.) exert additional leverage on pursuing
local content objectives?
l Do concessions contain local content-relevant references?
Level 6 Other agreements l Is it expected or mandated, that resource developers commit to community
development agreements, good neighbour agreements, benefit-sharing
agreements, or similar, with local community organizations or specific socio-
economic groups?
Section 2
POLITICAL DRIVERS OF HOST GOVERNMENT content will utilize available labour and other inputs. For
OBJECTIVES example, in a situation where a producer country faces
high unemployment, the host government and
Producer countries do not all share the same policy
communities may expect the oil and gas sector to
drivers. This leads to variations in how host governments
provide employment opportunities for local labour
define local content and ensure local content objectives
market participants (bottom right hand quadrant). At the
and expectations are met.
top is the expectation that local content will help
stimulate the development of higher value skills and
To recognize and better understand the objectives and
internationally competitive entrepreneurial capabilities.
expectations that apply in a particular country context,
two questions can be asked: (i) what positive impacts are
A key variant in local content policies and laws is how a
expected to be achieved by the host governments local
local supplier is defined (see Figure 2). That definition
content measures; and (ii) who is intended to benefit
can signal a governments objectives and expectations.
from those impacts? These two questions are
For example, some governments focus narrowly on the
represented by the vertical and horizontal axes,
ownership of the suppliers, while others focus on the
respectively, on Figure 1; the potential implications are
origin of goods, and the degree and type of engagement
shown in the quadrants.
with nationals.
The horizontal axis identifies beneficiaries of local
It is important to note, however, that there is no direct
content. The left side indicates that local content
relationship between ownership of suppliers and the
measures are expected to provide opportunities for
actual value retained in the country. For example, a
specific socio-economic groups. The right side indicates
domestically-owned supplier selling imported goods will
the expectation that local content will provide economic
add limited local value, while an international supplier
opportunities for a broader group of citizens.
using local inputs, employing local staff and substantially
transforming or processing goods locally can deliver
The vertical axis shows the type of local content
significant local value retention.
expected. At the base is the expectation that local
Figure 1 Stimulate high-value technology transfers,

Local content, for innovation and skills development
whom and type?
Provide opportunities to Support economic

specific political and transformation and
economic constituencies diversification
Benefit particular Broaden
socio-economic economic
constituencies opportunities
Provide (self-) employment Reduce pressure on the
opportunities to neighbouring labour market (e.g. high
communities youth unemployment)
Use available technology and labour
Section 2
Figure 2
Varying business arrangements counting as
local supplier in host countries
Ownership of supplier
International supplier National supplier
Company owned and

International supplier, with International supplier,
International supplier, operated by nationals
an agency arrangement forming a joint venture with
registered in the and/or residents, with
with a company owned by a company owned by
host country national staff, capital
nationals and/or residents nationals and/or residents
investments, etc.
Even though there is no direct relationship between l Public expectations may not be consistent with
ownership and retained value, the use of these the objectives, incentives and consequences of
definitions can sometimes have unintended policies, legislation, regulations and/or contractual
consequences with definitions. For example, while clauses: for example, people in communities and
programmes with ownership definitions are usually the regions where resources are located and produced
easiest to administer, there is the risk of fronting (when may expect low-skilled job opportunities, while the
someone assumes ownership for convenience and does national government may be targeting higher-skilled
not actively participate in the company). In some technology and innovation-based economic
contexts, it may be better to focus on where the diversification.
suppliers carry out their work, and on what local
employment, training and skills development efforts they
are undertaking. Too much focus on incentivizing OTHER STAKEHOLDER EXPECTATIONS
companies to do work in-country may also have When conducting a local content context review, it is
unintended consequences. For example, if there is a necessary to identify and consider all potential and
shortage of skilled labour, the hiring of local labour for interested stakeholders. Obvious stakeholders will
intense periods of activity, such as onshore construction, include local communities where a facility may be built;
may pull local workers away from work that is critical to less obvious stakeholders could be a training institute or
the countrys long-term growth prospects, such as international development organizations with active
infrastructure projects. (Risks associated with local strategies in the area. Taking inventory of stakeholders
content are discussed in the subsection on Identifying and their objectives is important in understanding the full
and mitigating risks on page 33). local content context. Annex 3 provides a list of common
stakeholders, typical expectations, potential roles and
Companies can map out country-specific policy contributions, and the challenges they might typically
objectives, identifying what benefits are intended and face. A guidance tool for identifying and engaging
which domestic constituencies are the intended stakeholders can be found in IPIECA, 2012.
beneficiaries. Once this information is documented and
analysed, it can lead to insights such as:
IDENTIFYING OPPORTUNITIES AND RISKS FOR
l Local content objectives may be designed to
VALUE CREATION
achieve multiple and varied outcomes: for example,
it may be expected that local communities gain Country context analysis will help a company to
access to employment opportunities, and also that understand the legal, regulatory and contractual
an internationally competitive supply chain industry requirements with which it must comply. It will also
be developed elsewhere in the country. enable an understanding of the expectations and higher-
level public policy objectives, and can then help to
identify key challenges and opportunities for creating
Section 2
value. Once the wider country context has been Potential challenges include:
assessed, the company can then identify both the key l A host government may take a prescriptive approach
challenges it will face in meeting local content to local content and be unwilling to engage with
requirements and the opportunities local content offers industry to identify shared value opportunities and
to create value for the project/business. By considering align efforts. In this case, the only option is to
the challenges and opportunities from the perspectives consider local content as a compliance exercise and,
of both the host country and the project, the company therefore, as a cost and risk management challenge,
will be better able to help develop a local content rather than an opportunity for shared value creation.
strategy that enables all parties to share in value
l A host government may set targets that are
creation.
unrealistic because they exceed the capability and/or
capacity of local resources. The government may see
Potential opportunities include:
these aggressive targets as a way to push the
l Training institutes may develop courses that serve industry to do more to accelerate the value retained
the needs of both the oil and gas industry and other in the country. However, they may inadvertently have
sectors. the opposite impact by incentivizing fronting
l The host government (and/or others) may develop behaviour or establishing uncompetitive and,
infrastructure to strengthen the baseline economy. ultimately, unsustainable businesses.
l Development plans may provide incentives to l Certain objectives may only be feasible in a certain
develop certain economic sectors which could be project phase (e.g. during the potentially labour-
linked with the oil and gas value chain. intensive construction phase), yet the governments
l There may be established programmes to develop objectives may apply in all phases.
the SME sector, which could align with the oil and
gas industrys own efforts to develop SME suppliers.
l There may be established programmes to develop
historically under-represented or marginalized groups
(e.g. women, Indigenous Persons), or SMEs owned by
them.
l Initiatives may be under way for other industrial
sectors (e.g. mining, construction, infrastructure, etc.)
that could benefit the oil and gas industry.
Section 3
Establishing a
company strategy for
collaborating with
stakeholders on a
shared vision for
local content
Section 3
Establishing a company strategy for

collaborating with stakeholders on a
shared vision for local content
This section is aimed at companies, governments, international suppliers and contractors, financing
institutions, chambers of commerce and others that decide to work together on a shared vision for
local content. Cooperation among oil and gas companies (as well as with companies from other
sectors, e.g. mining) is encouraged as a way of ensuring critical mass for local content investments
and avoiding inefficiencies associated with overlapping programmes.
The term collaborative strategy is adopted throughout strategy. The former is arrived at through a
the section and refers equally to a country strategy, multistakeholder process, and contains a vision for in-
subnational regional strategy, a community strategy or a country value and sector development beyond a single
targeted marginalized group (e.g. women, Indigenous project, while the latter is internal to a single company
Persons) strategy, depending on the agenda defined by and sets out how the company will engage in efforts.
the context. However, an important distinction is made Guidance on developing and delivering a company
between a collaborative strategy and a company strategy is provided on pages 2829.
Figure 3 Shared objectives

Elements of the
multistakeholder process to Define stakeholders, drivers and aspirations, Define rationale for partnership: shared
inform a local content strategy potential role and challenges interests and objectives
Source: adapted from WBCSD, 2013.
Shared understanding of local capacity constraints

Identify the potential Identify the key constraints Prioritize capacity constraints
opportunities for on local capacity to take up based on the extent to which
local content opportunities addressing these meets
shared objectives
Costs and benefits

Evaluate the potential costs and benefits Refine objectives
of addressing capacity drivers and meeting
shared objectives
Roles and actions

Assign appropriate roles to each partner, Define actions to be taken intra-industry,
taking into account capabilities, constraints, between industry and government, and
responsibilities for costs with other stakeholders
Indicators and performance management

Select indicators that Define governance of Define approach to
define success against country strategy monitoring and evaluation of
strategy objectives country strategy and
stakeholder commitments
Section 3
Establishing a company strategy for collaborating with stakeholders on a shared vision for local content
DEFINING STAKEHOLDER ROLES UNDER A list of potential stakeholder expectations, roles,

SHARED VISION responsibilities and challenges in local content
development is described in Annex 3.
A collaborative strategy sets out high-level objectives of
stakeholders, roles and responsibilities, and an approach
to accountability, monitoring and evaluation. IDENTIFYING THE OPPORTUNITIES
(DEMAND SIDE ANALYSIS)
The process of creating the strategy should include:
A good collaborative strategy will consider not just short-
l early and strong engagement among stakeholders to
term demands of a single project, but also the needs of
ensure a thorough understanding of each others the industry (and interrelated industries) and will have a
drivers and expectations; time horizon that is at least medium term in length. As
l agreement on achievable local content objectives; such, a demand-side analysis requires estimates and
l clear, measurable and specific commitments to potential timelines (on an aggregated basis) for goods
collaborate in identifying and investing in local and services and workers for the:
content opportunities that offer mutual benefit; l oil and gas industry; and
l accountability mechanisms to support these l inter-related industry activities.

commitments; and
l a well-defined leadership role.
Opportunities in the project life cycle
Figure 3 details key elements that inform a Demand varies greatly in volumes, categories and
collaborative strategy. This section highlights four of technological complexity along the life cycle of projects.
these elements: identifying the potential opportunities The upstream oil and gas life cycle is typically divided
for local content; identifying the local capacity into exploration, development, operations (production)
constraints; designing programmes and assigning and decommissioning (see Figure 4). The highest risk
partner roles to address these constraints; and indicator and most significant cash flows occur during the
measurement/performance management. A detailed exploration and development phases. Typically, local
content opportunities are low and intermittent during
exploration, numerous but short-term during
Figure 4 development, medium and long-term during operations,
Local content opportunities in the project life cycle and limited in decommissioning. See Figure 4.
local sourcing and employment opportunities
Exploration Development Operation Decommissioning
110 years 26 years 1040 years 35 years

project life
Section 3
Exploration Feasibility study, concept design and FEED

Exploration (seismic, exploration drilling, appraisal drilling) During this phase, local employment and procurement
typically lasts 110 years with short intermittent periods opportunities are limited and short-term, as most work
of work that is typically very specialized. Direct workforce involves specialized engineering and project
demand is likely to be for less than 100 full-time management services. The direct workforce demand
equivalent employees (FTEs) working for short periods. during this sub-phase is likely to be limited to between
Local content opportunities during this phase are 10100 FTEs.
therefore limited. Furthermore, offshore activities,
especially those in deep water, generate even fewer local Detailed engineering, procurement,
content opportunities than onshore projects due to their fabrication/assembly, construction
complexity and the specialized skills required. This stage is typically short and characterized by
significant and rapid change. Capital expenditure is
Development greatest during this period, as are labour inputs. In an oil
The development phase comprises a number of early and gas project, the construction workforce can be
planning sub-phases, namely feasibility, concept several times larger than the operational workforce,
selection, and front-end engineering and design (FEED), albeit for very short periods of time.
followed by detailed engineering, procurement,
fabrication/assembly and construction. The impacts of construction activity on local
communities can be significant. Potential impacts can
During early development, activity is typically limited to include rapid population growth, pressure on the local
business and technical evaluation, detailed project housing market, increased demand for local products
design and planning, and securing regulatory approvals. and services, and labour shortages, particularly in skilled
It is during this phase, well before capital outlay, that trades. Conversely, the winding-down of activity at the
the greatest opportunity exists to identify opportunities end of the construction phase can have a deflationary
for generating shared value. Many decisions made in impact, and can put some local businesses at risk if they
the conceptual and planning stages of a project can have become overly reliant on income from the project
have a significant impact on the potential for local (See also the subsection on the negative impacts of local
participation. Investments in capacity building remain content development on page 35.)
high risk until the final investment decision (FID) is
made at end of FEED.
Figure 5
Development phase
0.52 years 24 years
Detailed engineering, procurement,

Feasibility Concept FEED Construction
construction/fabrication/assembly
Final investment decisions (FID)
Exploration Development Operation Decommissioning
Section 3
The development phase often presents numerous but opportunities than onshore projects given the
short-term business opportunities for the local industry complexity and high specialization levels required. Direct
and workforce. Depending on the nature of the project workforce demand in the operations phase is typically
(e.g. type of facilities and location), local content hundreds of FTEs.
opportunities may vary. For onshore projects, local
employment and procurement opportunities are Decommissioning
medium-to-high and short-term; for offshore projects, Decommissioning of onshore oil and gas operations is
opportunities are limited and short-term. The direct usually straightforward and requires limited workforce
workforce demand during the sub-phase is likely to be and supplies. Decommissioning of offshore structures is
for thousands of FTEs, with steep scale-up and scale- highly complex and technical, and requires advance
down over a relatively short time period. planning. Local employment and procurement
opportunities are limited during this phase. However,
Operations closing out a project can involve site remediation, which
Production operations include extracting and processing provides opportunity for local content.
oil and gas in readiness for distribution and sales. Key
activities are the recovery of oil and gas to the surface
Characteristics of procurement opportunities
for processing and transport, optimization of wells and
production facilities, and efforts to enhance or maintain Table 2 on pages 2021 lists the categories of goods and
production. Depending on the type and scale of the services typically required during each phase. The scale
project and external economic conditions, the length of and range of opportunities for local business participation
this phase typically ranges from 10 to 40 years. will vary according to the type of operation and the
maturity of local suppliers. This list is meant to be
Longer-term opportunities for local businesses and indicative and should not be considered to be all inclusive.
workforces normally arise in the operations phase.
Offshore activities generate fewer local content
Table 2 Oil and gas project phase and demand for goods and services
PROJECT PHASE EXPLORATION DEVELOPMENT OPERATION DECOMMISSIONING

Section 3
Sub-phase l Seismic l Feasibility l Detailed engineering, l Operation and l N /A

procurement, fabrication/ maintenance
l Exploration drilling l Concept design
assembly, construction
l Wells/facility
l Appraisal drilling l FEED
optimization
l Enhanced recovery
Categories of l Industry-specific/ l Industry-specific/ l Industry-specific/ l Industry-specific/ l Industry-specific/

goods and technical technical technical technical technical
services likely l Seismic survey and l Engineering and l Facility modules l Production l Engineering
to be in interpretation design services manufacturing/ enhancement l Deconstruction
demand platform construction
l Laboratory services l Modifications to l Material disposal
l On-site assembly/ platforms
l Marine and land l Generic
installation l Site monitoring
surveys l Inspection and
l Legal and regulatory l Infrastructure repair of topside
l Rig provision services
development infrastructure
l Generic
l Drilling services, drilling l Financial and risk (pipelines, flow lines, l Reservoir
muds, drill bits services umbilical) l Legal and regulatory
management
l l
services
Mud logging, coring, Recruiting, personnel l Storage tanks l Well intervention
wireline logging services; training, manufacturing l Financial and risk
and workover
l
health services
Casing and running, l Well heads/ l Maintenance and
cementing, perforating l IT/communication Christmas trees l IT/communication
repair
l
services services
Well heads, completion l Drilling equipment l Pipelines
equipment l Environmental and l Environmental services
social planning l Compressor stations
l Engineering and l Site support services
l Generic
design services (catering, hospitality,
l Civil Works maintenance, waste
l Generic
l
management, security)
Welding l
l Generic Supply Chain services l Site support
l Steel, basic structures (freight forwarding,
l Supply chain services consumables (food,
l
transport, etc.)
(freight forwarding, Construction raw office supplies
transport, etc.) material l Vehicle fleet stationery etc.)
l l
management
Vehicle fleet Industrial heavy
management machinery
Table 2 Oil and gas project phase and demand for goods and services (continued)
PROJECT PHASE EXPLORATION DEVELOPMENT OPERATION DECOMMISSIONING

Section 3
Categories of l Recruiting, HR, training l Excavation equipment l Recruiting, HR, training l Energy (fuel,
goods and and health l
and health electricity) and
Electronic equipment
services likely to l l
chemicals
Legal and regulatory l
Legal and regulatory
be in demand Supply Chain services l
services services Uniforms, personal
(continued) (freight forwarding,
l l
safety equipment
Financial and risk transport, etc.) Financial and risk
services l
services
Vehicle fleet
l IT/communication management l IT/communication
services l
services
Recruiting, HR, training
l Construction services and health l Construction services
l Lifting services l Legal and regulatory l Lifting services
services l
l Environmental services Environmental services
l Financial and risk
l Site support services l Site support services
services
(catering, hospitality, (catering, hospitality,
maintenance, waste l IT/communication maintenance, waste
management, security) services management, security)
l l
l Site support Construction services Site support
consumables (food, l
consumables (food,
Lifting services
office supplies office supplies
l Environmental services stationery etc.)
stationery etc.)
l l
l Replacement parts Site support services Replacement parts
(catering, hospitality,
l l Energy (fuel,
Energy (fuel, maintenance, waste
electricity) and electricity) and
management, security)
chemicals chemicals
l Site support
l l Uniforms, personal
Uniforms, personal consumables (food,
safety equipment safety equipment
office supplies
stationery etc.) l Non-core goods and
l
services in business
Replacement parts
support services
l Energy (fuel,
electricity) and
chemicals
l Uniforms, personal
safety equipment
Section 3
Characteristics of workforce opportunities Indirect employment opportunities through the various

production linkages usually require skill levels similar to
Human resources are relevant to local content in three
those for direct labour, often with a greater variety of
ways:
profiles. Only induced employment offers more
l direct employment by resource developers and their opportunities for lower skilled staff.
first tier contractors;
l indirect employment via the various production
linkages (see Linkage theory in Annex 1); and IDENTIFYING THE LOCAL CAPACITY
(SUPPLY SIDE ANALYSIS)
l further employment opportunities via the
consumption linkages as those employed directly Local content has the potential to stimulate economic
and indirectly by the sector spend their salaries and activity and encourage additional investment and
wages in the country (see Linkage theory, Annex 1). employment in the local economy. Achieving enhanced
This employment channel is also referred to as economic activity is, however, not automatic and is
induced employment. dependent upon the existence of favourable
macroeconomic and microeconomic conditions. Further,
It is important for low-income developing countries to achieving globally competitive supply chains and
recognize that the oil and gas sector offers only limited workforces is challenging. Table 3 lists factors that
scope for the direct employment of unskilled and typically determine the ability of local suppliers and
inexperienced staff. The oil and gas sectors direct workforce to be competitive in terms of cost, quality,
labour demand is typically focused on certified trades volume, scheduling and reliability. These factors vary from
and crafts skills. Typically, these competencies will country to country and between regions within a country.
include and require both formal qualifications based on
a minimum of lower secondary education and relevant The goal of supply side analysis is to identify the
prior work experience. challenges and opportunities associated with meeting
Table 3 Factors contributing to the competitiveness of local workforce and suppliers

Source: adapted from WBCSD, 2013
MICROECONOMIC FACTORS MACROECONOMIC FACTORS

(FIRM LEVEL) (COUNTRYS BUSINESS-ENABLING ENVIRONMENT)
l Human resources and organizational capabilities: l Regulatory environment: ease of starting and running a
managerial and technical skills, operational processes, HSE business: permits, licensing, inspections, taxation,
and quality control. certification.
l Technological capabilities: availability of technology and l National infrastructure: access to nationwide transport
the ability to adopt and deploy it; this is particularly infrastructure, electricity, telecommunications.
relevant for industry-specific goods and services with a
higher technology component.
l Access to finance: loan and equity finance for capital and l Labour market: broader educational and training policies
operational needs; the constraints include high interest at unskilled, semi-skilled and technical (TVET/VET) and
rates and collateral requirements that are not feasible for higher education levels.
SMEs.
l Access to local infrastructure: availability and quality of l Capital markets: macroeconomic financial situation: the
local infrastructure, roads, utilities. availability of credit, the maturity of equity markets, and
the size of a countrys overall liquidity pool.
l Access to procurement: awareness of, and ability to apply l Investment incentives and import and export regimes
for, opportunities: communication, prequalification, tender that impact the ability to start and scale up local
documentation and processes. businesses.
Section 3
local employment and sourcing expectations. The gap DEFINING ROLES AND TIMING
between the supply and the demand side can potentially
When defining initiatives to address the capacity
be addressed by enterprise and skills development
constraints identified by a supply side analysis, and
programmes. In some contexts, the firm-level
assigning roles and allocating costs, partners need to
microeconomic constraints (as described in the left side
consider their respective organizational strengths and
of Table 3) can be addressed by individual company- or
constraints. Workforce and supplier development
industry-led initiatives. In some contexts, public policy
requires medium-term planning horizons. The earlier
interventions are needed to address constraints in the
these efforts are started, the more likely the labour
enabling environment (as in the right side of Table 3).
market and enterprises will be both prepared for the
However, as mentioned earlier, there is a growing trend
demand and available in future to serve additional
of addressing the full range of constraints through
projects and sector-related activities. Timely workforce
collaborative stakeholder efforts that may include the oil
and supplier development is particularly important during
and gas industry, government, international finance
the construction phase when opportunities are many,
institutions, NGOs and educational institutions.
but the activity time span is short. In practical terms,
companies need to develop workforce curves associated
Annex 4 offers guidance on how to examine the factors
with the project at pre-FEED stage.
that influence local capacity. Two levels of analysis are
usually required:
Figure 6 illustrates the importance of starting early. Lead
l identification of the key constraints on local capacity
times for development of some skills can be lengthy.
that would prevent the take up of opportunities
provided by the industry; and Companies should note the importance of engaging
l prioritization of capacity constraints and evaluation of proactively with the government throughout the entire
the potential costs and benefits of addressing them. project life cycle in order to coordinate efforts and ensure
local content and other industrial policies are aligned with
industrys demand for workforce, goods and services.
Figure 6 Illustrative demand and lead times for plant technicians

Source: adapted from Schlumberger, 2013
45
40
35
30
12 years of
on-the-job
25 training
FTEs
20 34 years of vocational education
15 cumulative demand for

plant technicians
10
start of education
5 start of on-the-job
education
0
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Year 11 Year 12 Year 13 Year 14
Section 3
Exploration phase The conceptual and planning phase presents an

opportunity to guide, and collaborate with, EPC and
The high-risk profile of exploration activities constrains
other major contractors to jointly assess and develop
the ability of resource developers to build local capacity
supplier capabilities, to set and monitor realistic
before starting the development phase. It is therefore
performance indicators, and to plan for demobilization.
important for government to provide leadership to
During FEED, construction and operations, contracting
ensure early planning for local capacity development. To
strategies are developed and present a good opportunity
provide this, government will need to implement
to enable shared value opportunities. At this stage,
industrial and labour market strategies, including national
workforce and supplier surveys and gap analysis can
education and training systems that align a countrys
reveal specific opportunities that can focus the attention
enterprise and human capacity building with industrys
of stakeholders. Clear expectations, including roles and
potential needs. During exploration, the dialogue
responsibilities, should be documented with major
between the government and resource developers
contractors. (See Adapting procurement and contracting
should focus on establishing a collaborative process to
on page 31 for more details.)
conduct relevant analysis and develop a strategy for
local workforce and supplier development.
Fabrication, assembly and construction are usually
managed by large EPC contractors. Consequently, the
Development phase ability of local businesses/workforce to access
opportunities often depends more on the efforts of
Major contractors (including EPC contractors) typically
major contractors than on oil and gas resource
account for the majority of local spend and employment
developers. Including major contractors in the planning
during the development phase. Collaboration between
for workforce training and capacity development of local
resource developers and major contractors, supported
suppliers is therefore strategic.
by shared accountability is therefore advisable. Major
contractors should be involved early to help develop
A major challenge for project developers is in planning
capacity and to link local content planning and
for local employment and sourcing within tight timelines
implementation activities to key engineering,
to meet peak construction requirements, as there is a
procurement and construction milestones.
short time period post-FID and before construction starts.
Planning for the construction phase requires a
collaborative approach between industry and government
and across industry, taking account of linkages to other
projects in the oil and gas and other sectors.
Operations phase
The operation phase presents opportunities to develop
longer-term, sustainable local capabilities. However, to
ensure sustainability, progression should be deliberate
but at a realistic pace to ensure that local content
programmes can consistently deliver high value to local
economies.
Partnerships with government, other industry players,

and vocational and technical education/higher
education/R&D institutions should focus on investments
with a longer-term horizon, such as developing
competitive local value chains and promoting innovation
and technology.
Section 3
Decommissioning phase plans related to these groups in both company plans and
in collaborative strategies. Many institutions support such
The primary focus, both before and in the lead up to
efforts. See the References and further reading section
decommissioning, should be assisting the local
for additional resources.
workforce and businesses to diversify (where practical) to
reduce their dependence on the operation and remain
viable beyond closure. SETTING OBJECTIVES AND MONITORING
PROGRESS
Examples of collaborative actions Reaching agreements on local content objectives can be
Examples of initiatives that companies, governments, aided by including a structured, systematic process
major contractors and others can implement through whereby stakeholders provide input into an evaluation of
partnerships to address identified gaps in a range of local content objectives and compare alternatives using
specific and unique contexts are available at a number of criteria, including government priorities and
www.ipieca.org/sites/default/files/Local_content_case_ the costs and benefits to diverse stakeholders at a
studies_2016.pdf. These examples are not prescribed as national, regional, community and/or targeted group
best practice, but do provide options to consider. Key level. A strong monitoring and evaluation (M&E) system
topics covered include: can provide stakeholders with valuable information to
inform future action.
l skills development programmes: considerations for
strengthening technical and vocational education
Roles and responsibilities for the M&E programme should
and training (TVET), and case studies illustrating skills
be clearly defined. If there is a lead organization for a
gap assessments, defining of skills competency
countrys local content stewardship, it would be
standards, interventions at all levels of education
responsible for collecting the data from various
(from primary to post-graduate) and knowledge
stakeholders, then synthesising and reporting it.
transfer for talent acceleration;
l enterprise centres/vendor development
Selecting indicators that measure strategic outcomes
programmes: alternatives for delivery models and and impacts, rather than simply focusing on
considerations for implementation are offered, and implementation, can help drive resource sharing
case studies of initiatives designed to support between the government and other stakeholders
supplier development, including supplier diversity, involved in informing the strategy. Some indicators that
community agreements to address the supply/ may be considered include:
demand gap, community equity ownership in supplier
l Agreed stakeholder objectives, i.e. who the local
firms, access to finance, online databases linking local
content efforts are designed to serve, and the
businesses to contract opportunities, and partnerships
purpose for which they are intended (e.g. to support
between local and international SMEs to exchange
economic transformation and diversification, to
know-how and improve access to markets; and
reduce high youth unemployment, to provide
l strategic and substantial investments with a long-
economic opportunities to neighbouring
term horizon: cluster initiatives for world-class communities, etc). Approaches that measure
supplier development, common use infrastructure multiplier effects can be used to capture indirect and
and investments in access to energy. induced economic impacts generated by local
content programmes (See Multiplier effects in
Special focus on marginalized/vulnerable groups Annex 1 for details)
l Indicators that demonstrate contribution to the
In many contexts in which oil and gas companies
collaborative strategy (see Company strategy
operate, historically marginalized groups (e.g. women,
indicators and Company action plan indicators on
Indigenous Peoples or ethnic minorities) often represent
page 36).
large portions of the population but are often the least
engaged in shared value opportunities that can result l Indicators related to baseline conditions linked to the
from local content initiatives. Special consideration and objectives (e.g health of the local economy, human
care should be given to having specific objectives and capital, and ease of doing business). In many
Section 3
countries, government statistics departments

conduct periodic surveys (census, industry surveys,
employment, education, etc.), often supported by
international institutions (e.g. World Bank).
l Indicators related to local capacity development
programmes that provide evidence of programme
impact. See the References and further reading
section for information on performance story
reporting.
It is also recommended that indicators be disaggregated

by gender and other categories that isolate for the
impact on historically marginalized/vulnerable groups,
such as ethnic minorities, indigenous populations and
youth. In many contexts in which oil and gas companies
operate, historically marginalized groups have limited
access to formal resources. They are also often affected
differently by oil and gas operations. Without measuring
inputs, outputs and impact for historically marginalized
groups, M&E may capture only a partial and distorted
picture.
Section 4
Set up the
organization to
deliver value from
local content
Section 4
Set up the organization to deliver

value from local content
This section addresses how companies can establish an organizational structure, systems and
procedures to deliver value from local content efforts.
EVALUATING THE BUSINESS CASE and reporting (where applicable), and tracking and
compiling key performance metrics.
A clear understanding of the costs and benefits of local
content initiatives is necessary for companies to:
Tools exist to assess the business value of local content
l assess the potential trade-offs between responding
initiatives. One such tool is the Financial Valuation Tool
to external pressures and internal commercial for Sustainability Investments developed by IFC, Rio Tinto
imperatives, and understand the true benefits of local and Deloitte. Although the model targets broader
content investments; and sustainability interventions, its principles and core
l justify local content budgets that compete with other components are applicable to local content. The model
corporate priorities, and prioritize investments. quantifies the risks, creates a net present value (NPV)
calculation for a scenario with a local content
The incentives to pursue local content are widely programme, and then subtracts the NPV of the scenario
accepted by industry. Local content provides both costs without a local content programme. The result is the
and benefits, though it can be more difficult to quantify NPV of the investment in local content programmes.
the latter. Examples of some of the costs that oil and gas
resource developers have experienced include:
DEFINING THE COMPANYS STRATEGY FOR
l training and education to increase local human and
LOCAL CONTENT
economic capital, and enterprise and workforce
capability and capacity to meet industry demand and A companys local content strategy needs to balance the
standards; companys internal imperatives against a countrys socio-
l delayed revenue stream due to the extended time
economic context. It expresses the companys
frames required for local content development; commitment to the collaborative strategy and how the
companys activity will support that strategy, articulates
l paying premium prices to local suppliers to comply
the trade-offs that have been made, describes objectives
with preferencing requirements;
to guide an internal action plan, sets goals, and defines
l increased administrative costs to communicate the organizational structure and systems required to
opportunities at the local level; deliver on the strategy.
l increased transaction costs related to managing
multiple smaller contracts to enhance accessibility to Key questions that a company strategy would answer
local suppliers; include:
l increased administrative costs in running networking l Business case: what are the key business objectives
events and matching large/international suppliers the company wants to achieve in terms of local
and contractors with local businesses; content?
l time allocated to participating in stakeholder dialogue l Contribution to collaborative strategy: what are the
activities; and stakeholder objectives that the company strategy
l increased administrative costs associated with shares?
compliance with legal requirements for verification
Section 4
Set up the organization to deliver value from local content
l Definitions: how is local content defined within the RESOURCING REQUIREMENTS

specific country context?
The wide range of functions and disciplines required to
l Demand side analysis: what goods and services/ increase local content across the project life cycle is
workforce will the operation need over the project evident in the activities listed in Table 4 on page 30; the
life cycle? table provides a sample high-level local content action
l Supply side analysis: what potential and actual local plan at the country/asset level.
suppliers/workforce are present and to what extent
do they have the ability to meet demand Recognizing the cross-functional nature of a company
requirements? action plan, successful implementation requires a
l Gap analysis: how will the gap between supply and number of internal resourcing elements to be put in
demand be bridged? What adaptations to place. Some potential approaches include:
procurement and contracting procedures and l At corporate/headquarters level:
investment in capacity development programmes l communication in respect of the corporations view
might be required? on local content efforts;
l Targets: what levels of local content could be l governance structure (e.g. internal steering
achieved by bridging the gap between supply and committee) established for oversight and high level
demand? strategic direction for local content efforts;
l Organization: what resources are needed to deliver l provision of a roadmap/guidelines to
the company strategy? countries/assets to enable alignment with
l Ongoing stakeholder engagement, communication corporate/headquarters strategy;
and reporting: who is important and/or interested in l provision of a roadmap/guidelines on collaboration
the company local content strategy, and how will between corporate functionse.g. procurement/
they be involved and communicated with? supply chain management, human resources
management and community/public/external
affairs; and
l allocation of appropriate resourcing and budget at
both headquarters and country levels.
Section 4
Table 4 Example of a companys Local Content Action Plan by project phase
POTENTIALLY UNDERTAKEN BY
TYPICAL LOCAL COMPANY ONLY, OR SHARED
PHASE CONTENT ACTIVITIES WITH OTHER STAKEHOLDERS
Exploration l Institutional analysis and stakeholder analysis Company

l Preliminary engagement with government, other Company
industry and stakeholders to establish
collaborative relationships
l Preliminary demand analysis Shared
l Preliminary baseline assessment of supply Shared
l Agreement with government on local content Company
strategies
l Concept selection, accounting for local content Company
optimization
l Detailed project demand analysis Company
Development Feasibility,
concept l Communication of project demand to local Company
design, businesses and other stakeholders
FEED
l Detailed workforce and supplier capability Shared
surveys and gap analysis
l Local content plan for detailed engineering, Company
fabrication/assembly, construction
l Embedding of local content considerations as Company
part of detailed design
l Implementation and monitoring of Company
fabrication/construction local content plan
Development Detailed
engineering, l Supplier matching events Shared
procurement,
l Local content plan for operations phase Company
fabrication,
assembly, l Training of workforce for operations phase Shared
construction
l Report local content performance to government Company
and other stakeholders
l Plan for managing discontinued workforce after Shared
the end of construction phase
l Determine staircase of capabilitiesprogression Company
from simple contracts to more complex ones
Operation l Capacity building of suppliers and workforce Shared
l Report local content performance to government Company
and other stakeholders
l Decommissioning plan including local impact and Company
mitigation measures
Decommissioning l Advance notice to local businesses and Company
workforce of decommissioning time frames
l Workforce transitional training Shared
Section 4
l At country/asset level: competent staff that cover business and stakeholder benefits sought over the
the following responsibilities: medium to long term. However, there may be
l formulation of the company strategy for a opportunity for a resource developer to work
particular project/asset; collaboratively with a multilateral development agency or
the host governments economic development branch
l representation at external forums, and in the
to establish the necessary platform or platforms for the
collaborative strategy multistakeholder process, if
following interventions, with the potential to offset some
such a process exists;
of the incremental cost.
l project management of action plan
implementation, and reporting to the internal
steering committee; Communicating opportunities
l implementation of actions that fall within the remit Two common obstacles to increasing local content are a
of relevant functions, e.g. from new business lack of awareness among local businesses of
development, government relations, social opportunities and how to access these opportunities,
performance, social investment, human resources, and a lack of understanding of the requirements for
supply chain, projects, operations, and health and tendering. These can be addressed by: informing
safety; and businesses about tendering opportunities; educating them
l coordination of the inputs/resources of all about standards and evaluation criteria; and familiarizing
functions under whose remit any of the them with the companys procurement systems.
implementation actions fall.
To understand which mechanisms will be effective in
reaching the businesses being targeted, it is first
ADAPTING PROCUREMENT AND necessary to understand how local businesses network
CONTRACTING and communicate. Some questions to consider include:
Many oil and gas companies have adapted their l To which technologies do SMEs have access? For
procurement and contracting to increase local business example, do they have internet and mobile phone
access to opportunities, employing methods such as: access and use? Are these used frequently?
l including local content considerations in tender l How do community members most commonly
processes; access information on tenders?
l breaking large contracts into smaller ones l How is other information spread through the
(unbundling) to create opportunities for smaller local community? What are the available local channels?
suppliers; and Radio? TV? Newspapers?
l providing guidance for the preparation of tenders. l Is there a strong sector of community based or civil
society organizations? To what extent are community
Before engaging in such methods, it is important to members active in these organizations?
ensure that such actions do not contravene national
l Are business forums, associations or chambers of
legal frameworks or international trade agreements,
commerce available to businesses? To what extent
some of which prohibit preferential selection methods
do SMEs participate in them? How strong or weak are
that may be considered to be anti-competitive.
these groups?
Highlighted below are four types of demand-side
Channels to communicate opportunities for local
intervention: (i) communicating opportunities;
businesses include:
(ii) simplified procurement and contracting; (iii) supplier
prequalification; and (iv) involving lead contractors and l enterprise centres;
suppliers. l information centres;
l chambers of commerce or business associations;
It is worth noting that these interventions typically l procurement team;
require an increase in costs to the resource developer in
the short term, and need to be weighed against the l supplier forums;
Section 4
l reception desk; Stringent pre-qualification requirements may present

l email, SMS, or social media; another obstacle. Support can be provided to SMEs to
meet international requirements through co-financed
l website;
projects to develop HSE, technical and managerial
l local radio or newspaper; capabilities of suppliers, e.g. supplier certification,
l community notice boards; and international accreditation of standards certification
l community newsletter. organizations, and training programmes.
Ensuring tendering and contracting processes are Involving lead contractors and suppliers
clearly understood The ability to achieve local content goals is heavily reliant
In some contexts, SMEs can be challenged by complex on how the contracts and procurement functions design
corporate procurement processes. The ability of SMEs to their contract strategy and gear their tender evaluation
meet oil and gas companies stringent tendering and criteria to align the practices of lead contractors and
contracting requirements is often hampered by their suppliers. An additional contributing factor is how the
limited financial, technical and managerial capacity. resource developer works with the contracted partner to
Some of the ways in which tendering and contracting develop its capacity to deliver.
may be simplified to support the ability of SMEs to
participate are listed below: When planning a typical 35 year construction phase, it
l Tender documentation requirements: required
is important to define the role and responsibilities of the
items may include tax clearance certificates, lead contractor. Maximizing local content in the
organization charts, shareholder agreements, VAT construction phase might require commencement of
registration, etc. Requirements can be tailored capability development one to two years in advance.
according to the risk and complexity of the goods or Early involvement of contractors can help capacity
services being procured. development and also link local content planning and
implementation activities to specific engineering,
l Information on the tendering process: regular
procurement and construction milestones.
workshops open to potential suppliers can provide
information on the tendering process and on specific
requirements, and can help to manage expectations
and communicate available support. Offering
feedback on unsuccessful bids can also enhance
understanding.
l e-procurement systems: ensure fees are affordable;
providers offer local suppliers free or cost-reduced
training on the use of such systems; data usage
requirements account for more restricted data limits;
simpler language and multiple language options are
offered if necessary.
Supplier pre-qualification
When local SMEs are interested in being considered for
an opportunity, and proceed to register their businesses
on the respective vendor databases of the operator, EPC
companies and other large suppliers, they often face the
need to use a range of different systems, each with its
own requirements. This introduces an administrative and
cost burden to SMEs, without any guarantee that an
opportunity will actually become reality.
Section 4
IDENTIFYING AND MITIGATING RISKS The corporate risk associated with corrupt practices can
partially be addressed through the understanding of a
Corrupt practices companys local content programme (as outlined in
Section 1), alongside the design and implementation of
Implementation of local content requirements can
clear contracting and procurement standards, and an
expose resource developers to increased risk of
effective compliance programme that addresses the
reputational damage and/or legal liabilities, if not done in
respective bribery and corruption as well as broader
a transparent manner and without appropriate
ethics and compliance risks. Such a programme should
safeguards and mitigations. This risk arises from:
typically be linked and developed within the framework
l involvement of government and public officials in of a companys corporate governance and business
the design and implementation of local content conduct standards. Important elements of such a
requirements where there may be attempts to use compliance programme include:
these requirements for personal benefit or to favour
l clear standards, for example, clearly stated
family members or business or political allies, or other
prohibition against bribery and corruption in all forms,
circumstances where ethnic, tribal or other affiliations
including facilitation payments;
come into play (see also Figures 1 and 2 in Section 1);
l communication of anti-bribery and corruption
l close links to the contracting and procurement
standards and requirements to all employees and
(supply chain) activities, the area where corrupt and
contractors from the highest executive position;
fraudulent practices are most likely to arise, and
l procedures to ensure compliance with applicable
which could also be open to anti-competitive
behaviours, such as bid-rigging or collusive tendering; anti-bribery and corruption laws, e.g. procedures or
guidelines in respect of contracting with third parties,
l exposure to potential corrupt practices by the
gifts and hospitality, conflicts of interest or setting up
subcontractor or agents, an area where resource
ventures with local partners;
developers have less leverage in applying safeguards
l mandatory due diligence to know the respective
and mitigations;
local contractors and suppliers and identify any red
l exposure to potential corrupt practices in joint
flags, and model anti-bribery and corruption clauses
ventures with local partners; and
to be used in the respective contracts;
l potential undisclosed conflicts of interest, which
l financial controls that enable a transparent view of
could stimulate nepotism and other corrupt practices.
transactions;
l training, such as risk-based training of a companys
Examples of corrupt practices associated with local
content typically include: staff and contractors on the key company anti-
corruption policy requirements;
l conflict of interest and favouring based on
l statement of employees certification of
family/business/political/ethnic, etc. affiliation;
compliance;
l bribes and kickbacks to local companies to serve as
l global helpline available for all employees to report a
a front in bidding processes in order to gain access
to oil and gas contracts (see also Figure 2 in concern;
Section 1); l audit programmes to monitor compliance;
l facilitation payments; l consequence management;
l offering and receiving gifts and hospitality to unduly l a clear governance structure; and
influence business decisions; l records retention procedures.
l fraud; and
l utilizing a chain of companies (often offshore), to

Red flags identified as a part of the mandatory due
obscure the ultimate beneficial owners, for example diligence procedure in respect of local contracts and
in relation to the award of contracts. suppliers need to be cleared, i.e. clarified and mitigated
before the relevant contracts can be entered into.
Section 4
Examples of red flags could include situations where:

l a local contractor/supplier is recommended by a
governmental official;
l a local contractor/supplier is related to, or closely
associated with, a government official;
l a local contractor/supplier refuses to comply with
the due diligence process (e.g. refuses to provide
ownership documents or has obscure ownership
structure) or provides incomplete or inaccurate
information;
l a local contractor/supplier is a briefcase company
and/incorporated in an offshore jurisdiction and/or
requests payments to offshore bank accounts;
l a local contractor/supplier clearly lacks experience
and capability to perform the required scope;
l there is reason to believe that there is, or may be, a
violation of local law or policy (e.g. local tax,
competition law), if the arrangements proposed with
the local contractor/supplier are implemented.
In addition, the corruption risk in local content can

partially be addressed through open collaborative effort
by various stakeholders. However, where corruption is negative impacts associated with the activities of
endemic in the local environment, actions may be contractors. Mitigation measures include:
necessary that extend beyond the scope of the oil and l building requirements into the contracts of EPC
gas industry. Such efforts may be aimed at enhancing contractors and large international suppliers with
transparency and accountability, including rules on regard to labour, social and environmental
conflicts of interest, asset declaration, and public access performance of local subcontractors;
to information about which entities have been awarded
l evaluation of tenders so that key risks are given
contracts. The oil and gas industry can support the role
appropriate prominence;
of local business associations in training local SMEs and
l incentives and punitive measures to achieve
providing them with tools and resources for the
development of effective internal control, ethics, and compliance;
compliance measures for the purpose of preventing and l induction and training on code of conduct, camp
detecting corruption (OECD, 2009). rules, interaction with local communities, grievance
procedures; and
l a system for managing issues in the field.
Adherence to labour, social, human rights and
environmental standards
A common practice in the oil and gas industry is to apply Operations in conflict-affected areas
international frameworks and standards to manage Companies recruitment and procurement practices, and
labour, social, human rights and environmental supplier and workforce development initiatives, can
performance. Examples include the International Finance increase pre-existing tensions in a community and
Corporation Performance Standards (IFC PS), United trigger conflict. Even in relatively peaceful environments,
Nations Guiding Principles on Business and Human opportunities created by major investments can alter
Rights, Voluntary Principles on Security and Human traditional systems and raise tensions. Recruitment and
Rights and various International Labour Organization procurement could unintentionally favour a privileged
(ILO) standards. They are used in the development of ethnic group that tends to have better education, work
management plans to avoid, minimize or mitigate experience, access to finance, technology and other
Section 4
resources. Supplier and workforce development l selecting supplier development and skills
programmes can also feed into local tensions and fuel development implementation partners who
conflict through their selection of beneficiaries and understand and know how to work across social
priorities. structures; and
l invest in skills and enterprise development in support
Mitigation measures should be based on an accurate services unrelated to supply chain opportunities.
understanding of any existing or potential conflict and its
protagonists, and of the spectrum of influence that a
companys activities may have on such conflict. MONITORING AND EVALUATION
Measures can include: Any local content strategy and action plan should be
l early, consistent and meaningful stakeholder supported by a meaningful monitoring and evaluation
engagement to build trust; (M&E) system. It enables managers to track progress,
l inclusive and transparent employment policies and demonstrate results and take corrective action to
reconciliation-in-the-workplace programmes that improve delivery. What gets measured tends to get done.
foster positive inter-group relationships;
l transparency in procurement from local suppliers,
While a standardized methodology for local content
and engagement with major contractors to ensure performance measurement across industry may enable
inclusive and transparent procurement; consistency and comparability of results, there are
several barriers to its application. The overview to this
l investment in long-term skills training programmes;
guidance highlighted a lack of uniformity in definitions: in
and different contexts governments and industry use
l engagement with government and other different definitions of local and content, as well as
stakeholders on economic diversification and different frameworks to measure and report local
inclusive job-creation efforts. content. There is also a lack of reliable methods to
measure the true extent of local value addition.
Negative impacts of local content development
efforts on communities
Local content development programmes can drain the
local workforce and suppliers from other sectors and
displace traditional economic activities like farming,
livestock rearing, fishing, etc. Communities may grow
dependent on a projects employment and supply
contracts, with few livelihood options beyond the life of
the project. There is also a risk of disturbing power
relations in the community and affecting social cohesion:
for example, opportunities may be taken up by a small
group of influential community leaders, and may not be
visible or accessible to the broader community.
Mitigation measures may include:

l ensuring thorough upfront community profiling and
stakeholder analysis;
l communication strategies that reach the broader
community rather than targeting specific groups;
l investment in developing alternative markets, by
partnering with government and aligning with
regional development and diversification initiatives to
reduce dependence on the project;
Section 4
Local content M&E can be resource intensive. To Company strategy indicators

measure local content accurately, it may be necessary to
These are indicators that demonstrate companies
separate various aspects of procurement, human
contributions to collaborative strategies. Many companies
resources, social investment and other activities. In most
collect local content data for international voluntary
oil and gas companies, management information/
reporting initiatives, e.g. through the UN Global Compact1,
enterprise resource planning (ERP) systems are shared
The Global Reporting Initiative2 and IPIECAs sustainability
globally by all the companys subsidiaries. However, ERP
reporting guidance (IPIECA, 2015) (See Box 1). These
systems are not built to measure local content, and
indicators may or may not be relevant to the stakeholder
therefore customized solutions are often needed. The
objectives, or might need to be supplemented by others.
design of such solutions, which aim for replication and
standardization, adds complexity since they need to take
into account the differences in definitions and the type Company action plan indicators
of oil and gas projects.
At this level, M&E is internally oriented to the company
and involves monitoring commitment delivery and
The process of monitoring involves frequently checking
assisting with problem solving. The metrics selected to
whether the objectives identified at the outset are being
monitor the action plan are indicators for whether the
met. The process of evaluation happens after a longer
commitment is on time and within budget. Progress is
period and requires additional consideration of whether
tracked using the companys usual project scheduling
the objectives are valid and whether they should be
methods and performance of team members is
adapted to changes in the environment.
monitored through the usual staff performance
management reviews.
In contexts where local content-related regulatory
requirements and contractual provisions exist,
minimum parameters for compliance monitoring and
reporting are prescribed. Governments may provide
industry with templates for monitoring and reporting, Box 1 Local content indicators in international
including indicators, measurement methods, reporting reporting frameworks
format and frequency, etc. Objectives need to be
translated into a set of key performance indicators Global Reporting Initiative (GRI)2:
(KPIs). Performance measurement should assess both l EC6 Policy, practices, and proportion of spending on
qualitative and quantitative dimensions of change. The locally-based suppliers at significant locations of
number of indicators to be developed depends on how operation
many are needed to answer the question, Has the l EC7 Procedures for local hiring and proportion of
objective been achieved? senior management hired from the local community
at significant locations of operation
Three broad categories of indicators need to be included
in local content M&E: strategy; company action plan; and IPIECA Sustainability Reporting (IPIECA, 2015):
capacity development programme investments. The first l SE5 Local content practices
two are described below; the third, programme-level
l SE6 Local hiring practices
M&E, is described in the subsection on Setting objectives
and monitoring progress on pages 2526. l SE7 Local procurement and supplier development
1 unglobalcompact.org 2 globalreporting.org
References and
further reading
References and further reading
REFERENCES
IPIECA (2012). Voluntary Principles on Security and Human Rights: Implementation Guidance
Tools (IGT). www.ipieca.org/publication/voluntary-principles-security-and-human-rights-
implementation-guidance-tools
IPIECA (2015). Oil and gas industry guidance on voluntary sustainability reporting.
https://www.ipieca.org/publication/oil-and-gas-industry-guidance-voluntary-sustainability-
reporting-3rd-edition
OECD (2009). Good Practice Guidance on Internal Controls, Ethics, and Compliance. Annex II
to the Recommendation for Further Combating Bribery of Foreign Public Officials in
International Business Transactions (the Anti-Bribery Recommendations).
https://www.oecd.org/investment/anti-bribery/anti-briberyconvention/44884389.pdf
Schlumberger (2013). Transforming Reserves into Productionan opportunity for Africa. Cape
Town. Schlumberger Business Consulting.
WBCSD (2013). A Framework for Dialogue on National Market Participation and

Competitiveness, Geneva and New York, WBCSD. www.wbcsd.org/nmpi.aspx
FURTHER READING
Section 2: Review the local content context
CSSI (2016). Local Content Laws & Contractual Provisionscountry profiles (website). Columbia
Center on Sustainable Investment. https://ccsi.columbia.edu/work/projects/local-content-laws-
contractual-provisions
This website provides country profiles for a range of countries, summarizing the provisions in legal
instruments dealing with local content, and highlighting examples of high impact clauses. The
profiles examine provisions dealing with local employment, training, procurement, technology
transfer and local content plans, as well as local ownership, depending on the countrys approach
to, and definition of, local content.
McKinsey Global Institute (2013). Reverse the curse: Maximizing the potential of resource-driven
economies. www.mckinsey.com/insights/energy_resources_materials/
reverse_the_curse_maximizing_the_potential_of_resource_driven_economies
This report discusses how countries that have large resource endowments can handle them more
effectively in order to bolster economic development. It includes approaches for policymakers to
ensure that their resource endowments are used to maximize socio-economic benefits through local
content, shared infrastructure and economic diversification.
UNCTAD (2012). Extractive Industries: Optimizing Value Retention in Host Countries.

United Nations Conference on Trade and Development, New York and Geneva.
https://unctadxiii.org/en/SessionDocument/suc2012d1_en.pdf
This document discusses challenges of value retention from the oil, gas and mining sectors and
introduces industrial policy options aimed at the optimization of the local content.
Section 3: Collaborate on a shared vision for local content
Australian Government (2009). Developing a performance story report: user guide (website and
downloads). https://nrmonline.nrm.gov.au/catalog/mql:2162
This guide presents one of the frameworks used to measure performance with an emphasis on
qualitative indicators. A performance story report is a statement about progress towards a project
goal supported by multiple lines of evidence and describing the causal links that show how the
achievements were accomplished.
Ernst & Young (2014). Getting ready for UK shale gas, Supply chain and skills requirements and
opportunities. www.ey.com/Publication/vwLUAssets/Getting_ready_for_UK_shale_gas/$FILE/EY-
Getting-ready-for-UK-shale-gas-April-2014.pdf
This report provides an example of a country-wide demand side analysis. It looks at the supply
chain, skills and shared infrastructure demand of the shale gas industry, maps existing capabilities in
the UK, identifies gaps and provides recommendations for closing the gaps.
IGC (2012). The Enterprise Map Series (website and downloads).

International Growth Centre, London School of Economics and Political Science.
www.theigc.org/project/the-enterprise-map-series
This website provides baseline information on industrial sectors in a number of countries in sub-
Saharan Africa. Each volume in the Series begins with a general overview, followed by a series of
chapters dedicated to each major industry in the country, spanning agribusiness, manufacturing and
construction. Detailed profiles are provided of selected companies in each market and submarket.
IPIECA (2012). Voluntary Principles on Security and Human Rights: Implementation Guidance Tools
(IGT). Module 1, Stakeholder Engagement, pages 1021. www.ipieca.org/publication/voluntary-
principles-security-and-human-rights-implementation-guidance-tools
Module 1 of this document provides guidance and tools for stakeholder identification, engagement
and resolution of challenges. The guidance could be applied to an overall strategy for country
stakeholder engagement, including on local content issues.
USAID (2016). Value Chain Development Wiki. (USAID Microlinks website).

www.microlinks.org/good-practice-center/value-chain-wiki
This website provides a detailed framework for a supplier gap analysis. The value chain approach
seeks to understand the firms that operate within an industryfrom input suppliers to end-market
buyers, the support markets that provide technical, business and financial services to the industry,
and the business environment in which the industry operates.
USAID (2016). CARE/MEDA e-Course on Market Analysis and Value Chain Project Design (website).
https://www.microlinks.org/training-group/caremeda-e-course-market-analysis-and-value-chain-
project-design,
This online course provides an introduction to market-based economic development and a standard
approach to conducting market analysis and designing value chain initiatives. It is particularly useful
for the integration of gender and sustainable livelihoods consideration in the analysis and design of
supplier development programmes.
VETA/VSO/Tanzania LNG Partners (2014). Pathway to vocational employment in the emerging

Tanzanian gas sector. A Collaborative Assessment of Vocational and Educational Training Needs.
November 2014, Dar es Salaam.
https://www.vso.ie/sites/vso_hub/files/ic14071_tanzania_voc_skills_gaps.pdf
Vital Voices (2016). Vital Voices Global Partnership (website). www.vitalvoices.org

Vital Voices is an international NGO that identifies, trains and empowers emerging women leaders and
social entrepreneurs around the globe. Through their economic empowerment stream of work
they identify high-potential yet underserved women-owned SMEs and support them by: providing
business mentoring programmes and leadership and skills training; providing access to peers, markets
and opportunities; and informing and influencing stakeholders through advocacy and research. An
ecosystem mapping report of women entrepreneurs can be downloaded from the website.
WBCSD (2012). A Framework for Dialogue on National Market Participation and Competitiveness
(website). The World Business Council for Sustainable Development. www.wbcsd.org/nmpi.aspx
This website provides guidance for building a dialogue between business and government on supplier
competitiveness to enable local firms participation in the value chains of large inward investments and
to encourage local economic development. The framework lays out a strategy for achieving improved
competitiveness of local firms through shared interests rather than through mandatory requirements.
WBENC and WEConnect (2016). Women Owned (website).

www.womenownedlogo.com/about-women-owned
The Women Owned project is a certification initiative that provides benefits to women-owned
businesses, including: access to supplier diversity and procurement executives at multinational
corporations; access to mentoring, education and capacity development; and opportunities to
network with other Women Owned businesses. The initiative is managed by WEConnect
International (www.weconnectInternational.org) and the Womens Business Enterprise National
Council (WBENC) (www.wbenc.org).
World Bank (2016). Doing Business: Measuring Business Regulations (website).

www.doingbusiness.org
This World Bank Group website provides comprehensive baseline data on business regulation
environments in 189 economies and selected cities at the subnational level.
World Bank (2016). Enterprise Surveys: What Businesses Experience (website and downloads).
www.enterprisesurveys.org
This World Bank Group website provides baseline firm-level data on the business environments in
135 economies. Surveys include data from more than 130,000 firms, and cover a range of topics
including access to finance, competition, performance measures and perceptions regarding
obstacles to growth, among others.
World Economic Forum (2015). The Global Competitiveness Report 20142015 (website).
https://reports.weforum.org/global-competitiveness-report-2014-2015
This report provides an overview of the competitiveness performance of 144 economies and can
be used a source of baseline information. It contains a detailed profile for each of the economies
included in the study, as well as an extensive section of data tables with global rankings covering
more than 100 indicators.
Section 4: Set up the organization to deliver value from local content
IFC (2009). Projects and People: A Handbook for Addressing Project-Induced In-Migration.
International Finance Corporation, Washington D.C.
www.ifc.org/wps/wcm/connect/topics_ext_content/ifc_external_corporate_site/ifc+sustainability/
learning+and+adapting/knowledge+products/publications/publications_handbook_inmigration__
wci__1319576839994
This document provides guidance on managing the risks associated with in-migration and its impacts.
IFC (2011). A Guide to Getting Started in Local Procurement: For companies seeking the benefits of
linkages with local SMEs. International Finance Corporation in collaboration with Engineers Against
Poverty, Washington, D.C. https://commdev.org/a-guide-to-getting-started-in-local-procurement-
for-companies-seeking-the-benefits-of-linkages-with-local-smes
This guide provides tools and resources to help companies increase their local sourcing and
develop effective local procurement policy.
IFC (2016). Financial Valuation Tool for Sustainability Investments (FV Tool)
(Website and downloads). An innovation of the International Finance Corporation (a member of the
World Bank Group), in partnership with CommDev, Deloitte, MIGA and Rio Tinto. www.fvtool.com
The FV Tool consists of software, a User Guide and other useful supporting information. The FV Tool
calculates a probable range for the NPV of a portfolio of sustainability investments (including those
aimed at local content development), including both the direct value creation and the indirect value
protection of these investments. By highlighting the relative value of specific investments, the FV Tool
can help to align the companys core business objectives with the sustainability investments it makes.
International Alert (2005). Conflict-Sensitive Business Practice: Guidance for Extractive Industries.
www.international-alert.org/resources/publications/csbp-extractive-industries-en
This document provides guidance and tools for risk management in conflict-sensitive areas. It
includes a screening tool for early identification of conflict risk; a macro-level conflict risk and impact
assessment tool; a project-level conflict risk and impact assessment tool; and special guidance on
key flashpoint issues where conflict could arise at any point during a companys operation.
LCS (2010). Unpacking Local Content Metrics and Measurement. Dr Michael Warner, Local Content
Solutions, November 2010.
www.localcontentsolutions.com/pdf/SolutionsSeries5.pdf
This LCS briefing document includes an inventory of local indicators commonly used by the industry,
together with information on where the data are likely to be sourced from, the level of confidence in
the reported local content, and the administrative simplicity of data collection and reporting. The LCS
website at www.localcontentsolutions.com provides a number of other useful resources.
Responsibility assignment matrix or RASCI (Responsible, Accountable, Supported, Consulted,

Informed) matrix. https://en.wikipedia.org/wiki/Responsibility_assignment_matrix,
The RASCI matrix describes the participation by various roles in completing tasks or deliverables for
a project. It is especially useful in clarifying roles and responsibilities in cross-
functional/departmental projects and processes.
University of Queensland (2010). Procuring from SMEs in Local Communities: A Good Practice Guide
for the Australian Mining, Oil and Gas Sectors. Table 1, Organisational maturity chart, pages 1719.
Centre for Social Responsibility in Mining (CSRM), University of Queensland, Australia.
https://www.csrm.uq.edu.au/publications/procuring-from-smes-in-local-communities
The chart on pages 1719 of this good practice guide is designed for use as a self-assessment
tool for organizational maturity in local procurement practice, to assist companies in seeing how
they compare with best practice, and to identify opportunities for improvement and track progress
over time.
World Bank (2015). A Practical Guide to Increasing Mining Local Procurement in West Africa.
Washington, D.C. https://documents.worldbank.org/curated/en/2015/02/23980553/practical-
guide-increasing-mining-local-procurement-west-africa.
This World Bank publication on local content provides information, guidance and tools to support
decision making, planning and implementation of local procurement. Key sections are applicable to
the oil and gas sector and to various global locations.
Annex 1:
Local content concepts
Annex 1
Local content emerged as a concept in the oil and gas employed by the extractive resources sectors. The
sector in the 1970s when resource holding countries demand created by those who benefited from the
began reacting to the enclaved nature of some first round of spending creates further positive
extractive projects, noting few beneficial linkages to the demand effects because these second tier
local economy as a result of the foreign investment. beneficiaries spend their salaries and wages on goods
Several factors have been cited to explain the enclaved and services produced in the country.
nature, including the prevalence in the industry of l Production linkages: these include (1) backward
integrated global value chains (GVCs) as well as a low risk linkages, which refer to the goods and services
tolerance and the requirement for specialized knowledge required for the production of extractive resources
and capital. sourced in the host country, and (2) forward linkages,
which refer to goods and services produced in the
Consequently, local content policy regimes have country that require the extractive resources as an
developed in many countries. Further, the thinking and input or stimulus. In the oil and gas sector, backward
practice around local content has also evolved and has linkages relate to what is commonly known as the
been influenced and shaped by a number of related upstream sector, and forward linkages relate to the
concepts, including: downstream sector.
l linkage theory; Recently, a third category of production linkages
l multiplier effect; has entered into discussion, referred to as (3) side-
stream or horizontal linkages. This channel
l clusters;
recognizes that the production of extractive
l shared value;
resources requires auxiliary business services that are
l global value chains (GVCs); shared with, or transferable between, different
l community content; and economics sectors, such as utilities, logistical services,
l diversity.
communication and financial services, and skills and
technological developments.
LINKAGE THEORY In general, the local content debate has typically focused
on backward linkages, identifying the procurement of
Albert Hirschman is credited with describing the various
production inputs and the sourcing of labour in the host
channels through which the production of extractive
country. However, this is changing as the scope of local
resources might link with other economic sectors in the
content expands. Greater attention is being paid to side-
geographies where work takes place, or where
stream/horizontal linkages and the dynamics between
production is linked with economic sectors located
the different types of linkages. For example, public
elsewhere (Hirschman, 1977). Channels frequently
expenditure and investments in skills development (i.e.
discussed are:
fiscal linkages) support all types of production as well as
l Fiscal linkages: these arise when resource revenues
consumption linkages.
fund public investments and recurrent expenditures.
l Consumption (or demand) linkages: these arise
from the economic activities created by the spending
of salaries and wages earned by those directly
Annex 1
Multiplier effects SHARED VALUE

The concept of multiplier effects seeks to identify the Several organizations, including the OECDs Policy
extent to which direct spending in the domestic Dialogue on Natural Resource-Based Development
economy results in further positive demand effects in (OECD, 2014) and the Harvard Business School (Porter
the country. The size of an economic multiplier is and Kramer, 2011), have advanced the notion of
explained in Jensen and West (2002), with two creating shared value, which, in the local content context,
connected considerations: emphasizes the process of bringing together the public
l First, the extent to which resource developers and the private sector to pursue a more integrated
purchase inputs from the national, regional or local approach to local content development. The belief is
economy: such inputs typically include wages for that local content efforts will be most successful if
labour supplied from the local or regional area, and government and industry collaborate to build linkages
purchases of goods and services. The more a with the host countrys economy. Further, efforts will be
resource developer sources from the local or regional most sustainable if structured to be mutually beneficial
economy, the more money is directly injected into to both populations and business (e.g. the work positively
the economy. impacts the cost of doing business in a country over time).
l Second, the extent to which money spent in that
economy is retained within it: if there is minimal GLOBAL VALUE CHAIN (GVC)
opportunity for people receiving income to spend it
on goods and services in their local or regional area, Oil and gas production, similar to many industries, is
then not as much money will be kept in the local or increasingly organized within global value chains (GVCs)
regional area. Larger and more diverse regional where the different stages of the production process are
economies tend to be better at keeping expenditure spread across wide geographic distances and divided
in their economy and not losing it to other regions. among multiple firms. UNCTADs data show that almost
all developing countries, including the poorest, are
The most popular technique for assessing multiplier increasingly participating in GVCs (UNCTAD, 2013).
effects is input/output (IO) modelling. IO models seek to Evidence from GVC links in developing countries suggests
measure the significance of existing economic activities that they can have important developmental benefits:
and industries and their interdependence. They do so by l GVCs can facilitate access to global markets and
identifying the core drivers, the dominant supply and integration in the global economy for developing
demand chains, and the bottlenecks to economic growth. countries, which no longer have to develop an entire
industry to generate exports but can focus on fewer
tasks within industry value chains.
Clusters
l Participation in GVCs generates employment and
Clusters can be defined as geographically proximate may result in faster GDP and income growth.
groups of interconnected firms and associated l GVCs can be an important avenue for developing
institutions in related industries (Porter, 1998). Clusters countries to build productive capacity, including
are an alternative way of organizing the value chain through technology dissemination and skill building,
(distinct from GVCs). As companies are located opening up opportunities for longer-term industrial
geographically close to one another, upgrading may upgrading.
occur as they can cooperate relatively easily to develop
innovations, notify one another of changes in input However, GVCs can also bring risks for developing
specifications, launch new products and detect changes countries:
in technology and demand. In addition, the geographic
l Many of the potential development benefits are not
proximity can generate economies of scale and positive
automatic (e.g. technology dissemination, skill
externalities such as lower costs of intermediate inputs
building and upgrading). Developing countries can
or services, better access to skilled personnel, or greater
remain locked into relatively low value added
attractiveness to clients (Webber and Labase, 2010).
activities along the chain.
Annex 1
l The location of tasks and activities within GVCs is ANNEX 1 REFERENCES

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Political Arguments For Capitalism Before Its Triumph.
international production networks of multinational
Princeton University Press, Princeton, New Jersey.
firms.
Jensen, R. and West, G. (2002). Community Economic
COMMUNITY CONTENT Analysis. Queensland Government, Department of
Primary Industries, Brisbane.
Community content refers more narrowly to activity
within a projects zone of influence, its directly affected
OECD (2014). Summary Report of the Second Meeting of
communities, or its host communities, where the
the Policy Dialogue on Natural Resource-based
geographic boundaries tend to be defined in permitting
Development. Organisation for Economic Co-operation
processes. The parameters that are typically drawn upon
and Development, Paris, June 2014.
to identify a projects local community area include: a
certain radius distance; the nearest town(s) with some
Porter, M. (1998). Clusters and the New Economics of
commercial capability; within a reasonable daily
Competition. In Harvard Business Review, Issue Nov-Dec,
commute; where employees live; and immediate host
pp. 7890.
communities (villages or settlements). A form of
community content that specifically targets local
Porter, M. and Kramer, R. (2011). Creating Shared Value.
Indigenous Groups is sometimes referred to as
In Harvard Business Review, Issue Jan-Feb, pp 12.
Indigenous Content.
UNCTAD (2013). World Investment Report 2013Global
DIVERSITY Value Chains: Investment and Trade For Development.
United Nations Conference on Trade and Development.
Rather than being defined by individuals or companies
New York, USA and Geneva, Switzerland.
within a geographic boundary, diversity denotes efforts
focused on members of a particular demographic group
Webber, C. M. and Labaste, P. (2010). Building
such as women, indigenous persons or youth. It may be
Competitiveness to Africas Agriculture: a Guide to Value
a minority within a geographic boundary (e.g. indigenous
Chain Concepts and Applications. The World Bank,
persons) or it may be the majority that constitutes a
Washington D.C.
geographic group (e.g. Blacks in South Africa). More
specifically, it typically refers to groups that have
historically been under-represented or marginalized
within a geographic boundary vis--vis the economy.
Annex 2:
Framework for policy
and legal analysis
Annex 2
Framework for policy and legal analysis
This annex provides information supplemental to INTERNATIONAL AGREEMENTS AND NORMS

Section 2, Review the local content context. Section 2 (LEVEL 0)
identified a number of levels of public policy formulation
Level 0 lies outside the national public policy arena but
through which countries pursue local content objectives
nevertheless affects the local content measures that
and enforce local content requirements. These are
producer countries put in place. There are two cases.
illustrated in Figure A1. Levels 1 to 6 represent the
The first case is that of internationally imposed
national public policy arena within which government
constraints: bilateral and multilateral trade agreements
objectives are translated into local content requirements.
often constrain or prohibit signatory countries from
Level 0 reflects international agreements and norms that
discriminating against goods and services sourced from
can constrain or enable national local content policies,
a particular location. The second case is a supportive
laws, regulations and contractual stipulations.
influence: international norms have shaped the
development of local content policies, legislation,
This annex provides a detailed framework for conducting
regulations and other policy measures across countries,
an institutional analysis of local content contexts. The
by transferring policy ideas across jurisdictions.
framework allows companies and their stakeholders to
understand variations and identify challenges that are
relevant for developing company local content strategies. COUNTRY CONSTITUTIONAL FEATURES
(LEVEL 1)
The constitutions of producer countries will have an
Figure A1 Institutional levels at which host countries formulate impact on local content management given that they
and enforce local content requirements typically determine how a country is organized and
Source: Authors, drawing on Dietsche, 2013 which levels of government are responsible for certain
actions. Some countries are federations that are
International agreements and norms comprised of several autonomous regions, provinces or
Level 0
states. The ownership of natural resources, for example,
National Country consitutional features may be held at a national level or subnational level, or
Level 1 even both. Similarly, the management of the natural
public
policy resource (including local content issues) may occur at
arena Policy environment and objectives
Level 2 the national or subnational level or even at a municipal
level. It is also possible that ownership and management
Legislation may span different levels of government. Difficulties arise
Level 3
when different levels of government pursue local
Regulations content objectives in contradiction to the policy
Level 4
objectives of other levels of government.
Government contracts and agreements
Level 5 Constitutions can also recognize particular socio-
economic groups as holders of communal rights. Such
Other agreements recognition is, for example, the basis on which
Level 6
Indigenous Peoples in Australia and Canada can expect
Annex 2
to benefit from the granting of local content REGULATIONS (LEVEL 4)

opportunities as part of negotiated benefit-sharing
Regulations related to local content may be: (i) specific
agreements.
to the natural resource sector; or (ii) more general
regulations with local content implications.
POLICY ENVIRONMENT AND OBJECTIVES
(LEVEL 2)
GOVERNMENT CONTRACTS AND AGREEMENTS
Many governments have policies related to local content. (LEVEL 5)
These policies may either be stand-alone local content
Level 5 reflects the local content stipulations contained in
policies for the oil and gas sector (or perhaps more
contracts and agreements between government and
broadly the extractives sector) or may be embedded in
resource developers. Under contractual regimes, such
more general industrial policies.
stipulations have typically been included in model
production sharing agreements (PSAs) (Tordo et al., 2013).
Policies may address specific subsets of the population
A model clause covering the employment and training of
or the overall population of a country. Similarly, policies
nationals is commonly incorporated into such agreements.
may impact many elements of local content or just one
or two elements.
OTHER CONTRACTS AND AGREEMENTS
There can also be significant variation in how host (LEVEL 6)
governments define local content and how they go
about ensuring that their own objectives and those of Level 6 captures contracts and agreements with
their political constituencies are met. Key questions are: deliverables on local content that are agreed between
resource developers and parties other than the national
l Who is local content intended to serve?
(or regional) government and/or its semi-autonomous
l What type of local content is sought? agencies. These third parties could include: (i) local
communities that are settled around a project and are
Some producer countries pursue different local content represented by some other form of collective entity (e.g.
and broader public policy objectives that are at odds community trusts or foundations); and/or (ii) communities
with each other or, at least, are difficult to reconcile. that can claim communal rights over natural resources or
surface lands located where a project is situated. While
Another distinguishing feature at Level 2 is the general community development agreements (CDAs) and benefit
role that the government assumes in pursuing local sharing agreements (BSAs) are prevalent in the mining
content, varying between a laissez-faire approach or sector, they can also be found in the oil and gas sector, in
alternatively, a more rigid and/or interventionist particular in relation to Indigenous Peoples. Figure A2
approach. shows the consequences of this constitutional feature at
Levels 3 and 6.
In less-developed countries policies related to local
content often start as a poverty reduction strategy
and/or action plans and/or in national development
plans. Figure A2 Influence of constitution on Indigenous Peoples role in
local content
LEGISLATION (LEVEL 3)
Level 1 Constitutionally recognized Indigenous Peoples
Many countries have legislation related to local content
and natural resources. Legislation may be: (i) specific
Specific legislation on engaging with, and obligations vis--vis,
local content legislation; (ii) local content clauses in wider Level 3 Indigenous Peoples (e.g. Australian Native Title legislation
sector legislation; and (iii) other legislation with local
content implications.
Benefit-sharing agreements between resource developer
Level 6 and Indigenous Peoples
Annex 2
OBSERVATIONS ANNEX 2 REFERENCES

One observation is that OECD countries tend to be more Dietsche, E. (2013). Sector Legal Frameworks and
strategic in retaining flexibility in levels to allow evolution Resource Property Rights. In Dannreuther, R. and
and adaptation of industrial policies. By contrast, less- Ostroswki, W. (eds), Global Resources: Conflict and
developed countries tend to pursue more aspirational Cooperation. Basingstoke, UK. Palgrave MacMillan.
policy objectives by adopting specific laws, regulations www.palgraveconnect.com/pc/doifinder/10.1057/9781
and contractual stipulations while paying less attention 137349149.0017
to engaging the private sector in policy-making
processes. The challenge with this approach, however, is Tordo, S., Warner, M., Manzano, O. E. and Anouti, Y.
an inability to recalibrate in the instance of negative (2013). Local Content Policies in the Oil and Gas Sector,
unintended consequences. The World Bank, Washington, D.C.
A second observation is that while laws, regulations and

contractual stipulations are means to enforce policy
objectives, the organizational structures that underpin
their implementation are equally important. Across all
countries, the interdisciplinary nature of local content
poses a challenge; ideally, several ministries, departments
and agencies will work collaboratively, not least to also
support the supply side of local content, coordinate and
solicit vital information from the private sector, and
adjust demand side requirements if these have been
formulated too ambitiously in the first instance, and
where more achievable and sustainable requirements
are called for.
Annex 3:
Stakeholder
expectations, roles,
responsibilities and
challenges in local
content development
Annex 3
Stakeholder expectations, roles, responsibilities and

challenges in local content development
Table A1 The various actors and stakeholders engaging in the local content space
POTENTIAL POTENTIAL ROLES TYPICAL

EXPECTATIONS AND RESPONSIBILITIES CHALLENGES
Governments and regulatory bodies
l Industrialization and economic l Provision of stable, predictable and l Competing political, economic
development transparent policy frameworks, and social priorities
including sound macroeconomic
l Promotion of social welfare l Election cycles
management
l National control of resources l Institutional capacity to plan,
l Clarity of priorities and development
implement and monitor local
of policies economic development
content initiatives
l Trade agreements provisions when
in conflict with local content tactics
National oil companies (NOCs)
l To serve national political and l Potential oversight and enforcement of l The economic development role may
economic goals local content policy, as outlined by be at odds with a NOCs capacity and
state or regulatory agency commercial objectives
l Licence compliance
l Helps implement local content l Conflicting roles in oversight and
l Control access to resources
policiesas resource developers and enforcement of local content policy,
l Shareholder and investor responsibility as government representatives in and facilitation and implementation of
petroleum contracts the policy
l Institutional capacity to plan, implement
and monitor local content initiatives
Local communities
l Jobs l Supply workforce l Lack of appropriate skills

l Business opportunities l Supply goods and services l Limited access to infrastructure
l Other economic benefits l Articulate community perspectives l Limited access to finance
l Expectations gapimmediate and
plentiful opportunities are expected
l Risk of establishing overdependence on
project
Annex 3
Stakeholder expectations, roles, responsibilities and challenges in local content development
Table A1 The various actors and stakeholders engaging in the local content space (continued)
POTENTIAL POTENTIAL ROLES TYPICAL

EXPECTATIONS AND RESPONSIBILITIES CHALLENGES
Local business associations
l Localized social and economic l Organizing/aligning local business l Limited technical, organizational and
development financial capabilities
l Access to information on opportunities
l Jobs for association members and contracts awarded
l Business opportunities for association l Addressing local content enablers in
members regional development plans
l Advisory services to companies
Civil society organizations
l Support economic and social l Advocacy l Limited financial and

development organizational capabilities
l Monitoring of industry and
government local content
commitments
Education and training organizations
l Develop skills that are in line with l Development of workforce in line with l Limited technical, organizational and
market demand industry demand financial capabilities
International development agencies
l Economic and social priorities of aid l Fund industry development / linkage l Budget and project cycle
strategy programmes
l The scope of interventions may be
l Finance supporting infrastructure limited by the aid strategy agreed with
the host government
l Technical assistance
l Competing aid priorities
l Dissemination of good practice
Major international contractors (EPC, fabrication, O&M)
l Local content requirements and l Employ and train local staff l Commercial risk posed by weak
clauses in tender documents and capacity in the local supplier market
l Support the development of local
contracts with resource developers
workforce
l Regulatory requirements
l Support development of local industry
Oil and gas resource developers
l Licence compliance l Employ and train local staff, gradually l Project economics and
replace expatriates with locals shareholder returns
l Access to resources
l Support the development of local l Project life-cycle constraints
l Shareholder and investor responsibility
workforce
l Unrealistic expectations
l Support development of local industry
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Annex 4:
Supply side analysis:
baseline study and
detailed gap analysis
Annex 4
Supply side analysis: baseline study

and detailed gap analysis
This annex offers guidance on how to examine the factors l transfer payments tend to be higher (due to a higher
that influence local capacity, which can help oil and gas number of children, unemployment, retirees).
companies to obtain sufficient contextual information to
develop effective local content strategies and tactics. Another important indicator of the capacity of the local
Comprehensive contextual analysis requires the economy is the level of economic dependency on one
examination of two sets of relevant data, i.e. (i) data on a or several sectors in the region. The market share of the
host countrys socioeconomic conditions and enabling industry can be estimated using the location quotient
environment; and (ii) data on the market conditions (Hildebrand and Mace, 1950), or the relative
specific to the oil and gas industrys needs, including the concentration of regional employment in a given
characteristics of the local workforce and enterprises. industry (e.g. number of jobs in oil and gas divided by the
total number of jobs in the region). The higher a local
quotient for an industry, the more dependent the
BASELINE STUDY regional economy is on that industry, and therefore the
more vulnerable it is to fluctuations in the employment
Structural characteristics and supplier opportunities linked to that industry. Lack of
The socio-economic indicators typically used to analyse economic diversification is therefore an important factor
the health of the host countrys economy are: for a host country and oil and gas company to consider
l (un)employment rate (%);
when formulating a local content programme.
l employment by industries (%);
l average household income ($);

Human capital
l incidence of low income households (%); Data on education outputs and the organization of a
l persons aged 2554 with some post-secondary countrys skills development system are key indicators of
education (%); and that countrys level of existing and latent human capital.
These include:
l transfer payments (e.g. unemployment benefits) ($).
l Adult literacy rates.
(Esteves and Ivanova, 2015.)
l Enrolment and completion rates for:
In general, rural areas where oil and gas companies tend l primary education;
to operate are somewhat different from urban, more l secondary education, which may be split into lower
diversified economies. Gathering economic data specific and higher secondary education. (Note: In some
to the rural areas of a country is therefore important, and countries vocational education may be considered
likely to reveal that, in those areas: part of secondary education, and there are also
l employment tends to be lower; cases where technical education is delivered
l primary industries are usually the main source of alongside higher secondary education and
employmentmeasured as a location quotient; higher/tertiary education, e.g. dual tracks/degrees);
l income is generally lower;
l incidence of low income is less;
l education level tends to be lower; and
Annex 4
Supply side analysis: baseline study and detailed gap analysis
l post-secondary education, including: Data for these indicators can be retrieved from
- vocational education and training; government education and skills assessments and policy
papers, and from UNESCO, ILO, the World Bank, the
- technical education and training; and
OECD and other organizations that support education
- higher/tertiary education delivered at and skills development. In some countries, dedicated
universities and other higher education NGOs compile data on educational attainment, including
institutions (HEIs). geographic variations and variations by socio-economic
l The comparative performance of students at constituencies.
different stages in key competence areas (reading,
writing, maths, knowledge of science).
Ease of doing business
l Labour force and labour market statistics, for example:
l employment status; Consideration of the overall business environment
constraints, gaps and opportunities in the regulatory and
l average duration of unemployment by level of administrative support mechanismsshould be an
education and skills; integral part of the supply-side analysis. The ability of
l average age of entering the labour market; local entrepreneurs to establish and grow businesses
l level of wages and salaries by level of education supplying the oil and gas value chain is, in part,
(e.g. measured by years in school) and skills; and influenced by the business environment in a country.
l same information as above by demographic group.
The World Bank Groups report, Doing Business, provides
l Qualitative data on the education and skill
comprehensive quantitative data to compare business
development system and provider and accreditation
regulation environments across economies and over
organizations (public and private, national and sub-
time. Doing Business provides two main types of
national).
Table A2 Eleven areas of business regulation measured by Doing Business

Source: The most recent Doing Business data for 189 economies can be found at www.doingbusiness.org/data
Complexity and cost of the regulatory process
Starting a business Procedures, time, cost and paid-in minimum capital to start a limited liability company
Dealing with construction permits Procedures, time and cost to complete all formalities to build a warehouse
Getting electricity Procedures, time and cost to get connected to the electrical grid
Registering property Procedures, time and cost to transfer a property
Paying taxes Payments, time and total tax rate for a firm to comply with all tax regulations
Trading across borders Documents, time and cost to export and import by seaport
Strength of legal institutions
Getting credit Movable collateral laws and credit information systems
Protecting minority investors Minority shareholders rights in related-party transactions and incorporate governance
Enforcing contracts Procedures, time and cost to resolve a commercial dispute
Resolving insolvency Time, cost, outcome and recovery rate for a commercial insolvency and the strength of
the insolvency legal framework
Labour market regulation Flexibility in employment regulation, benefits for workers and labour dispute resolution
Annex 4
indicators, as shown in Table A2those that broadly (www.enterprisesurveys.org). Enterprise maps have been
measure the complexity and cost of regulatory processes compiled for some African countries by the International
and those that measure the strength of legal institutions. Growth Centre, London School of Economics (IGC, 2012).
More generally, regional comparative or country-specific
industry capability assessments may be available from
Local enterprise characteristics
research as well as international development
The baseline assessment should also include a profile of organizations. Firm registration boards, industry
the characteristics of local enterprises at a sufficient level associations or chambers of commerce can also provide
of detail to gauge the overall approach to company an overview of enterprise capabilities by sectors.
procurement. This type of study differs from the more
detailed enterprise capability assessments, outlined below
in Detailed gap analysis. A more general assessment of the DETAILED GAP ANALYSIS
characteristics that define local enterprises could focus on While a basic profile is a useful start when assessing the
data such as the average age of businesses in the potential for local content to materialize, a more in-depth
economy, average proportion of private versus public understanding of the available and potential human
ownership in companies, percentage of businesses resources and enterprises, compared with the actual
operating in the formal versus informal sector, percentage demands of industry, is necessary to design specific
of businesses that hold a bank account, or percentage of interventions.
firms with internationally-recognized quality certification.
Workforce gap analysis
A starting point for an initial assessment of enterprise
capabilities can be the enterprise surveys that some This type of analysis should identify the gap between the
international organizations compile periodically. For workforce requirements of the sector and the output
example, the World Bank regularly conducts enterprise produced by the host countrys education and skills
surveys that provide company level data for emerging development system; it should also identify measures
market and developing economies that could be taken to better align these factors.
Annex 4
A gap analysis should include: oil and gas sector, based on realistic trend
l assessment of the current state of the countrys skills projections or different scenarios over the short,
development and education programmes that can be medium and long term.
related to the oil and gas sector; l Support for updating a countrys technical and
l assessment of the quality of these programmes vocational education and training (TVET) strategy
against industry benchmarks, international standards, may be needed to bridge the gap between long-term
or industry/sector requirements; and gauging labour market demand and training provision. In
industry perceptions of the quality of technical countries with a nascent oil and gas industry, it would
school and university graduates currently being hired be appropriate to support strengthening the TVET
by the sector; system in areas where there is an overlap between
the oil and gas sector and other sectors demand for
l assessment of the quantity of graduates that
labour, such as civil construction, infrastructure
technical/vocational schools and universities are able
development, general electrical and mechanical work.
to produce at the required quality;
l Merely increasing the supply of TVET graduates does
l identification of key institutional, curricula, teaching,
not guarantee their employability. A supporting
infrastructural and other capacity gaps that need to
approach may be to develop a countrys integrated
be filled at technical schools and universities in order
framework of qualifications and training based on
to meet these requirements;
competency standards, with a curriculum aligned
l assessment of the extent to which current oil and gas
with the needs of the oil and gas industry.
operations will be able to provide employment
l To avoid lengthy periods of on-the-job training and
opportunities at the most basic skills level to
coaching, oil and gas companies and their major
communities surrounding sites, the potential for
contractors may need to support the reform of
growth of this segment in the future oil and gas
educational institutions to ensure that the enhanced
labour market, and realistic options for enhancing skill
training is accompanied by experience in
levels and/or employability in these communities; and
professional work situations.
l assessment of the current and potential demand for
l Proactive action might need to be taken if only a
women employees in the oil and gas industry, and
small number of local women is likely to benefit from
identification of realistic strategies that could
new employment opportunities. This action might
enhance female labour participation in this sector.
include ensuring that women students are
(C2D, 2013.) represented in TVET and university departments
catering to the oil and gas sector.
To bring the demand and supply sides together, diagnostic
l Primary and secondary education support may be
studies should outline and evaluate different options for
needed to increase the throughput of students that
closing the identified capacity gaps, using appropriate
can progress to technical and higher education.
evaluation criteria such as: short-term priorities, best
practices in oil and gas education, maximizing
employment, sustainability, feasibility, coherence with DETAILED GAP ANALYSIS OF LOCAL
government policies, gender and community ENTERPRISES
considerations, deliverability, risk and cost-effectiveness.
There are established tools for enterprise capability
assessments that can be used to inform and shape
Designing programmes to bridge skills gaps supplier development programmes. Applying the tools
Highlighted below are several issues to consider when can be a resource-intensive exercise, and it can
designing programmes to close skills gaps: sometimes be prudent to take a phased approach, as
shown in Figure A4 on page 62.
l Skilled workforce quantity gaps take time to address,
as this segment requires years of practical
experience. This highlights the importance of
collaborative development of a countrys
comprehensive labour market projections for the
Annex 4
Figure A3 Phased approach to local supplier analysis
Purchasing category
Supplier mapping Value chain analysis Upgrading strategy
selection
Supplier mapping l End market: this level involves engagement with

internal contract owners or end users of goods and
This phase involves identifying/mapping the businesses
services, to understand their priorities and to gain
across the full spectrum of goods and services present in
their commitment to developing local content.
the companys supply chain. Historic spend analysis and
Questions to ask contract owners include:
meetings with company contract owners/end users of
goods and services will help to build a high-level list of
l What are the risks in increasing local content in
purchasing categories to guide the mapping. A list of your category?
existing suppliers should also be included. The mapping l What do you perceive as the capability barriers
exercise would then involve building on this information among local suppliers?
to include the types and nature of local businesses. Other l What are the pre-qualification/specific
sources of information include Government, Chambers of accreditation/quality requirements?
Commerce and other association databases. l What is the contracting and pricing strategy, and
contract terms?
Purchasing category selection l Is this category affected by a global framework
Purchasing category selection is a tool for prioritizing agreement?
goods and services based on criteria such as their potential l Where precisely is the opportunity, i.e. which work
for growth and competitiveness, potential to maximize package/component?
impact, the extent to which there is a lead supplier/ l What are the expected volumes over 23 years
contractor presence, or potential for a multiplier effect and the contract value?
with other sectors. The selection process is inherently l Are there opportunities for subcontracting/joint
subjective, and the objective is to minimize subjectivity. ventures with international suppliers?
l Inter-firm cooperation: This level involves analysing
The purpose of the selection process is to identify which
the nature and extent of (i) vertical linkagesmore
goods and services need to be analysed in more detail.
efficient transactions among firms that are vertically
Prioritization is typically conducted in a workshop using a
related increase the competitiveness of the entire
simple weight and rate spreadsheet, which provides the
industry; and (ii) horizontal linkages that can help
opportunity for different functions to contribute, such as
reduce transaction costs, create economies of scale,
procurement, social performance and technical
and contribute to the increased efficiency of an
end users/contract owners.
industry.
l Firm-level upgrading: In order to respond effectively
Value chain analysis to opportunities, firms need to innovate to add value
Value chain analysis (USAID, 2016) can be applied to to products or services, and to make production and
shortlisted goods and services in order to identify marketing processes more efficient. This level of
constraints for local firms participation in the oil and gas analysis involves conducting diagnostics of the
supply chain and the conditions under which a value generic business capability of local firms, namely
chain and its firms can achieve higher levels of management, finance, human resources and
performance. The value chain analytical framework looks marketing, as well as capability dimensions that
at the following different stages of the process of supply: determine whether the business has the capacity to
be a supplier to the oil and gas sector. This involves
Annex 4
assessing health, safety and environment (HSE), Designing an enterprise centre with sustainability in mind
quality and business integrity. also involves starting with an exit strategy. This involves
l Supporting markets play an important role in firm- thinking about who will take over when the
level upgrading and can be divided into three main funder/implementing organization no longer exists.
categories: Measures need to be put in place to cover items such as
running costs, maintenance, equipment breakdown and
l financial services (e.g. lending, leasing, capital
qualified personnel. Working with stakeholders and
investing, factoring);
partners to build the exit mechanism and time frame
l cross-cutting services (e.g. business consulting, into the project design will ensure that the enterprise
legal advice, telecommunications, advertising); and centre will ultimately be run by capable partners and will
l sector-specific services (e.g. testing, certification continue to generate benefits (without reliance on the
services, etc.). resource developer, either financially or in terms of its
ownership and management structures). For instance,
Designing programmes to bridge enterprise gaps the phasing out of company support may have to be
staggered over time to allow stakeholders to adapt.
Many oil and gas companies are turning to Enterprise
Centres as vehicles to deliver a set of activities that
provide businesses in local communities with a range of
support services that build their capability to become
vendors. The activities can be grouped into the following
four main themes:
l Information provision: upcoming opportunities;
database of local businesses; website; company
ANNEX 4 REFERENCES
requirements; submitting tenders via an C2D (2013). Education for Mining Development in
e-procurement system; options for technical Ethiopia. Online: C2D Services:
assistance and financing; liaison with company www.c2dservices.com/experiences/19?search=ethiopia
personnel that offer business opportunities; Background study available at:
networking events; financial products and providers. https://globaldialogue.info/C2D%20Education%20for%20
l Business diagnosis: assessment of managerial Mining%20in%20Ethiopia%20-%20Background%20
capability, HSE and quality performance; market Study.pdf
feasibility studies; business capability diagnosis.
Esteves, A. M. and Ivanova, G. (2015). Using Social and
l Training and mentoring: training; business
Economic Impact Assessment to guide local supplier
improvement plans; mentoring; monitoring; support
development initiatives. In Karlsson, C., Andersson, M. and
in preparing tenders.
Norman, T. (eds.), Handbook of Research Methods and
l Provision of facilities/infrastructure: meeting Applications in Economic Geography, pp 571-596.
rooms; workstations to access e-procurement; Edward Elgar, Cheltenham.
training rooms; internet, telephones, printing and www.e-elgar.com/shop/handbook-of-research-methods-
photocopying facilities. and-applications-in-economic-geography
Sustainability is a key consideration in selecting an Hildebrand, G. and Mace, A. (1950). The Employment
appropriate management model for enterprise centres. Multiplier in an Expanding Industrial Market: Los Angeles
Rather than reinventing or duplicating programmes, it is County. In Review of Economics and Statistics, Volume
more sustainable to build on existing institutions, 32, No. 3, pp. 241-49.
structures, etc. through partnerships. The search for www.jstor.org/stable/2937531?seq=1#page_scan_tab_
partners involves: surveying what donors, NGOs and other contents
companies are doing; coordinating with Government
Ministries and programmes; and identifying ongoing USAID (2016). Value Chain Development Wiki. USAID
government or private/donor initiatives in entrepreneurship Microlinks website, accessible at:
development, microfinance, training centres, etc. www.microlinks.org/good-practice-center/value-chain-wiki
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A guidance document for the oil and gas industry

THE GLOBAL OIL AND GAS

Executive summary 5 Section 4: Set up the organization to 27

Figures, tables and boxes

OVERVIEW goods and services from companies residing in a host

This section also examines the identification and

Section 4 closes with a discussion of the need for local

This guidance document has two aims:

practical advice on how they can realize the

to help create shared value through the

REALIZING THE POTENTIAL VALUE OF SOME KEY TERMS

Review the local content

LEVEL INSTRUMENT QUESTION

Figure 1 Stimulate high-value technology transfers,

Provide opportunities to Support economic

Use available technology and labour

International supplier National supplier

Company owned and

Establishing a company strategy for

Figure 3 Shared objectives

Shared understanding of local capacity constraints

Costs and benefits

Roles and actions

Indicators and performance management

DEFINING STAKEHOLDER ROLES UNDER A list of potential stakeholder expectations, roles,

l accountability mechanisms to support these l inter-related industry activities.

Exploration Development Operation Decommissioning

110 years 26 years 1040 years 35 years

Exploration Feasibility study, concept design and FEED

0.52 years 24 years

Detailed engineering, procurement,

Final investment decisions (FID)

Exploration Development Operation Decommissioning

PROJECT PHASE EXPLORATION DEVELOPMENT OPERATION DECOMMISSIONING

Sub-phase l Seismic l Feasibility l Detailed engineering, l Operation and l N /A

Categories of l Industry-specific/ l Industry-specific/ l Industry-specific/ l Industry-specific/ l Industry-specific/

PROJECT PHASE EXPLORATION DEVELOPMENT OPERATION DECOMMISSIONING

Characteristics of workforce opportunities Indirect employment opportunities through the various

Table 3 Factors contributing to the competitiveness of local workforce and suppliers

MICROECONOMIC FACTORS MACROECONOMIC FACTORS

Figure 6 Illustrative demand and lead times for plant technicians

20 34 years of vocational education

15 cumulative demand for

Exploration phase The conceptual and planning phase presents an

Partnerships with government, other industry players,

countries, government statistics departments

It is also recommended that indicators be disaggregated

Set up the organization to deliver

l Definitions: how is local content defined within the RESOURCING REQUIREMENTS

Table 4 Example of a companys Local Content Action Plan by project phase

Exploration l Institutional analysis and stakeholder analysis Company

l reception desk; Stringent pre-qualification requirements may present

l facilitation payments; l consequence management;

influence business decisions; l records retention procedures.

l utilizing a chain of companies (often offshore), to

Examples of red flags could include situations where:

In addition, the corruption risk in local content can

Mitigation measures may include: