FAQs ON THE LOCAL CONTENT BILL 2016

1. What is Local Content?

2. The concept is defined as the development of local skills, technology transfer, the use of
local manpower and manufacturing. It is building a workforce that is skilled and a
competitive supplier base.

3. Local Content vis a vis Benefit Sharing

4. Benefit sharing is different from Local Content in that the earlier seeks to devolve
revenue accrued from the exploitation of natural resources. Generally, it seeks the
equitable sharing of benefits arising from the use of natural resources such as minerals.
Local Content on the other hand seeks to develop local capacity to commercially get
involved in extractives.

5. What does Local Content Seek to Achieve?

6. Local content regulations are normally drawn in order to achieve 3 specific objectives;

Control - placing an emphasis on local ownership of enterprises participating in the value

chain;
Participation advocating cooperation between foreign and local firms, also
incorporating local skilled and unskilled workforce;
Value maximizing the value of the resource to the country, rather than maximizing the
overall value of the resource.

7. Why Local Content Policies?

8. Local Content Policies can help domestic firms in developing countries integrate
themselves into global economic networks. It has also been argued that Local Content
Policies can contribute to the productivity and competitiveness of domestic firms,
specifically SMEs, through knowledge and technology transfers that take place from
foreign firms to domestic firms.
9.

It has also been observed that most advanced economies utilized industrial policies
similar to those of Local Content Policies to boost their domestic economy while in the
early stages of their industrial revolution to promote growth and integrate their industries
with the global economy.

10. The above is especially evident in the Chinese economy, and during the early stages of
growth of the United States economy.
11.

12.Who Is The Bill Meant To Benefit?

13. The Bill is meant to benefit anyone participating commercially in activities related to the
exploration, extraction, development and exploitation of oil, gas and other mineral
resources in the extractive industry in Kenya. Therefore, anyone seeking to get involved
in the extractives industry, whether directly through exploration, extraction, development
and exploitation of oil, gas and other mineral resources or by any other indirect means is
to benefit from the Bill.

14.What Sector of the economy is the Bill meant to Benefit?

15. The Bill deals with commercial activities related to the exploration, extraction,
development and exploitation of oil, gas and other mineral resources in the extractive
industry in Kenya. Therefore, apart from the extractives sector, it deals with other
activities, that are meant to provide or supplicate the extractives sector.

16.What are the key bodies in the Bill and what are their roles?
I.

The Local Content Development Committee;

17. The Committee is mandated to identify sectors in which value-addition opportunities

exist along the extractive value chain industry, facilitate the realization of local content
through, ensure delivery of maximum local value addition and pursue supportive policy
objectives across all policy frameworks with the view of giving effect to the law.
18. Clause 8 of the bill sets forth its functions which include overseeing, coordinating and
managing the development of local content in Kenya. Such a provision in itself is so
broad that achieving it will be a challenge. The committee is also invested with the power
to appraise, evaluate and approve local content plans as well as oversee in consultation
with the county governments, the implementation of local content policies and strategies
by operators.
19. The committee shall also be expected to routinely assess local capabilities and keep
regular review of the capabilities
II.

The County Government;

20. The bill sets out the functions of the county government in clause 6 (4) which generally
are to assist local contractors and companies within the respective counties to develop
their capabilities and capacities to further the attainment of the goal of developing local
content in the extractive industry within the respective county, implement the crosscutting policies formulated by the National Government with respect to the
implementation of local content and monitor and put in place measures to facilitate the
implementation of local content performance by all operators in the respective county in
accordance with the provisions of the bill among other provisions.

III.

The Secretariat

21. It is an administrative unit within the Ministry responsible for matters relating to the
extractives industry. It is established under clauses 17. It essentially deals with the
technical aspect of administration of the extractives. It functions are stipulated under
clause 18.
IV.

The Cabinet Secretary

22. The Cabinet Secretary has been granted a wide array of power which range from
nominating members of the Secretariat, designate the minimum local content to be
applied by any operator engaging in any extractives activity under the bill, designate any
other plan he or she deems fit apart from the existing ones under clause 20, prescribe
rules on local content certification and in so doing, as captured under clause 22 (1)
prescribe a methodology for determining the percentage of local content in goods and
services acquired or delivered in Kenya.
23.
24. The Cabinet Secretary is also invested with the jurisdiction of formulating a strategic plan
on technology transfer which shall be included in contracts, agreements, concessions and
licenses granted to an operator.

25.Local Content Plans Under the Bill

26. The bill, if assented into law, shall require an operator, before applying for a license,
prepare and submit to the committee a long term local content plan. The plans should set
out, as required in clause 20, information on
i.

ii.
iii.

iv.
v.

The procurement and utilization of locally procured goods and services available in
the locality in which the extractive activity is to be undertaken, where such goods
meet the standards in the extractive industry
The qualification requirements and employment of local persons to be engaged in the
extractive or related activities and the standards for remuneration of such employees
Workforce development strategies in relation to locals, including training plans and
projections to address any skill gaps that may have been identified in relation to the
local labor force
Strategies for the support of local participation in activities of the operator and
exploration and production work program
And budget estimate with regard to the local content components of the project.

27. The content plan, as provided for under clause 20 (5), shall also include employment and
development plan, research and development plan, financial services plan, succession for

positions not held by Kenyans and such other plans that the Cabinet Secretary may
prescribe.

28.Legal and Policy Tools to Implement Local Content

29.Legal
(Law/Policy)

Framework

31. The Constitution of Kenya 2010

33. The Petroleum Act

36. The National Draft Policy on Energy

38. The mining Act 2016

41.
42.

43.
44.Comparative Analysis

30.Provision
32. Article 66(2) requires the parliament to enact
legislation ensuring that investment in property
benefits local communities and their economies
34. Section 9 (1) on the Product Sharing Contract
provides that the PSC should contain obligations on
the contractor to give preference to the use of local
products, equipment and services.
35. Section 11provides for the establishment of a training
fund to train Kenyan nationals in petroleum
operations.
37. It provides an integrated approach to develop local
talent and capacity and promote the opportunities to
local exploitation of natural of natural resources and
infrastructure.
39. Section 46 categorically states that to ensure skills
transfer and build capacity for the citizens, the holder
of a mineral right shall submit to the Cabinet
Secretary a detailed program for the recruitment and
training of citizens of Kenya in a manner as may be
prescribed by the Cabinet Secretary.
40. Section 47 requires that preference is given to
Kenyans in employment and only engage non-citizen
technical experts in accordance with such local
standards for registration as may be prescribed in the
relevant law. The same sections require the Cabinet
Secretary to formulate policies aimed at facilitating
local content. The envisioned policies are 21 in
number and are yet to come into force

45. The comparative analysis, seeks to establish how other jurisdictions have dealt with the
issue of local content. In this section of the paper, we shall focus on specific countries in
Africa.
46.
47. Provision

48. Nigeria

49. Zambia

50. Uganda

51. South
Africa

52.

64.

75.

88.

99.

53. Applicable
law/regulati
on to local
content.

76. The
Petroleum
(Exploratio
n and
Production)
Act No.

55.

65. Nigerian Oil

and Gas
Industry
Content
Developmen
t Act, 2010
(the Act).

56.

66.

89. The
Petroleum
(Exploration,
Developmen
t and
Production)
Act 2013
(the
PEDPA).

57.

67.

58.

68.

59.

69.

60.

70.

61.

71.

62.

72.

100.
The
Mineral and
Petroleum
Resources
Developme
nt Act 28 of
2002
(MPRDA)
(as
amended by
the Mineral
and
Petroleum
Resources
Developme
nt
Amendmen
t Act 49 of
2008).

63. When did

this law
come into
force?

73.

54.

74. The Act

came into
force in
March 2010.

77. 10 of 2008
(Petroleu
m Act).
78.
79.
80.
81.
82.
83.
84.
85. The
Petroleum
Act came
into force
on
86. 26th
September
87. 2008.

90. PEDPA
came into
force on 5th
April
91. 2013.
92.
93.
94.
95.
96.
97. The
Petroleum
(Refining,
Gas
Processing
and
Conversion,
Transportatio
n and
Storage) Act
2013 (the
PRGTSA)
came into

101.
102.
103.
104.
On
12 March
105.
201
4, the
National
Assembly
(NA),
South
Africa's
upper
chamber of
Parliament,

106.
107.

109.

108.
Does
the
Applicable
law conflict
with any
other
law/regulati
on?

110.

112.
No.

111.
Secti
on 1 of the
Act specifies
that the
provisions
of the Act
supersedes
anything to
the contrary
contained in
any other
enactment or
law in
relation to
matters
pertaining to
local content
in respect of
all
operations
or
transactions
carried out
within the
Nigerian oil
and gas
industry.

113.

114.
No.

115.

116.
No.

117.

No.

118.
Additionally
section 4(2) of the
MPRDA also
specifically directs
that where there is a
conflict between
the MPRDA and
common law, the
MPRDA will
prevail.

119.

121.

123.

127.

129.

120.
Man
dated
regulatory
body tasked
with
monitoring
compliance
of the local
content
laws/regulati
ons.

122.
The
Nigerian
Content
Monitoring
Board (the
Board)
established
under the
Act.

124.
The
three
authorities/
regulatory
bodies
involved in
compliance
with local
content
regulations
are:

128.
The
Petroleum
Authority of
Uganda
(PAU)
established
under the
PEDPA is
tasked with
monitoring
compliance
of the local
content
laws/regulati
ons.

130.
The
Department of
Mineral Resources
(DMR) is
responsible for the
administration of
the MPRDA and is
accountable for
overseeing the
mining and
petroleum
industries in South
Africa, including
local content laws
and regulations.

131.
132.
133.
134.
135.
136.
137.
138.
139.
140.
141.
142.
143.
144.
145.

125.
i)
the
Minister
responsible
for Mines;

146.
D
efinition
of local
Content
under
applica
ble
law/reg
ulation.

161.
162.

147.
Nig
erian
Content is
used in place
of local
content.
Nigerian
content
means the
quantum of
composite
value added
to or created
in the
Nigerian
economy by
a systematic
development
of capacity
and
capabilities
through the
deliberate
utilization of
Nigerian
human,
material
resources
and services
in the
Nigerian oil
and gas
industry.

148.
The
Petroleum
Act does
not define
local
content.
However,
provisions
in the law
refer to:
149.
i)
employmen
t and
training of
citizens of
Zambia;
150.
ii)
local
business
developme
nt;
151.
iii)
goods and
services
required
for
production
and
processing
operations
to be
obtained in
Zambia; iv)
materials
and
products
made in

153.
The
National
Content
Study in the
Oil and Gas
sector in
Uganda
recommende
d the
following
definition:
value
addition in
Uganda, by
Ugandans in
the oil
industry, by
the use of
Ugandan
materials,
services
produced by
154.
Ugan
dans and
Ugandan
firms, and
the use of
facilities in
Uganda
155.
How
ever the
PEDPA and
the
PRGTSA
that later
came into
force do not
define local

156.
There is no
definition of Local Content
under the MPRDA. Rather,
the MPRDA makes
provision for BBBEE.
157.
The legal provision
governing transformation
in the up and downstream
petroleum industry is
found in Schedule 1 of the
Petroleum Products Act
120 of 1977. This Schedule
contains the Charter for the
South African Petroleum
and Liquid Fuels Industry
on Empowering HDSAs in
the Petroleum and Liquid
Fuels Industry (the Liquid
Fuels Charter).
158.
Under the Liquid
Fuels Charter, all licenses
for petroleum exploration
and production have been
subject to a minimum 9%
Historically Disadvantaged
Person (HDSA)
participation interest since
2004. In addition, the
Liquid Fuels Charter
envisaged that by the end
of 2010, HDSAs will own
not less than 25% of the
aggregate value of the
equity of the various
entities that hold the
operating assets of the
South African oil industry.
This target has not been

163.
Local
equity
participation
requirement
for oil
exploration/p
roduction
licensees/cont
ractor.

164.
Ther
e is no
mandatory
local equity
participation
requirement
for oil
exploration/
production
licensees/co
ntractors.
165.
How
ever, the Act
provides that
Nigerian
independent
operators
shall be
given first
consideratio
n in the
award of oil
blocks, oil
field
licenses, oil
lifting
licenses and
in all
projects for
which a
contract is to
be awarded
in the
Nigerian oil
and gas
industry
subject to
the

166.
It is
not a
requirement
of the
applicable
law for
locals to
participate
in the
equity of
companies
holding
licenses or
contracted
by license
holders.
However,
the
Governmen
t may under
the
applicable
law grant a
petroleum
developmen
t and
production
license
subject to a
condition
that the
license
holder
agrees that
the
Governmen
t or person
nominated
by the

167.
Ther
e is no local
equity
participation
requirement
for oil
exploration/
production
licensees/co
ntractors.

168.
See response
above (for local equity
participation)
Additionally, in terms
of State Participation:
exploration and
production rights
issued to date usually
contain an option, in
favor of the State, to
acquire a 10%
participating interest
in a production right
(the current State
option).
169.
Section 86A(2)
of the Bill would grant
the State an automatic
right to acquire a 20%
free carry interest in
all new exploration
and production rights
(including production
rights derived from
existing exploration
rights). The clause
further states that the
State is also entitled to
a further participation
interest at an agreed
price; or [in the form
of] production sharing
agreements.

170.
M
inimum
local
content
threshol
ds/level
s.

171.
The
Act has
specified in
the
schedule,
levels of
Nigerian
Content
required for
various
activities
carried out
in the oil
and gas
industry.
The
prescribed
minimum
172.
level
for each
activity in
the
Schedule
ranges from
45% to
173.
100
% (both
numbers
inclusive).
For
activities
not
specified in
the schedule
to the Act,
the Board is
empowered
to set the
minimum
content
level for
each such
activity
pending the
inclusion of
the

174.
Section
63 of the
Petroleum Act
relating to
preference for
Zambian
products
requires that
license holders,
in the conduct
of operations,
give preference
to the maximum
extent possible
consistent with
safety,
efficiency and
economy to
materials and
products made
in Zambia and
service agencies
located in
Zambia and
owned by
Zambian
citizens or
companies
registered under
the Zambian
Companies Act.

175.
T
he
PEDPA
and the
PRGTSA
require
the
licensee,
its
contracto
rs and
subcontra
ctors to
give
preferenc
e to
goods
which are
produced
or
available
in
Uganda
and
services
which are
rendered
by
Ugandan
citizens
and
companie
s

176.
Under the Liquid
Fuels Charter, all licenses
for petroleum exploration
and production in the
country's offshore area
reserves are subject to a
minimum 9 per cent HDSA
participation interest. In
addition, the Liquid Fuels
Charter further envisages
that by then end of2010,
HDSAs will own not less
than 25 per cent of the
aggregate value of the
equity of the various entities
that hold the operating
assets of the South African
oil industry.
177.
Under the Bill, the
Minister of Mineral
Resources may exercises his
discretion to apply the
Mining Charter to a
particular application for a
new exploration or
production right, which
would result in the
participating interest of the
country's offshore area
reserves are subject to a
minimum 9 per cent HDSA
participation interest. In
addition, the Liquid Fuels
Charter further envisages
that by then end of 2010,
HDSAs will own not less
than 25 per cent of the
aggregate value of the
equity of the various entities
that hold the operating
assets of the South African
oil industry.
178.
Under the Bill, the
Minister of Mineral
Resources may exercises his
discretion to apply the

179.
180.
Penal
ties for
noncomplia
nce.

181.
It is
an offence
for an
operator,
contractor or
subcontracto
r to carry out
a project in
contraventio
n of the
provisions
of the Act.
182.
The
penalty upon
conviction is
a fine of 5%
of the
project sum
for each
project in
which the
offence is
committed
or
cancellation
of the
project.

194.

183.
The
penalties
for noncompliance
with local
content
requiremen
ts include
rejection of
an
application
for a
license and
suspension
or
cancellatio
n of a
license for
breaching
the
Petroleum
Act or
conditions
issued
under the
license.

184.
The
PEDPA is
silent on the
penalty for
noncompliance
with the
provisions
of local
content and
does not
contain a
general
provision
creating an
offence for
noncompliance
with any of
its
provisions
185.
The
PRGTSA on
the other
hands makes
it
186.
an
offence not
to comply
with the
provisions
on local
content and
the penalty
is a fine not
exceeding
one hundred
currency
points
(Uganda
Shillings 2
Million)

188.
The Liquid
Fuels Charter's
adoption
189.

under section

190.
12 of the
Broad Based Black
Economic
Empowerment Act
53 of
191.
2003 (as
amended by the
Broad Based Black
Economic
Empowerment
Amendment Act 46
of
192.
2013) renders
the Charter a
statement of intent,
which does not create
legally binding
obligations or
penalties.
193.
Monitoring of
the Charter