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Local Content requirements is better if implemented through principles-based legislative policies on petroleum sectors

  • Economy and society

Petroleum sectors seem to inadequately allocate resources in favour of International Oil Companies “IOCs”, yet these are the very sectors that resource-rich countries heavily depend on for development. For instance, the government of Nigeria derives 90% of exports earnings and 70% of revenue from petroleum resources. Similarly, the Angolan government gains 98% of foreign exports and 90% of revenue from the petroleum sectors. Norway’s petroleum sector remains the largest measured in value addition. Thus, the petroleum sector provides nations with the fastest route to prosperity, building economies, and wealth. Dissertation online on 10.12.2020 at 12 noon on https://stream.lifesizecloud.com/extension/6101047/b10e6f2c-68a8-4ea8-8e73-048a20a1b882

Therefore, any perceived unfair distribution of revenue from this sector prompts governments both developed and developing to intervene and where necessary to revise the petroleum systems to enhance local participation. One such strategy involves the introduction of Local Content requirements which obliges IOCs to source local goods, services and labour for potential economic growth and development. Therefore, inducing the steady push for more localisation policies. The primary purpose for regulating the petroleum sector through the application of Local Content requirements is to (i) address the perceived market failure such foreign market dominance and reduce the number of foreign employment or (ii) change the market outcome for the benefit of the population as the case in Norway. Nonetheless, and regardless of the potential of these objectives, LC interventions have become unpopular with foreign investors, citing breach of the rule of law in relation to long-term resource investment and an impossibility of performance due to inadequate resources. The argument is that developing countries seem to lack the human, financial, and technical skills required to operate technologically and capital-intensive sector such as petroleum. In that regard, the revision of petroleum frameworks particularly from developing countries is less accepted compared to the modification of frameworks from developed producing countries perspectives (the U.K., U.S., or Norway) where the use of such interventions is frequently embraced. Arguably, governments of developed countries regularly adjust their tax and regulatory systems to benefit from the industry.

This research proceeded to investigate the need for Local Content requirements by challenging the paradigm that local beneficiation strategies can only be economical and/or effective if introduced within command and control frameworks commonly known as rule-based regulation. The work advocates that the potential of realising Local Content requirements is better if implemented through  principles-based legislative policies that remain anchored on fully accountable representation, accompanied by an open and fair decision-making process for both the regulated and regulator, subject to good use being made of resources, as implemented by an expert authority.

Overall, this research concludes that Local Content requirements in the petroleum sectors are essential and therefore legally justified. But regardless of the rationales, objectives and regulatory strategies put in place to secure and promote local participation in the upstream petroleum sectors, their success is dependent on an appropriate legal framework being used. The conclusion is that the application of principles-based regulation seems more suited to the industry since it (i) mobilises cheaper forms of social control than rules-based regulation and does not, therefore, limit the potential for revenue flow. (ii) In turn, it creates a flexible environment for both the regulator and the regulated in which to work amicably while ensuring the ultimate attainment of LC objectives.

The doctoral dissertation of LL.M. Berryl Claire Asiago, entitled Government Intervention in International Businesses; The Rise of Local Content Regulations in the Upstream Petroleum Sector will be examined at the Faculty of Social Sciences and Business Studies. The opponent in the public examination will be Professor Ivar Alvik of the University of Oslo, and the custos will be Professor Kim Talus of the University of Eastern Finland.

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