Namibia’s oil policy lacks local content penalties

Namibia’s drafted upstream local content policy for oil and gas does not require multinational companies to include Namibians in petroleum exploration activities.

Despite assurances that the policy will guide oil companies on how to source goods, services and skills locally, stakeholders say there is an absence of clear penalties for non-compliance.

Speaking at the third Namibia Oil and Gas Conference in Windhoek, lawyer Shafimana Shimakeleni says there is no offence or specific penalty prescribed in the existing legal framework for non-compliance.

Shimakeleni says the only penalty that could be imposed on non-complying companies is in the Petroleum (Exploration and Production) Act which empowers the minister to cancel an exploration licence.

“Right now, the Petroleum Act empowers the minister to cancel an exploration licence if a company fails to comply with local content provisions but that’s a drastic step in reality. It’s unlikely to be used without exhausting every other option,” says Shimakeleni.

He says other jurisdictions apply financial penalties for non-compliance, in some cases, up to 5% of the value of a project.

However, he adds that the country has to consider whether to deter through strict penalties or apply administrative measures with room for representation.

The local content policy aims to compel international oil companies to procure goods, services, and labour from within Namibia where possible.

Deputy director for upstream petroleum in the Office of the President Charles Mbeha says the policy is yet to undergo regional consultation which is scheduled for September.

Mbeha says that while Section 14 of the existing Petroleum Act already makes provisions for local content obligations, the upcoming policy aims to provide a practical roadmap for how these requirements will be implemented and enforced.

“The law already provides that companies must source locally, but how they do that is what the policy defines,” says Mbeha.

He says to ensure compliance, companies will be required to submit detailed procurement, performance, training, and employment reports.

“They will need to present future plans, and if those plans don’t align with the policy’s intent, we won’t approve them. That’s how we ensure enforcement,” the deputy director notes.

Mbeha adds that to avoid cases where foreign nationals register companies in Namibia to benefit from local content preference, the policy has clearly defined a Namibian company as one that is owned by at least 51% Namibian citizens.

This threshold will determine eligibility for contracts and partnerships under the new regime.

“We’ve had cases where foreign nationals register companies in Namibia just to benefit from local content preferences. That’s why we’ve defined a Namibian company as one that is at least 51% owned by Namibian citizens,” he says.

The policy will be published through the National Planning Commission and is expected to come into effect before the end of the year.

Another concern raised during the conference is the lack of a clear regulator of the local content policy.

Currently, the Ministry of Industries, Mines and Energy remains the regulator for the upstream petroleum sector. However, Mbeha says the sector is expected to transition fully under the newly formed Upstream Petroleum Unit in the Presidency.

Institute for Public Policy Research director Graham Hopwood warns that local content provisions, while well-intentioned, can be vulnerable to abuse.

“We’ve seen local content policies used to channel contracts to politically connected entities with little or no capacity,” says Hopwood.

He says to ensure the policy actually works, there has to be transparency in action and not just footnote.

He adds that there should be public supplier registries, strict anti-corruption clauses in contracts, and full beneficial ownership disclosures.

“Right now, Namibia is greylisted by the Financial Action Task Force.

Fixing our beneficial ownership system is critical. Disappointingly, the Business and Intellectual Property Authority has made that information confidential, which is a step backward,” says Hopwood.

A recurring theme in the discussion was the definition of what constitutes a Namibian entity under the policy.

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