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Tuesday, October 3, 2023

New Decrees mark progress for Senegal’s local content

A decade of recent reforms and repeals to local content legislation deems Senegal’s regulation of the hydrocarbons industry strong on paper but gaps remain around issues of enforcement.

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By Elliot Connor

Senegal’s latest updates to local content legislation in the oil and gas sector came into force in February 2021, yet many companies have still not aligned to these laws.

Since the 1960s, oil and gas has been produced in Senegal with the West African country’s governing Petroleum Code having been introduced in 1998.

As recent discoveries offshore at the Sangomar and Greater Tortue Ahmeyim fields sent development waves across the industry, the Code was appropriately reformed between 2012 and 2019.

Under the Revised Petroleum Code, a suite of new requirements came into force, reducing exploration licenses from 25 years to 10 and setting out new royalties and production sharing terms for upstream oil and gas.

The new code also introduced local content obligations as law for the first time, mandating international oil companies to submit annual content plans outlining their use of local contractors, suppliers and service providers, and justifying any international preferences for the above in terms of lower price or superior standards.

The new code and local content laws took effect in April 2019, instructing all oil and gas industry service providers and sub-contractors to open a local subsidiary in the country and to submit all tender bids in future via a centralized government platform, amongst other requirements.

In subsequent years, further repeals and amendments have been made to the revised Petroleum Code’s local content laws, most notable among them include Decree 2020-2065 and its further revision a year later to 2021-249, re-defining the scope of Senegalese investor participation modalities in companies of the oil and gas sector.

These add specific, enforceable actions to the frameworks established prior including modalities around local content regimes, now classifying operation types and the local content deliverables they must meet.

The reforms emphasize that goods and services that could be adequately fulfilled by the local private sector must include majority Senegalese ownership of such companies. Reference is made to goods and services which the local private sector may lack the technical or financial capacity for.

In such cases, a partnership must be formed between an international firm and a local entity, maintaining local ownership of at least 5% in the project. Lastly, details on goods and services such that the local private sector is incapable of providing is offered, permitting foreign entities to fulfill these specific industry requirements independently of local partners.

Additionally, and established concurrently, Decree 2020-2048 and its repeal and replacement by Decree 2021-248 formalizes the operations of a Local Content Development Fund under both the Ministry of Finance and Ministry of Petroleum and Energies, funded by levied fines and other budgetary appropriations.

The fund’s objectives are to develop more robust local content development guidelines in partnership with private companies and to improve local capacity through technical training and support for SMEs.

Chairing this and acting as enforcer for all local content decrees is the National Local Content Monitoring Committee (CNSCL) created by Decree 2020-2047 – a body with the objective of achieving a 50% local content ratio for Senegal by 2030.

Of course, much work remains in embedding the benefits of the hydrocarbons sector into the Senegalese society and economy. The CNSCL still lacks a formal mandate for its operations despite being outlined in the decree, thereby lacking the capacity to implement enforcement measures such as the cancellation of contracts, supply prohibitions and penalties.

With its recent formation, the CNSCL’s 15 members have yet to establish working protocols, and in the interim, Senegal’s local content laws remain limited in their effectiveness.

But at the very least, the groundwork has now been laid for a robust oil and gas industry and with further developments underway, the future looks all the more promising for local content in Senegal and the wider MSGBC region.

* Elliot Connor is the Field Editor for Energy Capital, The Republic of the Congo region.

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