Local content is linked to a company’s ability to maintain its social license to operate. When it is not done well, it creates inequality, but when it is done well it creates economic sustainability beyond the life of an oil and gas project.
It is important to work closely with host governments on local content to manage expectations and create productive regulation that can benefit the country with sustainable growth.
The lessons that the oil and gas sector has learned about local content can help inform other industries that face similar challenges in order to create a vibrant global economy.
“It is not about who is winning and who is losing—it is about getting to a win-win situation.” —Pamela Skaufel, ExxonMobil
“At Total, we say that everyone has to have equal chances.” —Manoelle Lepoutre, Total SA
“There is no topic that is more directly linked to inclusive economy than local content.” —Michael Oxman, BSR
Oxman opened the session by recognizing that defining local content is sometimes a challenge, but that the definition supplied by IPIECA, the global oil and gas industry association for environmental and social issues, provides a good basis. It describes local content as the range of benefits that the oil and gas industry can bring to the areas where it operates, including employing and training local people, buying supplies and services locally, and supporting community development work. He went on to list a number of challenges, including host government’s huge expectations of local content, the different risks during the life cycle of a project, the ability to deliver on expectations, and the need to create independent and sustainable businesses to avoid dependency.
In Skaufel’s opening remarks, she began by stating how surprised and heartened she is that the development of local content is moving beyond the oil and gas industries into other sectors like consumer products. She stated that her industry can share a lot of its experience with other sectors, as they face similar challenges. She then emphasized that local content can be discussed in terms of maximization and efficiency, which was not the case when she began this work. She recognized that the issues addressed by local content are not new. When she was a child in Ireland, for instance, there was a strong national emphasis on “buying Irish.” Because of her childhood, she has empathy for domestic protectionism, but believes strongly that it is important to select the products and sectors that should be developed rather than just promoting any product or service. She stated that ExxonMobil is helping sustain local employment, manufacturing, and supply chains.
Lepoutre began by mentioning that Total now operates in more than 45 countries and is proving the value it brings by contributing to each of these countries’ economy. Next she highlighted the challenges for local content in three main categories: timing, perimeter, and scale. During the exploitation phase of a project, which lasts from three to seven years, the operation requires a large number of highly skilled people, but after that, the industry requires few people. She argued that if a project accelerates too quickly, then it may be unable to manage risks, including accidents and corruption. She noted that the challenge of business perimeter is to think locally, regionally, and nationally, stating that companies have to systematically broaden the perimeter to build a sustainable economy. Lepoutre emphasized that companies have to plan for the long term by investing in education and by training the workforce, but that they can’t take over the role of the government. Finally on the topic of scale, she argued that if companies restrict their work on local content to local communities, then issues of equality arise; to prevent these issues from arising, Total works at the local, regional, and national levels.
Oxman then asked how local content fits into a company’s need to keep gigantic projects within budget and on time. Skaufel responded by raising the point that local businesses often struggle to be competitive and that suppliers need training, not only on the bidding process, but also in focusing on a few areas that they can excel at in order to become competitive. She highlighted that joint ventures between local suppliers and international companies are a great way to address the competitiveness challenge. Lepoutre added that it is important to work closely with governments on their local content expectations to minimize challenges to project cost and execution, as regulatory bodies often move too quickly. In Indonesia, for example, over the past two decades, regulation on local content has led to companies now being almost completely run by local staff.
Oxman then asked about local content in developed countries. Skaufel noted that local content is as important in developed countries as it is in underdeveloped countries, even though it is less visible in these markets. Lepoutre emphasized that Total has been planning for end-of-life issues for operations in Europe for more than 15 years to prepare those economies.
In the question-and-answer section of the session, David Wilcox of CSRwire asked what energy companies are doing to address lack of access to electricity for people in the Global South. Lepoutre responded by highlighting the Total Access to Solar program that has sold solar lamps to more than 1 million people in 15 countries. Katelyn Brewer of Africare asked how partners are chosen. Skaufel shared that ExxonMobil partners with different organizations, from NGOs to technical institutes, depending on their needs.