Namibia's green hydrogen strategy: a catalyst for local value addition and socio-economic development?
The Namibia GH2 Strategy Report captured ambitious local content aspirations, such as creating local employment of up to 80 000 additional jobs and creating local manufacturing industries that will produce the components required to produce and transport hydrogen and CO2, together contributing up to USD6 billion to GDP, 30% more than 2030 GDP estimates.
Despite its expressed political willingness and expressed local content aspirations, if the current local content policies (“LCPs”) - which comprise all legislative and regulatory instruments, policy tools, contracts and licensing arrangements imposed by the government that require firms to purchase and to use of input goods and services available locally in that country - is not investigated, then the current LCPs will not yield the expected socio-economic returns.
Policymakers have a crucial role to play to ensure that the echoed local content aspirations are achieved, particularly, to localise linkages to create local value chains. The current LCPs model utilised in other extractive sectors, such as mining and petroleum does not create sufficient confidence that Namibians will benefit. The LCPs model is yet to yield the expected socio-economic development objectives as envisaged in theStrategic Plan 2017-2022 of the Ministry of Mines and Energy.
The mining sector
In the mining sector, section 50 of theMinerals (Prospecting and Mining) Act, 1992 (the “Minerals Act”) contains certain general terms and conditions that form part of all mineral licences, which fall within the scope of LCPs, namely:
- “the employment of employees, give preference to Namibian citizens who possess appropriate qualifications, expertise and experience for purposes of the operations to be carried on in terms of such mineral licence;
- carry out training programmes in order to encourage and promote the development of Namibian citizens employed by such holders;
- with due regard to the need to ensure technical and economic efficiency, make use of products or equipment manufactured or produced, and services available, within Namibia; and
- co-operate with other persons involved in the mining industry in order to enable such citizens to develop skills and technology to render services in the interest of that industry in Namibia”
These conditions and any other condition that may be imposed by the minister on licences in terms of section 48 (4) of the Minerals Act form the legal basis on which LCPs can be established and facilitated in light of localising linkages. Put differently, the minister may use information gathered from mining licence applications to impose certain terms and conditions on licences that may lead to the establishment of local linkages.
The petroleum sector
Similarly, in the petroleum sector, section 14 of the Petroleum (Exploration and Production) Act,1992(the “Petroleum Act”) contains the very same general terms and conditions that can be imposed on licences, as found in the Minerals (Prospecting and Mining) Act, 1992, which can also be described as LCPs. The Minister may, in addition to the prescribed terms and conditions, impose these conditions and further conditions on petroleum licences to initiate the facilitation of local linkages in the petroleum Sector.
Theemerging green energy sector
There are no LCPs legislated for in the emerging green energy sector yet, however, if the LCPs model is used when formulating LCPs for the emerging green energy sector then policymakers must assess the success rate of the LCPs model in the mineral sector and the petroleum sector and make the necessary modifications to improve the LCPs model success rate.
LCP Considerations For Policy Makers
- The word or reference to “local” must be clearly defined
The Minerals Act refers to ‘Namibians’ as the beneficiaries of LCPs. However, the reference to Namibians is broad and does not single out a particular community in close proximity to energy generation plants, which makes it difficult to assess the socio-economic impact of local content efforts channelled towards them. Policymakers must at the onset define what ‘local’ is, in order to determine who, the beneficiaries of the LCPs are. Once the beneficiaries of the LCPs are defined, certain LCP criteria must be considered.
- The local content criterion must be established
There are four types of LCP criteria, namely:
- geographical location;
- value addition;
- ownership; or
- redress of injustice.
The geographical location criterion is concerned with the physical location of the business, in particular, the registration of businesses locally. The value addition criterion is satisfied if there is local value addition and the inputs to produce and services are not simply imported but such inputs are sourced locally. The ownership criterion is satisfied if the locals own a certain stake in extractive industry companies and derive certain capital benefits or profit shares. The redress of injustice criterion is satisfied when previously disadvantaged Namibians are made to benefit from extractive industry projects.
The LCP criterion features in various local content initiatives for example, in regard to the ownership criterion, an initiative was taken to establish Epangelo Mining Company (Proprietary) Limitedto hold shares in mining companies on behalf of the state. In relation to the redress injustices criterion, the ministry of mines and energy regularly imposes conditions on licences that previously disadvantaged Namibians must hold between 5% to 15% shareholding in Mining companies. More efforts to redress injustices are captured in the Namibia Investment Promotion Act, 2016 and the New Equitable Economic Empowerment Framework however the promulgation of the aforesaid has been halted.
Research shows that Namibia relies heavily on local content the ownership criterion as discussed above and the geographic location criterion. The geographic location criterion is satisfied when businesses, that supply foreign input capital goods and services, are merely registered in Namibia. This also means that registration of businesses in Namibia is sufficient to satisfy the LCP condition relating to the “use of products or equipment manufactured or produced, services available within Namibia”. No further local content inquiry is made to screen the goods and services provided by businesses to ensure that they are locally produced and not imported. An assessment of the percentage of inputs that are locally acquired by businesses or if in the service industry, what percentage of the production is processed must be done. Further assessment must be done to assess to what extent value is added locally and to what extent domestic value is added into inputs or outputs from other related sectors, as a direct consequence of linkages.
When it comes to the ownership criterion, the acquisition of shares in companies by the state does not necessarily yield dividends, specifically, if the company is still in the development stage and most funds are used for the development of the project. The use of dividends is also not legislated for, in regard to channelling the same towards socio-economic development objectives.
- The local content policies must be made more quantitative than qualitative.
Most mandatory local content requirements imposed on licenced mining and petroleum companies are qualitative rather than quantitative which is problematic because that local content requirements are vague and broad and compliance with the same is not strict. Reporting on qualitative local content requirements is easier and less onerous. However, quantitative local content requirements have prescriptive binding targets in terms of volume or value, i.e. the number of local employees to be employed and the number of local suppliers to procure from. Through the implementation of quantitative local content requirements, companies can easily be kept accountable compared to qualitative local content requirements.
The Namibian Government, through its policymakers, must carefully study each project and its commercial case and impose the quantitative conditions on licences or within agreements to ensure that socio-economic development objectives are achieved.
Reviewed by Wolf Wohlers, an Executive at ENSafrica in Namibia.
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