local content_farshad tehrani final

8/12/2019 Local Content_Farshad Tehrani FINAL

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Farshad TehraniAlfa Development and Engineering AS

www.alfa-dev.com

Norwegian Petroleum Local Contentandthe Relevance to Iran

Global Local Content Summit for Oil and Gas 2006Build long-term measurable strategies for sustainable growthOctober 26 - 27, 2006 IQPC


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Part 1

The Norwegian Experience ofLocal Content in Petroleum

Industry

Part 1 The Norwegian Experience of Economic Diversification in Relation to the Petroleum Industry


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The background and rationale for Local Content

The different policies of Local Content adopted:

Procurement

Transfer of Knowledge

Part 1: The Norwegian Local

Content in the Petroleum Industry

Part 1



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When petroleum activities commenced in the 1960s, Norwayalready was a developed industrial country

A strong tradition in shipping and hydro-electricity

A diversified manufacturing base including capital and energy

intensive metal / wood processing, shipbuilding and mechanical

industry.

The background for the policy of

Local Content (EconomicDiversification)

Part1Part 1 The Norwegian Experience of Economic Diversification in Relation to the Petroleum Industry


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For the oil industry, oil-in-the-ground has an intrinsic value that

exceeds the normal return on investment in exploration andproduction

Extracting oi l means depleting the resource capital of the host

countries, which need to compensate by building up anothercapital base to reduce petroleum revenue risk exposure

The rationale for Local Content in

relation to petroleum

Part1Part 1 The Norwegian Experience of Economic Diversification in Relation to the Petroleum Industry


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The division of economic rent is the outcome of bargaining, where

the government land owner can demand more than money

The rationale for Local Content in

relation to petroleum

Part 1Part 1 The Norwegian Experience of Economic Diversification in Relation to the Petroleum Industry


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A stronger bargaining position caused policy changes in 1972

Application in 1973 licensing round

Initial emphasis on procurement and human capital

New Government Policies related

to Local Content Development

Part 1Part 1 The Norwegian Experience of Economic Diversification in Relation to the Petroleum Industry


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Local Content through bidders lists and procurement reviews

Transfer of managerial and operational skills

Cooperation in research and development

New Government Policies related

to Local Content Development



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Procurement: preference to domestic goods and services, to buildup supply industries, 1972-94

Transfer of knowledge, priority to human capital to enhance

research and development, 1972-94

Petroleum Fund, setting revenues aside to spend proceeds only,

since 1992

The different policies of Local

Content chosen



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Provision to use Norwegian goods and services introduced in 1972

Preferential policy discontinued in 1994 by EEA agreement with EU

Objective to secure part of the value chain for domestic firms, to

develop appropriate technology and to gain insight and control

Assessment: successful, but costly

Procurement Policy



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Field development operators had to present to the Ministry of

Petroleum and Energy plans for all tenders above NOK 1 million(USD 200 000)

Prior to tender invitations, the operator had to announce the tender

schedule and companies to be invited

The Ministrys role was to ensure that qualified Norwegian

companies were included in the bidders list

The Ministry did not specify content or supplier

Policy from 1973 to 1994



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Norwegian Local Content was an essential factor for all oil

companies

The Ministry used Norwegian content as one of the evaluation

criteria when evaluating companies competing for new prospects.

The Ministrys policy was transparent and predictable in respect to

enforcement of the procurement policy.

The Licensing Incentives



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Provision to train Norwegian personnel introduced in 1972,

discontinued in 1994

Objective: bridging the original skills gap

Assessment: successful

Provision of research and technology cooperation introduced in

1979, discontinued in 1994

Assessment: successful

Transfer of Knowledge



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Agreements between Norwegian research institutions andInternational Oil Companies, contributing funding, personnel and

competence, directly related to petroleum

Three types:

1. 50% Agreements

2. Effort Agreements3. Good wil l Agreements

Technology Cooperation



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Operators to conduct in Norway at least one half of the research

effort required to exploit the resources of a license, includingfeasibili ty studies, development studies, etc.

Efforts supervised by Ministry of Petroleum and Energy.

Measurement expenditure

By 1985 project value NOK 140 mill ion( USD 24 mill ion)

1. 50% Agreements



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Oil companies to make a certain research effort in Norway ahead oflicensing rounds in cooperation with Norwegian researchinstitutions and the Research Council

Efforts supervised by Ministry of Petroleum and Energy

Measurement expenditure

By 1985 volume NOK 370 million (USD 60 mill ion

2. Effort Agreements



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Oil companies had to conduct as much as possible of petroleumrelated research and development in Norway, without any specifiedrequirement as to volume or effort

Efforts supervised by Ministry of Petroleum and Energy

Measurement expenditure and outcome

More than one half of funds to engineering firms, rest to Norwegian

Oil Companies, maritime services, mechanical industry and someresearch institutes

3. Good-will Agreements



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The issue of developing away from a rentier economy highly

exposed to oi l revenue risk is pertinent also in other oil export ing

countries

The challenge is to establish real economic l inkages between the

oil - gas and other sectors

Norways experience cannot be imitated, but can serve as an

example

The significance of the Norwegian

Local content experience



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Part 2

The Relevance of the NorwegianLocal Content to Iran

Part 2 The Relevance of the Norwegian Content to Iran


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Prior to revolution 1979 Iran had no Local Content policy, agency was flourishing

23rd Apri l 1997: Law on the maximum usage of the countrys production,industrial, executive, technical and engineering potential in performing projects andfacilities the exportation services was approved

As per today:

Iran supporting creation of competitive and commercialization of Iranian petroleumcontractors and supplier companies

Government of Iran encouraging and supporting Iranian Content 51% policy

International companies are generally willing to make use of compative, localcompanies and look towards long term benefits', however incentive is essential

Part 2: Iranian Local Content



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Iran has limited industrial bases to converter to petroleum industries,

however changes are occurring Iran petroleum contractors:

Mainly in fabrication

Developed rapidly since 1990s with substantial work load

Benefited from national demand and Buy Backs Limited financial frame work

Challenges in an international compative market

Benefited less from international development since 1979 Revolution

Award contracts resulting focus on survival rather than strategy anddevelopment

Iranian ContentObservations



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- Iranin companies have limited competence and capacity to take part

in complex petroleum projects, however improving is ongoing- Iranian companies lack:

- Mangment skills

- Organizational capability

- Technical personnel and equipment

- Financial basis

- International companies do not have long term incentives to assist in

building Local Content

- Incentives

Iranian ContentObservations:



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Challenges:

- Decisions are made at executive level and one needs:

Delegation

Responsibility

Accountability

Authority

- Middle Management does not exist- Lack of permanent competence work force

- Lack of incentives

Management and

Competence :



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Developing Iranian Local Content:

- Time required - patience

- Needs strategy and planning

- Incentivs for international companies

- Costs

Conclusions:


local content_farshad tehrani final

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