[INTERVIEW] Rebuilding Iraq: A Four Step Local Content Policy To Regenerate A Nation

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Tim Haïdar
06/19/2014

In this exclusive podcast, Editor-in-Chief of Oil & Gas IQ, Tim Haðdar, speaks with George Sarraf, Partner at Strategy& about his work in constructing a local content framework for post-dictatorship Iraq.

George Sarraf is a Beirut-based Partner with Strategy& and a member of the firm’s Energy, Chemicals, and Utilities practice. He specialises in the oil, gas, and utilities sectors across the value chain. His functional experience includes sector and business strategy, regulatory framework, business cases, due diligence, operating models, operations, and systems.

Speaker key

TH Tim Haidar

GS Georges Sarraf

TH Hello and welcome. This is Tim Haidar and I’m going to speaking ahead of the 10th Annual Global Local Content Summit which will be taking place from the 22nd to 25th September 2014 in London, UK. I’d just like our interviewee today to give us his name and describe a little bit about what he does.

GS Thank you, Tim. This is Georges Sarraf. I am a partner with Booz & Company - now Strategy& - and I have a focus on the oil and gas industry. Recently we have undertaken a larger finance to develop the Iraq National Energy Strategy and as part of that assignment local content was an important topic to be addressed.

TH Okay, tell us a little bit more. Go into as much detail as you can about the actual project.

GS The project is essentially to develop the 2030 strategy for Iraq focusing on the energy sector. And everybody knows the energy sector is a key contributor and will remain a key contributor to the economy. Local content is an important agenda because it ensures long term prosperity for the people of Iraq. It ensures also the diversification of its economy and also provides employment opportunities for many Iraqis. And in that respect we looked for the key building blocks to develop local content in Iraq and four themes actually stood out.

One is around education. Although Iraq has very well recognised and reputable universities and education system from decades ago, the system needs to be revamped and strengthened in order to create a wide range of skilled people that could work not only in the energy sector but also in adjacent industries.

The second element beyond education is really around promoting knowledge transfer and technology development. And this theme has already started with the contracts that some of the IOCs and NOCs have signed in Iraq that acquires basically knowledge transfer to Iraqi resources. And this is the fastest way, actually, to acquire the badly needed skills to run upstream or midstream operations. But again more will be required in this area.

The third building block is really around incentivising localisation and there are many manufacturing facilities, many equipment manufacturers and services as well that can be localised in Iraq and will benefit the economy. And these need to be developed in stages starting with some of the basic ones, such as civil engineering, logistics, heavy equipment and then gradually move into a lot of value added products and services such as drilling services, so on and so forth.

Now, in order to be able to manage that local content agenda, an entity needs to be responsible for pushing it and for monitoring it. And while there are many bodies that can host such local content units, one of the options is to consider locating it within the Ministry of Industries and Minerals because this is where most of the localisation in the industrial sector will create local content.

So, as an example, a policy or regulatory body could be created that will not only design the terms of reference of local content but also monitor that and will liaise with the education system, the Ministry of Education, vocational training centres, so on and so forth, to revamp and accelerate the development and the improvement of the education system. The body would also liaise with the manufacturing and services sectors in order to understand the gaps that exist today in Iraq and therefore inform the local content policy.

It is clear that any local content policy, and that’s the lessons learned from other countries that have embraced such a program, slows down the development of the upstream sectors or the energy sector in general because of the time required to create a skilled work labour force and to localise the industry. So, this needs to be developed in a gradual manner, ie putting the institution in place first and then gradually introducing some incentives for local content in contracts, in procurement, so on and so forth.

Especially in the coming few years, Iraq needs to significantly ramp up its oil and gas production as well which is currently being flared. That will be a priority. But in the medium term it will look for ways to diversify its economy, localise a lot of these industries and services, and this is where the local content agenda can start to be implemented in full.

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TH You’ve gone through a list of the things that you think make the essential building blocks for a successful local content policy. It’s all well and good to outline those but what have the actual challenges been with implementing those steps in a country like Iraq which has been through years of civil strife?

GS It is indeed a big challenge that the overall business environment in Iraq may not be conducive for entrepreneurs to strive and to localise as well as develop more local content in procurement. However, we need to start somewhere, and I think there are measures that can be adopted in a gradual manner that could basically create or leverage, for example, the talented Iraqi community that currently lives abroad and that would be incentivised actually to come back to the country and start developing either manufacturing or services or providing services to the local economy and to the energy sector in general. This is a pool of talent that currently exists that needs just some incentives to be triggered.

The other element is the encroaching retirement of some of the senior energy specialists that are currently staffed in many of the public institutions or ministries. Because of the gap between the old and the new generation that will be a way to mitigate against the risk of having to wait for many years before we have a new way of skilled labour force coming to the market.

It has been done in some areas but I think there is a need to increase it to many more areas. Also the vocational training centre is a way to kick-start that process. There is some element of that already happening but I think more money, more investments, more focus will be required by the Ministry of Education in collaboration with other ministries to set up those vocational trainings which are fundamental to provide the economy with all sorts of semi-skilled labour that the economy badly needs. So, there are some measures that can be implemented quickly that could contribute to the development of the Iraqi labour force and to start creating enough expertise and also pass it onto the new generation.

TH So those are some of the challenges and the solutions to how you’re overcoming that in a country like Iraq which is in a general state of rebuilding and redefining itself on the world stage. From your experience, what kind of knowledge would you pass on to people who are in a similar situation?

GS I think that local content is a major topic and every country has adopted it according to the specific requirements of its economy. There are a lot of risks attached to local content and we’ve seen it in many countries. It typically has a tendency to slow down projects, especially when we are talking about projects to be undertaken either in difficult environments or that are, from a technology standpoint, very advanced.

So, while local content is very much needed, we need to make policies or taking regulatory measures that are not too constraining for the private sector or for the international investors and should be phased in such a way that it strikes the right balance between going relatively fast or according to schedule and creating enough global content in the domestic economy. And that’s a very delicate balance to strike between speed of execution and diversification or localisation.

TH George, thank you very much for your time. We’re looking forward to the participation of Strategy& at the local content conference coming up later on this year.

GS Very good. Thank you very much, Tim.

Tim Haðdar is the Editor In Chief at Oil & Gas IQ. Reach Him At Twitter Or OGIQ

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