African countries must determine public policy objectives and implement laws and local-content policies that incentivise oil companies to achieve these objectives without undermining the viability of projects, says pan-African law firm Bowman Gilfillan.

“The decision to invest in exploration and production in a particular jurisdiction is based on the economic viability of a project, which is assessed through a complex economic modelling exercise based on the fiscal and regulatory regime in a particular country,” notes Bowman Gilfillan head of oil and gas Lizel Oberholzer.

She adds that the concern for investors is that, if legislation is changed halfway through the development of a project, that project may no longer be viable and the company may already have spent hundreds of millions of dollars on it.

In Mozambique, the exploration and produc- tion concession contract model form stipulates that oil companies employ Mozambican citizens with appropriate qualifications at all levels of the organisation. It also stipulates that subcontractors, should there be any, carry out training programmes for their oil companies’ and State employees and that the oil companies contribute to institutional and training support for the State, highlights Oberholzer.

“Tanzania promotes local procurement through its production-sharing agreement model form, which stipulates that oil and gas companies give preference to subcontractors using Tanzanian goods, services and materials, and that companies allocate significant weight to local value-added products in the assessment of tenders. This is only possible if such goods and materials are of an acceptable quality and are available on a timely basis in the quantity required at competitive prices and terms,” she points out.

In South Africa, oil companies are granted exploration and production rights by the State, but bear sole risk and are responsible for financing the large upfront investment required for exploration.

However, oil companies operating in South Africa are entitled to ownership of the resources they discover, subject to a 10% ownership interest in the exploration right, which is reserved for the State, and a 10% ownership interest that must be made available to historically disadvantaged South Africans at market-related prices.

“The State is also entitled to taxes and royalties at a prescribed rate. However, the South African government is considering a possible change to the legal regime in terms of which the State will significantly increase its interest in oil and gas projects through production-sharing agreements.

“Whether the benefits sought through these kinds of fiscal and local-content policies and laws will ultimately be achieved depends on several variables in each country, including monitoring and implementation, the capacity of the economy to deliver the skills set required by the industry and the extent to which the economy is reliant on extractive industry exports, besides others,” she explains.