14th African Oil, Gas and Minerals Trade and Finance
Conference and Exhibition
21–25 November 2010
São Tomé, Sao Tome and Principe
Summary of the meeting by Amb. Kwabena Baah-Duodu
Honourable ministers,
Your Excellencies,
Distinguished experts and participants,
Ladies and gentlemen,
It is my pleasure and honour to present to you a brief synthesis of our 5 days of
deliberations on Africa's extractive industries at this 14th Oil, Gas and Mines, Trade and
Finance conference.
The meeting, as you are aware, had two sessions. The first was on the evaluation of the
Natural Resources Information Exchange (NRIE), an initiative called for by last year's
Conference to assist African countries in the transformation of mineral resources into
wealth, through the exchange of information (historical and current) on the resources
available on the continent. The second focused on the issues related to the central
theme of the conference: "Natural Resources Development: Value Creation and
Retention".
First Session
At the evaluation of NRIE in the first session, a demonstration of an operating
platform used in the oil industry for data dissemination highlighted some
complexities in the technical aspects of the project. However, because of time
constraints and the late arrival of experts from the pilot countries, participants decided
that this demonstration be repeated tomorrow (on Thursday 25 November 2010) to
enable all experts from the pilot countries conduct a detailed assessment of the inputs
needed for the NRIE prototype.. The discussion among the experts present highlighted
two main issues that should be considered in the implementation. First is the
protection of data and equipment against inclement weather, fires and power failures;
Second, and related to the first is having adequate back up storage. Experience has
shown that overlooking these issues in the implementation of data repositories can
lead to considerable loss of investment and data. A number of challenges in the
complementarity and interoperability in data management in Africa were also brought
forward. These include, difficulty in retrieving lost data, language barriers, flight
interconnectedness on the continent and the lack of collaboration between countries as
well as between different agencies within countries.
Second Session
The Second Session of the conference was opened by the Prime Minister of Sao Tome
and Principe, H.E. Patrice Trovoada and was followed by 11 interactive sessions on a
variety of issues on value creation and retention in the extractive industries. Let me
briefly highlight the key issues raised:
In the Prime Minister’s opening speech, he highlighted the resource curse syndrome where resources have led to increased poverty – and called for policy coordination in
the development of natural resources in the region to improve the extractive industries
contribution to development. He emphasized the need for scientific research in other
forms of energy so that dependence on oil and gas is reduced. He drew attention to the
premium placed on raw materials today which may become irrelevant in the future or
what he termed the “dependency paradox”. Opening speeches from the Deputy
Secretary General Mr. Draganov and the UN Resident Coordinator and UNDP
Resident representative, Gana Fofang pointed out the few backward and forward
linkages that exist between foreign investment in the extractive sector and the host
country’s economy. Mr Draganov also drew attention to difficulties in establishing
meaningful linkages with the sector and noted that there may be more merit in using
the industry revenues to finance diversification into other economic activities. These
may offer more fruitful job-creating opportunities, and will help to reduce excessive
dependence on the sector alone.. Other issues highlighted in the opening speeches
include the enclave nature of the extractive industries developed in Africa. These
industries attract most of the FDI to the continent, and contribute a fair share of
revenue earned by the government through taxation and exports, but woefully fail to
create economic opportunities for the locals through backward and forward linkages.
The speeches emphasized the potential of the extractive sector to create direct and
indirect jobs which can lift people out of poverty and urged the industry to adopt
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approaches that achieve clear and sustainable benefits for the resource owners. This
issue surfaced frequently throughout the conference especially with regard to the call
for opportunities in the sector to be opened to local entrepreneurs in areas where
competence exists. And when there is shortage of local expertise, it was
overwhelmingly suggested that proper frameworks and partnerships should be
developed to reinforce the local capacities and capabilities.
Substantive discussions followed the opening ceremony in which experts from the
host country outlined the legal frameworks for investments in the country and
strategies to build local content. These strategies include using petroleum revenues to
build capacity, transparency and accountability, as well as enabling and empowering
local companies. Other experts pointed out that regulation is not enough to build local
content but partnerships with various stakeholders are also required. A new type of
partnership in which developing local content was from the top/down rather than the
traditional approach of bottom/up where the emphasis is laid on skills development
was discussed. This new partnership is based on acquiring reputable foreign
companies through investments in equity markets and leveraging on the existing skills
in the newly acquired company. Experts pointed out that the added advantage of this
strategy is to gain access to international capital markets for funding. The model has
enabled previously high skilled activities that were not achievable for local companies
to be possible. Other experts stressed the need to nurture suppliers, tap into the
reservoir of academia and begin with small projects that have specific challenges as
the way forward in building local participation in the industry. It was recommended
that an oversight agency should be established to promote and monitor the
implementation of local participation.
Experts pointed out that the oil business was a risky business but also one that creates
value. Various examples of value creation were discussed. For example value creation
achieved through a competitive tax regime, royalties, signature bonuses etc. Other
examples included the monetization of gas which is normally flared in many
producing countries. This also offers the opportunity for these countries to create a
vibrant gas industry, create employment opportunities, use cleaner source of energy in
households, prevent deforestation and create petrochemical industries.
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Experts discussed at length a number of challenges facing oil companies and
governments throughout the 4 days of deliberations. Some of the challenges
highlighted include lack of available data, changing parameters in a regulatory
framework, low level of local technical skills and services, delays in approvals of
contracts, lack of infrastructure,. difficult choices governments have to make between
developing infrastructure from revenues obtained from the industry or in honoring
cash calls when undertaking joint development. Other challenges identified include
funding local entrepreneurs in an industry which is heavily capital intensive and
requires huge funding in many of its activities. Experts noted that local banks were
not well capitalized to finance projects in the oil industry. In this regard, a number of
possibilities were highlighted such as governments teaming up with the private sector,
project finance, syndicated bank loans as well as loans from international financial
institutions such as the World Bank and the IFC. In instances where local banks were
able to finance small projects, extensive due diligence was carried out and guarantees
are demanded to cover risks and interest rates are high. Also mentioned as challenges
are the conflict between regulators and investors; high fiscal terms for local
companies; weak governance systems and weak brand of local companies which
make it difficult to attract the relevant skills. Countries were encouraged to take
advantage of the sometimes long gestation period before production begins to take
advantage of this opportunity to train and build up the necessary high tech skills and
be ready to participate in the industry.
Presentations from both the public and private sector highlighted achievements in
involving locals in executing complex activities through training, technical courses
etc.. For example, a project in Gabon, SYSMIN to build capacity in services in the
mining industry has enabled locals to carry out geological surveys, evaluate mining
projects, administration of mines etc.. This has enabled the country to develop
expertise in producing by itself technical maps etc, which will help the country in
better exploiting its natural resources. Another example highlighted was in locals
working alongside a foreign company in the acquisition of data which has resulted in
the country gaining industry experience and expertise. In summary, experts
emphasized that building capacity was essential to maximizing gains from natural
resources.
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Experts agreed that it is imperative to create a sustainable extractive industry as
resources are depletable. Experts highlighted the need to avoid environmental impacts
such as biodiversity loss, coastal damages etc. and the role of local players in
mitigating the impacts. The discussions on sustainability also addressed proper
stewardship of revenue from the oil, gas, and mining industries and the role played by
civil society in creating awareness, empowering locals in reporting, investigative use
of journalism etc.. Experts noted that high expectations of future revenues can lead to
conflict. The experience of Norway, a resource rich country that has transformed its
natural resources into wealth which has benifited all citizens was presented to
delegates. It was emphasized that this was achieved through policies that favour
technology development, competent and financially sound companies, encouraging
cooperation between industry and government, research and development. It was
suggested that separating the roles and responsibilities of government agencies
dealing with the industry, as is done in Norway, could be a good way of managing the
African oil industries because of the different objectives of industry and society.
Various legal and regulatory issues in promoting local content were also presented at
the meeting. Experts emphasized the need to take local content into account when
attracting investments into the country as this is the starting point of building skills
and transfer of technology and training. Experts also highlighted examples of different
regulations that have been employed including, labour laws, as well as laws designed
to regulate activities of oil companies in the building local capacity.
The impact of various local content initiatives/policies cannot be properly assessed
without measuring the value of content produced. Experts discussed the metrics used
in measuring local content and the process used in the evaluation and certification of
the local participation in the industry.. An insight into the metrics used in Brazil was
provided - It was described as a function of the total value of the contract less the
value of imported components by the Oil Company or main contractor as well as
imported materials and equipments purchased by these players in local markets
excluding internal tax. Also included in estimating local content is the value of
foreign services needed for the project.
At the ministerial roundtable, the discussion focused on identifying metrics for
measuring local content. Given the fact that local content is perceived differently
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depending on the stakeholders, the Ministers agreed that there is need to reconcile the
various views in the interest of the resources owner, without ignoring investor’s needs.
In this respect, the Ministers, on behalf of all the participants, adopted a resolution
calling on UNCTAD to facilitate (including through a working group) the design of a
set of metrics that could be used as benchmark by host countries to measure local
content.
Honourable Ministers,
Distinguished Experts and Participants,
Ladies and Gentlemen
Before I resume my seat, permit me, on behalf of UNCTAD to thank the Government
and people of Sao Tome and Principe, through the Ministry of Natural resources and
Public Works for their strong support in the organization of this 14th Conference and
the hospitality they have showered on all participants over the past 5 days. I would
like to express our gratitude to our sponsors for their generous contribution and to
Cubic Globe and its local partners Equador - Viagens & Turismo, and Magni B, for
the quality of the logistics for the event, as well as all other stakeholders including the
interpreters, technicians, hotel operators and workers who have through their unique
talents, contributed to the success of this conference. Finally, I take this opportunity to
invite all of you to the next conference, which will be held in Conakry, Guinea.
I thank you.
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