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Gas at the Doorstep, Local Content on the Way

Gas at the Doorstep, Local Content on the Way

This time, the debate has been brought to the home of international relations students, a move aimed at bolstering pressure on decision-makers to rush through the set of procedures that will ensure that gas exploration does indeed serve the cause of Mozambique’s development.

The first gas produced in Mozambique will start being exported in a few weeks, before the end of this year. But long-standing concerns remain about how this resource will be managed for the benefit of socio-economic growth.

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In other words, we are late in defining a consistent strategy at this level, which further aggravates the tension among academics, civil society, petroleum specialists and society in general.

Perhaps because of this, now as never before, the issue of Local Content gains an even greater emphasis. Recently, it was the turn of Alberto Nkutumula, former Minister of Youth and Sports and petroleum academic, to add his voice to the cause of promoting Local Content in a lecture delivered at the Joaquim Chissano University, specialised in International Relations, on the subject “Local Content in the Petroleum Sector: Challenges and Perspectives”.

In his dissertation, he pointed to the lack of technology required for resource exploration, the lack of qualified human resources, the lack of financial resources and the need to approve a policy that will serve as a basis for legislation on Local Content as some of the main challenges. In Nkutumula’s view, Mozambique, like any country rich in hydrocarbons and lacking the financial, material and technological resources to explore on its own, needs to contract foreign companies to do so.

We have a clear example of this here, which is the Temane and Pande gas fields in Inhambane province, which have been exploited by the South African oil company Sasol since 2004.

Up to now, after 18 years, the country has not yet met the conditions for it to be able to exploit the gas itself, which, in the former minister’s opinion, is worrying. According to Alberto Nkutumula, who also performed the function of Vice Minister of Justice and spokesman of the Council of Ministers, the Government, which is the responsible entity, has the duty to create management policies and legislation to regulate the form how the resources will be explored and thus guarantee that each citizen feels the benefit of having this resource and the exploration that is done of it. One of the measures taken, which is still under verification, is the Local Content policy. But everything seems to be stopped, and pressure falls on all sides, including by the voice of the former ruler, who also expresses concern about the apparent misalignment of the rules that are currently in force in Rovuma.

Gas will start to be exported in a very short time, before the end of 2022. But the country still has no clear rules for Local Content

There are regulations that vary from one company to another and from one region to another. For example, the rules of Area 1 differ from those of Area 4,” he criticized. However, he acknowledged that despite these differences, and until better solutions are found, such rules “are welcome because they are benefiting Mozambican business and the population, as they make it imperative, for example, that large foreign companies buy products and services from small and medium-sized national companies (SMEs) and hire Mozambican labour.

With these actions being implemented, in fact, we guarantee not only a circular income, but that with the income that the SMEs acquire they can diversify their services and explore other areas of investment.”

Resilience to external shocks

Nkutumula recalls the chain of effects of a policy designed within the standards he proposes. He starts by referring to the diversification and stabilisation of the economy thanks to greater productive activity, which makes it possible to end dependence on oil and gas and which creates domestic market resilience to external shocks.

“Even in the event of some variation in the prices of these products in the international market, the economy will be able to resist thanks to the other areas, unlike what happens now,” he argued, adding that the diversification of the economy is also supported by the revenues collected through taxes, if the Government applies them properly.

“When this type of resource is discovered in a country, there is always a great expectation of growth, given the size of the business, the large financial investment and the projection it gives in global terms. It is expected, naturally, that the country will develop and there will be an improvement in living conditions because of the exploration of these resources.

However, we must understand that the discovery of oil resources is not always a blessing. Sometimes it is a curse. And we have some examples of both in the world,” he warned, sharing with the students the best known cases, namely the “Dutch disease” and the case in Norway. “In the Netherlands, the discovery and exploitation of large reserves of natural gas increased the price of this resource and led to the collection of large volumes of export revenues. The effect of this was a sharp appreciation of its currency, to the point of significantly reducing exports and the competitiveness of the economy in the international context,” he explained. In contrast, he also drew on another well-known example of Norway, one of the best in the world in terms of the responsible management of its natural resources, which justifies its prosperity.

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“It is time for Mozambique to draw up a comprehensive Local Content legislation instrument, because the current scenario we are witnessing is of only a few rules in the contracts signed between the Government and the companies.”

“It is important that Mozambique takes the reference of other countries with resources like ours, African and the world in general, in the management of natural resources, without making the same mistakes that some have made. We have to learn from the experience of others,” he said.

Legislation (again)

It is the issue of the moment when it comes to promoting Local Content, with a major concern being the delay in its approval. “The policy or legislation on Local Content is very important because it concerns the gains that the State will have with oil exploration, through hiring, training or qualifying Mozambican labour so that, one day, the Mozambicans themselves can explore their resources by themselves,” argued, once again, Alberto Nkutumula.

The academic argues that he brings the discussion on Local Content to the academic forum “to escape a little from the business world”, because the subject should not be approached from that point of view.

“It also has to do with education, with health, tourism and the economy, in general. With the diversification, therefore, of the economy, resulting from oil exploration, we will reach other areas of society that are determinant to ensure that the country develops and, for that, we need the academy. Thus, this should be a debate open to all forums and not only to businessmen”, he concluded.

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