Industry: Building and Camp Construction 4… · Building and Camp Construction 3 Construction typically involving at least three phases: 1. Pioneer Camp- A small pioneer camp is

Industry:

Building and Camp Construction


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Industry Summary

� This activity covers the construction of the permanent and temporary structures on the LNG site and is disaggregated by the following sub-activities: 1) building foundation laying and setting; 2) prefabricated accommodation camp procurement and installation; 3) superstructure assembly and installation/carpentry; 4) exterior/interior finishing; 5) fire protection and safety system; 6) engineering and design; 7) project management.

� The total activity demand level is projected to be USD 1.6 billion, mostly spent between years 2 and 5 of the LNG construction period. This translates to an average of about 1,000 local jobs at peak employment in year 5 and an average of 435 jobs per year over the life of the project.

� Under current conditions, this activity is likely to generate ≈ USD 189 million in total domestic value added (labor and profits).1 The biggest potential lies in carpentry and masonry tasks in terms of local employment and potential subcontracting to local firms.

� Key constraints limiting greater local participation include: 1. Asymmetry of information in terms of trusted local supplier databases 2. Shortage of accredited skilled labor compounded by shortage of experienced

technical supervisors to ensure compliance with specifications/standards on site 3. Costly inputs and lack of access to capital. 4. Overall noncompliance with required health, safety, and environmental risk

prevention procedures both offsite and onsite and lack of quality assurance process and personnel management systems to ensure compliance. 2

� Efforts to raise performance of local suppliers in the construction industry could translate to a domestic value added range between ≈ USD 189 million and USD 235 million, subject to the successful implementation of the recommended intervention(s) and the successful uptake of these interventions by the target markets/sectors/entities. Increased skills for semi-skilled workers could add another 150 average local jobs per year.3

1 For a full explanation of assumptions used to derive this estimate, please see Assumptions Annex 2 The international standards vary according to the nature of the work. International building standards may refer to US or

European standards for electrical installation but US standards for metals fabrication. Currently, there are ongoing discus-sions between the Tanzania LNG (TLNG) consortium members as to which standards to agree on and the TBS is also be-lieved to be standardizing on ISO standards which the IOCs have confirmed would be compatible with most standards they may adopt. However the IOCs have indicated that the finalization of the standards will be captured in the Host Government Agreement (HGA).

3 The implementation of interventions is no guarantee of the uptake of such interventions and the potential upside for increas-ing both value added and jobs from any element of the LNG construction project is wholly dependent on the success of the interventions which cannot be measured at this stage.

The construction of permanent and temporary structures on the LNG site offers opportunities to enhance local value added and includes a range of tasks, from highly technical installation to low skilled manual labor. Primarily international engineering, procurement, and construction (EPC) and prime contractors have the requisite scale and standards to win construction procurements. While EPCs are likely to self-perform most of the related tasks in order to manage costs, schedules, and risks in house, they will draw on local labor. Some promising local firms may win smaller subcontracts or partner with a foreign firm. The amount awarded locally will be determined by local suppliers’ ability to demonstrate worksite risk mitigation, ensure quality, stay on schedule, and remain at or under cost.

Local suppliers will have to quickly learn standard oil and gas contracting procedures, systems, and comply with international standards (still to be announced by the IOCs); consider partnering with international companies through joint ventures or other sharing agreements to build capacity; and improve project management and quality assurance systems. Coupled with proper worker training and increased access to finance, such actions could result in domestic value added (local labor and profits) between USD 189 million and USD 235 million. Additionally, if the quality of inputs can be improved sufficiently, purchase of local goods could increase to USD 196 million, compared to a baseline estimate of some USD 140 million.

The Local Impact of Tanzania LNG Development

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Industry Demand

Demand Levels

For the industry simulation, the principal assumption implies that temporary camps will need to house around 10,000 - 12,000 workers at peak, including the construction workers and indirect support workers such as security and catering staff – there may well also be another 20% community based workers (both construction and indirect support) who will be bussed in and out of the site on a daily basis but will reside in the community and not in the camp.4 The permanent operations camp structures are expected to house around 300 permanent workers. Permanent accommodation requirements will ultimately depend on whether the LNG facility is operated by a home-based workforce or by a fly in-fly out rotational workforce. The latter will require an accommodation camp to house the rotation teams for the duration of their monthly stay onsite. Whether home based or fly-in-fly-out (FiFo) rotational workface during operations, there will remain a need for a mess hall/canteen facilities as workers will work 12 hours shifts and receive meals on site.

The permanent building structures will consist of all the related entrance receiving areas where visitors will be processed and inducted before entering the site office buildings, garages, control center and related satellite buildings that are necessary to house personnel and equipment as they move around the site during operations

Demand Characteristics for LNG Building and Camp Construction

Demand in this activity includes the construction of both permanent and temporary structures:

�� Permanent Structures (about 70 percent of total estimated market demand). The construction of permanent facilities (such as offices, housing, and mess halls) is typically included in the larger scope of work of the international EPC contractor. Depending on the design, schedule, and cost, there may be opportunities for the EPC to hire local labor or to subcontract some work associated with the construction of the permanent structures. The demand for permanent housing will also be influenced by the final policy of the operator as to whether the operations team will have a significant community based component where housing might be developed in a more suburban manner or a largely FiFo component on a monthly rotation which would portably be in a more ring-fenced camp layout with related mess halls etc.

�� Camps and Temporary Structures (about 30 percent of total estimated market demand). The construction of temporary housing and related facilities are typically constructed from prefabricated modules or segments procured from international expert prime contractors.5,6

4 See Assumptions Annex 5 A local supplier, Alpha Logistics, has outlined its capability to supply pioneer camp modular structures and related utilities, having already provided the same service to the oil industry in Kenya. RSH manufactures, sells, and leases all types of modular buildings. 6 Red Sea Housing (RSH) manufactures, sells, and leases all types of modular buildings. The RSH market covers Africa, the Middle East, Asia, and South America. RSH has four manufacturing facilities located in Dubai, Saudi Arabia, Ghana, and Libya. RSH provides commercial and residential housing, as both temporary and permanent structures, including accommodation facili-


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Construction typically involving at least three phases:

1. Pioneer Camp- A small pioneer camp is constructed for 100-200 people during the early works stages prior to FID and often adopts a containerized design: portable modular units structures are dropped into place with minimal assembly or labor required. A pioneer camp is generally self-sustaining and requires all the key utilities to be supplied, such as water storage and purification, power generation, etc. The pioneer camp is also likely to incorporate a temporary office block as well as other nonliving quarter space, such as equipment storage. The pioneer camp will likely be removed and transported to the next destination, once the construction camp is finished.

2. Construction Camp- Once the site is prepared and the relevant foundations are laid, the second construction camp is erected from prefabricated segments and will remain onsite for the duration of the project until commissioning. The construction camp offers a complete set of amenities to the construction workers (sleeping quarters, catering facilities, paved roadways, and parking areas). There can be up to six separate prime contractors depending on the structure and design of the project. The construction camp with all its amenities needs to be erected from prefabricated elements on site.

3. Construction Facilities- Once the FID has been achieved, the EPC contractor is appointed and quickly starts mobilizing the preparation of the site for the construction. The construction camp, Marine Offloading Facility and basic infrastructure upgrades (such as the improvement of roads access from Mtwara to Lindi to enable access to the Mtwara port) would have been completed to facilitate the rapid mobilisation by the EPCC. The first activity of the EPCC is to install the temporary construction facilities, such as security and administration offices, various satellite site offices, the temporary communications facilities such as warehouses, fabrication sheds, paint houses etc. These facilities will be dismantled and removed from site once construction is completed.

The construction of camps may provide employment opportunities but few subcontracting opportunities as the contractor will deliver prefabricated accommodation to site but will require local labour for the erection and various utility connections – some of this work, namely electrical and plumbing connections may be subcontracted if firms can demonstrate compliance with international standards relevant to their specialty.7 Temporary facilities are generally self-performed by the EPCC as they own the temporary facilities and erect them and remove them at the end of the construction phase. The construction company may handle construction in-house or through subcontracts with local firms, however this has little effect on domestic employment impacts, because they are likely to tap in the same labor pool.

ties, offices, kitchen/dining units, recreation facilities, laundry areas, labor quarters, drilling/rig camps, dormitories, guardhouses, hospital/clinics, hotels, relief housing facilities, and schools. In addition to camp accommodation, RSH designs and manufac-tures “in house” a range of camp utilities. These include sound-dampened generator enclosures and water treatment, wastewater treatment, and fuel and water storage tanks. 7 It is important to note that the adoption of specifications and standards that preclude local contractors, such as electrical installation required to meet U.K. standards, will undermine the local capture of opportunities (see Summary Note section on standards in Assumptions Annex).


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Relevant Tanzanian Registration Organizations: � Contractors Registration Board (CRB) 5 � Engineer Registration Board (ERB) � Architects and Quantity Surveyors Registration

Board (AQSRB)

Industry Supply Chain Characteristics

Potential local contractors likely come from the building works sector. These companies are generally registered SMEs with basic knowledge and experience with commercial and residential construction (usually cement block and timber-based construction). Local contractors typically use a mixture of rented and owned capital equipment and heavy machinery.8 In Tanzania leasing equipment is difficult, expensive, and driven by cash transactions, creating cash-flow problems. Alternatively, purchasing equipment outright is often prohibitively expensive for a majority of firms and financing is not an option for several reasons. The cost of capital is high, some firms reporting interest rates as high as 20 to 25 percent for short-term loans. Small local firms also struggle to accumulate sufficient collateral, which can reach 120 percent or more of the value of the loan in terms of equipment and contracts, in order to qualify for some short-term business loans. Even if a firm has appropriate capital, the low Single Borrowers Limit (SBL) set by the Bank of Tanzania, and applied by local banks is insufficient for construction contracts that often involve high financing threshold.9 However, local contractors exhibited limited acceptance of the use of escrow type arrangements by banks where future cash flows could be used as collateral.

The larger local building works contractors rely heavily on accredited expatriate skilled labor, extensive mechanization and limited local unskilled labor hired on an ad hoc basis. There is skilled labor available in Tanzania, however only a small proportion is accredited and employers are required to incur significant overheads in training or certifying artisan prior to employment on contracts. This situation is compounded by a dearth of extensively on-the-job trained technicians at the supervisory level that are responsible for translation and enforcement of specifications and standards onsite during construction, resulting in significant cost insured in reworking faulty or non-compliant construction. There is a general lack of skilled workers available and skills based on prior experience in an oil and gas industry activity are virtually absent. There are limited certification authorities in Tanzania to test and certify artisans and equipment for oil and gas projects, so firms have to fly in certification agents from other countries, increasing operating costs.

Regulatory Framework

There are various organizations and policies already in place in Tanzania created with the intention to promote industry growth among construction firms. However, there is no apparent compatibility or harmonization between the organizations and policies, leaving local registration criteria insufficient or inconsistent with industry-driven accreditation standards.

Registration policy- The Contractors Registration Board (CRB) manages and stimulates the contractors sector through market information sharing and the promotion of joint ventures. There has been progress, but capacity constraints hamper the ability of the CRB to expand

8 These contractors have the basic equipment in stock and then hire in specialized equipment that might not be required for the duration of the project. There is intense competition for equipment and according the focus group participants. Less than 5% of contractors have sufficient firm-owned equipment which places extreme upward pressure on equipment hire rates. 9 The SBL is used to limit banks’ concentrated exposure by limiting the amount that can be given to a single borrower and is regulated by BOT in terms of the Banking and Financial Institutions (Credit Concentration and Other Exposure Limits) Regula-tions, 2008, Regulation 6. According to interviewees, Citi Bank is the only bank with high SBL.


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beyond general construction into the oil and gas sector support. Professional registration is largely based on meeting a minimum recognized curriculum by the ERB, but not the higher education authorities.10 It also involves minimum requirements related to financial data, equipment and skills. However, it is not clear how the actual experience and expertise of each contractor is verified, resulting in a large number of ‘properly’ registered local firms that are still do not meet the acceptable and globally recognized industry-driven accreditation standards. 11

Preferential access policies- Registration prescribes areas of operation for the contractor, such as the size and type of projects. Beyond that, another set of policies applies with respect to leveraging access to contracts, such as the Private Sector Participation (PSP) policy, and its subsequent legislation (the Public Procurement Act) and the regulatory authority (the Public Procurement Regulatory Authority [PPRA]).

The PPRA, established in 2011, is responsible for regulating and monitoring all public procurement activities by all public bodies in Tanzania and for implementing the incentives contained in the legislation that give limited preference to local service providers where appropriate.12 Implementation of the Public Procurement Act is irregular and even ministries and government agencies often do not publish the incentives that should be offered to local contractors. Many tenders also specifically exclude joint ventures and/or consortia, which limits the capacity of smaller firms to bid on certain projects with pooled resources.

Local content policy- An important criticism of the current draft Local Policy framework is the perceived weakness in the awarding of contracts to foreign firms where the design, fund, and build (DFB) tender criteria does not explicitly support the use of local labor and services (in return for often a higher cost of service). The framework does not separate design and feasibility services from construction and execution services and could thus limit the participation of local firms by packaging together all core functions to a single contractor. This also runs against the PPRA’s public procurement policy process.

Sub-Activity Analysis

The key demand areas translate into a series of industry sub-activities that will need to be carried out to deliver on an LNG contract. While it is highly unlikely that local firms have the capacity to win a large contract, they may be subcontracted by an EPC or Prime contractor for smaller related activities. These activities are outlined below with the relevant characteristics that will impact the value added for the Tanzanian economy.

1. Building Foundation Laying and Setting (Total Sub-activity Demand ≈ USD 160 Million or 10% of Total Industry Demand)

The laying of foundations in this activity assumes that the site preparation (see respective industry profile) has been completed, including the installation of the appropriate infrastructure such as sewerage and storm water drainage. Consequently, limited civil engineering will be carried out. This sub-activity provides good opportunities for the

10 Tanzania Commission for Universities (TCU). 11 Lack of supervision by approved professionals was cited as a major cause for the catastrophic building collapse in Dar es Salaam in March 2013. “The State of the Construction Industry in Tanzania”, Friday, 05 April 2013 by Lyamuya Stanley sourced from http://www.businesstimes.co.tz/index.php?option=com_content&id=2362:the-state-of-the-construction-industry-in-tanzania&Itemid=57 12 Public Procurement Regulatory Authority. Available from http://www.ppra.go.tz/# (accessed July 29, 2014).


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procurement of local goods, as the materials are fairly basic in nature, and will draw on local labor for unskilled and semi-skilled jobs. The potential domestic value added (labor and profits) range for the building foundation laying and setting sub-activity is estimated to be between USD 13 million and 19 million, subject to the successful implementation and uptake of the recommended interventions by the target markets/ sectors/entities.

Tasks

• The installation of the form work equipment such as shutter boards etc. • Pouring (pumping) of the concrete into the forming areas • Rebar placement • Vibration of the poured concrete to ensure no air pockets • Concrete curing (setting) for a month (as per specifications) dismantling and removal of forming

equipment

Whilst the installation and operation of the batch plant may be subcontracted, the above tasks relating to the placing of the concrete are all typically self-performed by the EPCC or a prime or main contractor

*Additional associated tasks are captured in separate business cases (see concrete works, electrical works, and metal and steel fabrication.

Goods Labor (Average employment per year)

Total Demand for Goods: ≈ USD 100 million Projected Demand for Local Goods: ≈ USD 50 million

Average Demand for Labor: ≈ 40 jobs Average Demand for Local Labor: ≈ 20 jobs

• Inputs to the concrete manufacturing process are likely to be purchased locally – cement, aggregate and sand

• Suitable forming equipment may be leased or purchased locally

• Steel rebar – according the IOCs interviewed to date, it is believed that local manufacturers can produce high quality rebar but import the raw materials (eg. ‘virgin’ steel billets)

• Almost equal three-way split between skilled, semi-skilled and unskilled workers with local employment opportunities for unskilled labor.

• Skilled/semi-skilled supervision of the pouring/curing to prevent uneven forming and prevent over heating – both of which weaken the concrete tensile strength.

• Significant skilled/semi-skilled labor will be imported at technical supervisory level as there is a shortage in Tanzania at present which represents a key constraint to increasing the local labor capture in this industry.

2. Prefabricated Accommodation Camp Procurement and Installation (Total Sub-activity Demand ≈ USD 480 Million or 30% of Total Industry Demand)

At the beginning of the project, the IOC will likely contract an international expert prime contractor (such as Red Sea Housing [RSH] ) to provide temporary pre-fabricated structures for camp housing and other purposes that are easily assembled and disassembled if required (these structures can be sold or leased). This procurement will be done during the early works period (possibly a few months before the final investment decision [FID]) and will precede the hiring of the EPC. As camp will have to be erected in 6-8 months, as soon as the site is prepared, highly trained teams will be deployed to efficiently assemble the prefabricated structures. These teams are typically trained at the housing contractor’s fabrication yard consequently it is anticipated that half the workers will be internationals, of which the majority will be skilled/semiskilled. However there will be an emphasis on trying to hire local artisan and unskilled labour for the installation from a cost perspective. This is therefore a good local employment opportunity and specifically for skilled and experienced technicians in supervisory roles along with a large contingent of unskilled workers for manual labor to


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support the artisans. The potential domestic value added (labor and profits) range for the Prefabricated Accommodation Camp Procurement and Installation Sub-activity is estimated to be between USD 28 million and 39 million.13

Tasks

• Basic mechanical assembly of the constituent parts of prefabricated modular units • Connection of electrical and plumbing services along with the fitting of general areas such as

tiling of walkways etc. • Finishing work • The activities will be relatively simple and repetitive as the more sophisticated work is carried

out during the fabrication phase.




• Temporary prefabricated modular units - Currently not produced locally - The international contractor will sources

them from abroad • Limited consumables such as adhoc wiring,

plumbing supplies etc. will be procured locally.

• The prime contractor will employ teams to erect the prefabricated units

• About half of the workers will be skilled/semi-skilled expats (mechanical artisans, electricians, plumbers, etc.)

• Mechanical artisans assemble the various modular units, whilst others such as electricians, plumbers, tilers etc. will be required to make the finishing connections and tiling of walkways etc.

3. Superstructure Assembly and Installation (Total Sub-activity Demand ≈ USD 400 Million or 25% of Total Industry Demand)

Tasks for superstructure assembly and installation/carpentry/masonry are typically included in the larger scope of work of the EPC contractor. The building of permanent structures is subject to stringent Tanzanian regulations (even if poorly enforced) and global standards – most likely ISO standards to deal with the different quality management systems used by the main members of the Tanzania LNG Consortium. Therefore, it is likely that the EPC will self-perform most of these tasks by deploying an extensive team of skilled supervisory technicians in order to manage costs, schedules, and risks internally. There may, depending on the design, schedule, and cost, be opportunities for the EPC to hire local labor or to subcontract some work, including electrical and plumbing and HVAC installations and certain finishing work that may be outsourced or local labour hired to complete, associated with the construction of the permanent structures. The potential domestic value added (labor and profits) range for the Superstructure Assembly and Installation Sub-activity is estimated to be between USD 49 million and USD 72 million.14

13 These figures are subject to the successful implementation and uptake of the recommended interventions by the target markets/ sectors/entities. 14 These figures are subject to the successful implementation and uptake of the recommended interventions by the target markets/ sectors/entities.


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Tasks

• Building shell construction • Concrete casting • Bricklaying • Roofing *Additional associated tasks are captured in separate business cases (see equipment hire and scaffolding)




• Concrete ingredients and scaffolding – significant opportunities for local procurement.

• Various commentators at both the WB Government Dissemination workshop and in industry focus groups indicated that the constraints with wood products in Tanzania are generally of substandard quality, hence unlikely to be procured locally for a project of this sophistication and scale.

• Shortage of skilled and experienced technicians for supervisory roles which will currently limit the hiring of local labor, as poor supervision leads to poor workmanship, low productivity, and potential accidents.

• Contractors may opt to hire more experience expats to avoid drags on productivity and profitability.

4. Exterior/interior finishing (Total Sub-activity Demand ≈ USD 320 Million or 20% of Total Industry Demand)

Exterior and interior finishing relates to the work conducted on the building shell and relates to the exterior application of cladding, plastering, or painting and the installation of doors, tiling, office infrastructure (dry walling etc.), installation of ceilings, sound proofing, depending on the architect’s specifications. The electrical and plumbing finishings are covered in the respective industry briefs. While many of the finishing inputs are produced locally, very few suppliers locally meet the most basic accreditation requirements (such as being ISO accredited). For example, there is a vibrant paint manufacturing industry in Tanzania but none of the producers identified are ISO accredited. There are numerous local employment opportunities, though many of those will not be permanent beyond the construction phase. The potential domestic value added (labor and profits) range for the Exterior/interior Finishing Sub-activity is estimated to be between USD 91 million and USD 94 million.15

Tasks

The finishing tasks are performed by the contractor or subcontractor, who hires teams of artisans to complete the various additions to the building after the basic shell and the roof have been constructed. • Painting • Wood finishing • Door/window/ roof installation • Framing • Cabinetry • Tiling * Additional associated tasks are captured in separate business cases (see electrical works)

15 These figures are subject to the successful implementation and uptake of the recommended interventions by the target markets/ sectors/entities.


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Total Demand for goods: ≈ USD 130 million Projected Demand for Local Goods: ≈ USD 25 million


• Most of the required inputs are found locally: paints, electrical ducting, minor steel, tiles, glass, carpets, and timber for carpentry. However, very few suppliers locally meet the most basic accreditation requirements.

• The contractor will not consider a firm that does not have at least an ISO 9000 accreditation as it provides the simplest approach to determining the overall commitment of the firm to deliver consistently high quality goods and services.

• Typical skills include, carpentry, electrical work, plumbing, tiling, glazing along with more semiskilled work such as carpet laying, cabinet making and assembly, etc.

• There is a chronic shortage of skilled and experienced supervisory staff such as trained technicians, project managers etc.

• Contractors indicated that there is experienced skilled/semiskilled local labor such as artisans but rather that they, however many are not certified where appropriate, despite their significant experience.

5. Fire Protection and Safety System (Total Sub-activity Demand ≈ USD 80 Million or 5% of Total Industry Demand)

The installation of fire protection systems are likely to go to international firms based on specialized technical capacity and track records showing performance to complete the task to specification and on schedule. This was confirmed in the interviews with construction firms who indicated that in most cases local firms that are engaged in installation of fire protection systems are essentially plumbing works firms that have developed a niche area of installing piping to deliver water to sprinkler systems. No firms locally would be expected to have the expertise to install the fire detection and protection system anticipated in an LNG facility and the construction firms interviewed indicate they would bring in global firms for such sophisticated installations. The potential domestic value added (labor and profits) range for the Fire Protection and Safety System Sub-activity is estimated to be between USD 1 million and USD 2 million.16

Tasks

• Installation of prefabricated modules • Fire and life protection system design • Pipe fitting • Installation for sprinkler systems, electronic control systems installation and programming. *Additional associated tasks are captured in separate business cases


Total Demand for goods: ≈ USD 60 million Projected Demand for Local Goods: ≈ USD 3 million


• Basic plastics items used in electrical systems, such as cable conduits, are manufactured locally but the rest are imported.

• Prefabricated modules will be imported from the international manufacturer who supervises

• Since the tasks related to the installation of fire protection and safety systems are highly specialized, there is very limited local labor exists to complete this work.

• Labor force absorption by the project



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installation. could be constrained by adoption of standards and specifications that are incompatible with Tanzanian standards.

• Available local skilled worker, like electricians, that are trained and certified to comply with Tanzanian standards will still be unemployable on the project without an additional second certification.

6. Engineering and Design (Total Sub-activity Demand ≈ USD 80 Million or 5% of Total Industry Demand)

All the firms consulted indicate that they did not expect the engineering and design to be carried out in Tanzania, although some indicated that remedial engineering design on site to correct small errors that arise, such as a door frame being realigned or a pipe being the incorrect length due to a change in the concrete works, could be done with local firms supervised by the EPC contactor’s engineering staff from a remote site or head office. Given the Engineering and Design Sub-activity characteristics, there is little potential to increase domestic value added (labor and profits) beyond the baseline of ≈ USD 3 million.

Tasks

• Design, drawings and simulation modeling at the EPC contractor’s head office or designated design center.


Total Demand for goods: ≈ USD 6 million Projected Demand for Local Goods: ≈ USD 300,000


• Computer equipment, computer consumables and related outputs generation equipment such as special printers and drafting schematics printers etc. whilst none of the equipment is expected to be procured local there is the possibility of opportunities to supply consumables, however the value of such opportunities is expected to be negligible

• Beyond the employment of Tanzanian engineers on a training/graduate mentorship programme by the IOC or EPCC, there will be few if any job opportunities in this subactivity and most work will be done beyond Tanzania’s borders using highly skilled labor.

7. Project management (Total Sub-activity Demand ≈ USD 80 Million or 5% of Total Industry Demand)

All the local contractors consulted, indicated that they did not expect the project management to be carried out by local firms as there is perceived to be insufficient project management expertise to manage such a large and complex project. The potential domestic value added (labor and profits) range for the Project Management Sub-activity is estimated to be between USD 3 million and USD 5 million.17



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Tasks

• Project planning and execution


Total Demand for Goods: ≈ USD 3 million Projected Demand for Local Goods: ≈ USD 150,000


• Few opportunities exist for procurement of goods of any material value

• Beyond the employment of Tanzanian project managers on a training/graduate mentorship programme by the IOC or EPCC, there will be few if any job opportunities in this subactivity and most project manager will be imported by the EPC contractor.

Summary Analysis of Sub-activity Local Labor and Goods

The critical analysis of the labor implications and demand for goods from the Buildings and Camp Construction is that the overall job opportunities are good for the more basic areas such as prefabricated building installation, superstructure building and exteriors/interiors finishing as these are all labour intensive and EPC contactors will be on the lookout for cheaper local labour. The majority of these jobs will be unskilled however there are significant semi and skilled jobs opportunities – refer to Table 2 below - where appropriately accredited and experienced labour can be sourced.

The challenge is that there is currently a shortage of skilled supervisory labor with practical experience, keeping mind that supervisory technical staff are not necessarily high skilled artisans, but general technically skilled workers with transferable skills. These skills include the ability to read technical drawings, supervise artisans in order to ensure compliance with specifications and standards. Where highly skilled artisans need to be supervised, then such supervisory staff will often have experience in the artisan skill from a practical perspective in order to be able to ascertain whether the artisan is in fact complying with the specifications – such as specialized welders.

The large volume jobs in the exterior/interior finishings is not surprising as this is always a labour intensive element of a building project as many of the task cannot be automated, such as tiling, plumbing, electrical connections and installations. Basic fire prevention systems are currently fabricated in Tanzania but they are essentially pluming works adapted to building construction – whereas the very sophisticated fire control system in an LNG facility are likely to be fully imported and installed by teams trained or supervised by the OEM – limiting both subcontracting and employment opportunities. In the final analysis, building works present good opportunities for both subcontracting and employment, however the same application of stringent accreditation verification procedures can be expected and early accreditation of both firms and artisans will be essential to take advantage of these opportunities.


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Table 1: Demand for Local Goods by Sub-activity

Sub-activity Local Goods

Y1 Y2 Y3 Y4 Y5 Y6 Y7

1. Building foundation laying and setting

0 960,000 14,400,000 15,680,000 17,280,000 2,880,000 0

2. Prefabricated Accommodation Camp procurement and installation

0 288,000 4,320,000 4,704,000 5,184,000 864,000 0

3. Superstructure assembly and installation/carpentry

0 840,000 12,600,000 13,720,000 15,120,000 2,520,000 0

4. Exterior/interior finishing 0 480,000 7,200,000 7,840,000 8,640,000 1,440,000 0

5. Fire protection and safety system 0 54,000 810,000 882,000 972,000 162,000 0

6. Engineering and design 0 6,000 90,000 98,000 108,000 18,000 0

7. Project management 0 3,000 45,000 49,000 54,000 9,000 0

Total per Year 0 2,631,000 39,465,000 42,973,000 47,358,000 7,893,000 0

Table 2: Average Demand for Local Labor by Sub-activity18

Sub-activity Local Labor

Y1 Y2 Y3 Y4 Y5 Y6 Y7 Avg.

1. Building foundation laying and setting

Skilled 0 1 8 9 10 2 0 4 Semi-skilled 0 1 8 9 10 2 0 4

Unskilled 0 2 25 28 30 5 0 13 Subtotal 0 3 42 46 51 8 0 21

2. Prefabricated Accommodation Camp procurement and installation



3. Superstructure assembly and installation/carpentry



4. Exterior/interior finishing



5. Fire protection and safety system


18 Figures presented are rounded.


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6. Engineering and design



7. Project management


Unskilled 0 0 0 0 0 0 0 0

Subtotal 0 1 9 9 10 2 0 4

Total 0 57 856 932 1,027 171 0 435

Domestic value added and employment

The distribution of employment by sub-activity between skill categories and origin (local vs. expatriate), suggests that the total domestic value added over the seven-year investment period is approximately USD 189 million, composed of USD 129 million in labor and USD 60 million in profit from subcontracting to local firms to supply goods and services. In addition, the activity would also result in the purchase of some ≈ USD 140 million in local goods, part of which will also stimulate the local economy (linking to manufacturing of ad hoc consumables such as adhesives, paints, and petrochemical inputs).

Figure 1: Domestic Value Added (USD millions) Per Year

The estimated pattern over time for total value added suggests a peak in year 5 of ≈ USD 57 million. The pattern over time is shown in Error! Reference source not found.. Total local employment is projected to grow from an average yearly total of ≈ 55 in year 2 to over ≈ 1000 in year 5. Under the assumptions about qualifications of the local workforce, the projections imply a relatively balanced pattern for the three skill categories, skilled, semi-skilled and unskilled, as illustrated in the graph below.

Figure 2: Average Number of Jobs Demanded by Skill Level


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In addition, in years 4 and 5, the domestic wage bill is double the domestic profits, suggesting that there are significant employment opportunities in the camps and building industry according to industry observers. These will mostly be with EPCC and prime contractors self-preforming their work. However the spread of skills between the three levels indicated a significant number of labour opportunities across all levels. Whilst the majority of skilled labour is expected to be drawn from the international labour pool, significant numbers of semi/un-skilled workers are expected to be drawn from the local labour pool. Skills development and practical training of technicians will be critical preemptive measures to improve the readiness of the building industry to meet the demand of the LNG construction project. Finally, the pattern for the procurement of inputs and capital equipment also shows the same overall pattern, with a peak of USD 47 million for local goods in year 5.

Figure 3: Projected Goods Purchased (Imported vs Local)

0

50

100

150

200

250

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7

Pro

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ed

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Key Industry Constraints

A general constraint across all sectors in Tanzania is the asymmetry of information that raises transaction costs and reduces the efficiency with which projects are originated, resources and assessed in terms of risk. Whilst there are many organisations currently maintaining databases of firms, there is a general perception that these databases are unreliable and outdated and that the criteria for registration limit the reliability of the data received upon enquiry. Many industry actors indicate that they believe the structural weakness in the data management systems is that many organisations, especially the statutory ones, where driven by the need to collect fees for service as the fiscus had reduced or withdrawn funding in many instances.

It was felt that to strengthen the system alternative funding sources are required that would allow the organisations to focus on verifying registration information and enforcing maintenance of registration minimum requirements. It was also mentioned that a critical first step would be to assist these various organisations to ‘clean up’ their databases so a baseline of reliable information could be derived that would create demand for the series and therefore improve the acceptance of these organisation in terms of their role and function and a secondary impact on contractors paying more attention to maintaining their registration and the relevant updating and upgrading required to achieve this.

Another critical constraint in the building industry is the availability of certified artisans and experienced technicians for supervisory and project management roles. Whilst many artisans are experienced and there is generally no chronic shortage however the majority of them are not certified which makes mobilizing them for work on the LNG. With regard to the shortage of trained and site experienced technicians, this is a chronic shortage that poses a severe constraint in the industry currently19 and also in terms of winning contracts and being successfully hired to support international contractors in self-performed works.

More specific constraints are now addressed from a construction industry perspective:

Industry Constraints Industry Impacts LNG Project Impacts

1. Chronic shortage of certified and experienced labor

Low productivity and inefficiency reduces

competitiveness

Chronic shortage of experienced supervisory technicians

• There is a lack of certified/accredited technicians and laborers who meet international standards and specifications.

• There is an absence of trained inspectors, certified instructors, and internationally accredited certifying centers in Tanzania.

• Contractors cannot use experienced but uncertified artisans on site and therefore have to incur significant cost to have workers certified outside of Tanzania or to bring certification agency staff to Tanzania.

• Even well trained and certified technicians often lack practical training and a ‘compliance driven work ethic’ resulting in inadequate supervision and

• Building foundation laying and setting – the EPC contractor will likely self-perform this and may employ some unskilled labor – skilled technical supervisors are essential for reliable compliance and certification could improve employment prospects

• Superstructure assembly and installation – there will be demand for pre-certified artisans but a lack of affordable certification services

19 Lack of supervision by accredited and/or certified professionals was cited as a major cause for the catastrophic building

collapse in Dar es Salaam in March 2013. “The State of the Construction Industry in Tanzania”, Friday, 05 April 2013 by Lyamuya Stanley sourced from http://www.businesstimes.co.tz/index.php?option=com_content&id=2362:the-state-of-the-construction-industry-in-tanzania&Itemid=57


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overlooked poor workmanship resulting in costly reworking.

will hamper local labor • Exterior/interior finishing – there

will be significant demand for unskilled labor during finishing and for pre-certified artisans and once gain certification may prove an insurmountable barrier to local labor without intervention lower the barrier to entry.

2. Access to Finance - High cost of capital

Inhibited Sectoral Growth Working capital constraints

increase supply risks • The cost of capital is high and

local firms cannot find the appropriate financial products to scale up operations.

• Collateral requirements for some short-term loans are too high for small local firms struggle to accumulate sufficient collateral to qualify for some short-term business loans.

• The Low Single Borrowers Limit (SBL) used by most local banks is insufficient for many construction contracts.

• Securing a necessary bank guarantee to a performance bond can be difficult.

• Firms remain undercapitalized, labor intensive and technically outdated.

• Firms unable to bid on large projects where they cannot raise finance for performance bonds.

• Firms cannot therefore upgrade to improve productivity and cannot get exposure to larger projects to gain knowledge and expertise and ultimately remain uncompetitive.

• Eligible exterior/interior finishing – contractors will have to make significant forward purchases to ensure seamless delivery which will require significant working capital and access to affordable finance will be critical, failing which the IOCs/EPCCs will avoid local suppliers where supply risk could result in significant liquidated damages.

3. Limited local availability of certified goods

High level of imported certified goods

Zero tolerance for uncertified goods will further promote imports

• There are limited affordable certification services in Tanzania to test goods for oil and gas projects and similar complex construction works.

• There are no dedicated nondestructive testing (NDT) facilities in Tanzania.

• High input prices for items such as lumber and pipes and even when certified the perception is that the certification may not be reliable unless from a globally recognised certification agency which further increases the input costs.

• High quality goods are imported with significant tariffs in most sectors resulting in high input costs and even where a COI is issued, they are issued to the investor, not the contractor and therefore does not benefit directly.

• The dominance of traders in the Tanzanian markets undermines the incentive to invest in productive sectors and the value added and job creation derived from imported goods is generally low.

• Building foundation laying and setting – concrete inputs sourced locally will have to be subject to onsite testing and there are limited NDT facilities in Tanzania increasing the need for Pre-shipment Inspections services (PSI) and related precertification which further disadvantages local suppliers.

• Superstructure assembly and installation – similar issues as foundations above.

• Exterior/interior finishing – contractors will have to make significant forward purchases to ensure seamless delivery which will require access to pre delivery certification services or PSI.

4. Locally available certified capital equipment is very costly

Lack of capacity to deliver on large complex projects

Zero tolerance for uncertified goods will limit use of local firms’

equipment • There are limited affordable

certification services in Tanzania to test equipment for oil and gas projects and similar complex construction works.

• The leasing market is experiences excessive demand resulting in: - Limited incentive to certify

equipment when demand for

• In the oil and gas sector, equipment has to be certified regularly and be recognised as reliable to assure IOCs and EPCCs that contractors can provide a reliable service as delays have significant liquidated damages implications.

• Firms without certified equipment will not get

• Pioneer and Prefabricated Accommodation Camp and procurement and installation – certified lifting and transport equipment will be required and local contractors will have to incur significant costs in certifying equipment especially where certification technicians must be imported form elsewhere.


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uncertified equipment remains high

- High leasing/rental costs and is predominantly cash driven, generating cash flow challenges.

considered for subcontracts • Superstructure assembly and installation – equipment is already available for large building contracts but will in many instances have to be certified. Many contractors make use of more affordable Chinese equipment that is perceived to be inferior and expected to struggle to achieve certification.

5. Low levels of recognized accreditation risks, quality and standards compliance

Compliant firms are not competitive in the Tanzanian

Market

Sustainable demand will drive accreditation

• National quality standards are not enforced with ‘zero tolerance’ approach by regulatory authorities.

• Compliant firms do not have the means to pass on the cost of compliance except where firms, in oil and gas, accept the cost of compliance as a cost of doing business.

• A ‘dual market’ exists where clients accept noncompliance in lieu of lower cost for services.

• Compliant firms that target only the oil and gas sector face sustainability challenges if there is insufficient work to maintain viable levels of utilization.

• Where utilization is low, firms have to incur costs to maintain accreditation in terms of standards and maintain certification of equipment and labor force.

• Across all sub-activities the strict enforcement of standards and compliance will advantage those firms with globally accepted accreditations that meet O&G standards however for firms not yet accredited, the risk of unsustainable demand for the more expensive ‘accredited’ might deter firms form taking up accreditation services.

• In the local markets, sustainability of demand for globally accredited firms to deliver on building contracts is undermined by inconsistent enforcement of global standards. Stimulating demand for accreditation of contractors will have to augment by increased ‘zero tolerance’ of the enforcement of the same standards that underpin the accreditation – TBS needs to be proactively supported in is apparent efforts to migrate to ISO standards as these are the baseline for global best practice.

Recommendations for Addressing Constraints

The following interventions are recommended to alleviate the aforementioned constraints and subsequently reverse the adverse impacts on sub-activities. The industry specific interventions will be addressed in the order of significance, determined by the potential positive impact on the improvement of the competitiveness of local firms and subsequent improvement in the value added that can be captured locally.

Cross-cutting Interventions Relevant to Building and Camp Construction

Constraint: Asymmetry of Information

A general constraint across all sectors in Tanzania is the asymmetry of information that raises transaction costs and reduces the efficiency with which projects are originated, resourced, and assessed in terms of risk. Therefore, technical support is needed for sector based agencies that collect and manage data regarding firms in terms of their basic information and more specific registration data related to the sector. It recommended that financial and technical assistance be offered to the Contractors Registration Board and the Professional Registration Boards, such as the Engineers Registration Board, because of the direct support these organizations


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provide to the oil and gas sector. Technical support will focus primarily on database information validation and systems upgrades for efficient future data capture by enabling online registration and uploading of certificates.

In addition, other general data collection agencies that have indirect relation to the oil and gas sector should be provided an appropriate combination of financial and technical support to conduct similar database validation. For example, SPX databases, while well-funded by UNIDO, are considered by industry experts to be out of date and verification of information is weak. Support is needed to strengthen this database through proper in-person data entry, validation and routine audit of firm information. Additional database work must be sure to focus on SMEs and enterprises that are not typically captured in database development activities in oil and gas in more established markets.

In this regard, the enhanced database would provide visible but transparent information about potential suppliers that would suffice as the first pass in a project origination process. In this way, the database also provides marketing for the demand side (firms seeking capital injection) and a readily available source of basic information for the supply side (lenders/invertors).

Interventions Specific to Building and Camp Construction

Constraint #1: Chronic shortage of certified and experienced labor

Industry Impacts LNG Project Impact

Low productivity and inefficiency reduces competitiveness


Background: There is a critical policy weaknesses in the educational system that needs to be addressed- the high dropout rate during the secondary schooling system. This results in a structural shortage of basically educated entrants into the job market, putting increased pressure on the VETAs to train student in areas that might not normally be considered vocational training – such as basic language and reading and writing skills. Targeted programs to improve the skills and certifications of local workers can help both local firms and EPC contractors to seek local talent. The employment impacts depend critically on the demonstrated (and certified) skills of the local workforce. Programs to upgrade the skill base could include:

� Build off the recent NORAD and VSO recommendations of the University, TVET and TETs’ curricula revisions to prioritize the adjustments needed to ensure that the courses address compliance with global oil and gas standards and that the VETCs and TETs.

� Assessing the possibility of establishing a practical training center (PTC) that could have a workshop where skills are practiced and assessed to bridge the “practical training” gap between the VETCs and employment.

� Strengthen the country’s apprenticeship system throughout the education system—from vocational level to higher education level by:

Proposed Cross-cutting Intervention: work closely with SPX and UNIDO to enhance the value of the supplier database and to ensure it is updated with relevant and audit-ed/verified data


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- Exploring new options for increasing focused training time for students for particular skills, such as using block training periods during university degree/technical diploma (TET) programs.

- Consider reintroducing apprenticeships at the VETA’s that are prerequisites to progressing between each levels of certification as a way to integrate hands-on training for students.

The private sector would contribute to both the PTC’s start-up funding and management funding and a third-party private company could be awarded the rights to run and operate the center. A PPP approach would allow introducing commercial viability to the center, introduce good business practices and sustainability (something often lost with publicly-operated training centers) and continue to adjust to the market needs in order to earn revenue. A steering board would be established that would provide guidance on the curricula strategic direction that would ensure relevance for the stakeholders whilst an ExCo would be accountable for the day to day operations, including implementing courses, regulatory compliance, sourcing qualified trainers and mentors.

Many contractors complained that students leaving the VETAs and Technical Institutes (TIs) lack basic practical skills as the VETAs and TIs generally have limited equipment and student are not exposed to on the job training. Students would be drawn from the VETAs and TIs and would primarily receive practical training on equipment relevant to the broader contactors’ works areas including: inter alia, mechanical engineering, civil engineering and general building courses. Alternatively, contractors could send potential employees on refresher courses or upskilling courses. The emphasis would be on practical training to develop or strengthen skills and mentoring to build a positive work ethic. The PTC would provide an opportunity for students to visit and/or work on ‘real’ projects at the contractors that are associated with the PTC. Contractors in turn could send representatives to provide ‘special’ lectures on work ethic, risk management, HSE implementation etc.

Contractors also complained that whilst there were many trained and experienced artisan such as welders, bricklayers, equipment operators lack certification of their skills. Therefore, contractors had to incur significant cost to retrain and/or recertify artisan prior to rolling them on to projects. With a functioning PTC, a contractor could direct a potential employee to the PTC for certification supported by a promise to pay for the certification should the artisan be successful whilst not incurring the employee related overhead costs whilst the incentive to the artisan would be to get to the center to be certified as soon as possible in order to get hired.

Contractors could also donate retired equipment to the PTC where appropriate. For example, when a bulldozer operator arrives at a contractor from the PTC the contractor has faith in the operators having been trained to operate the bulldozer whilst actually having operated the relevant equipment either on site at the PTC or in a works area and therefore has practical knowledge of such elements as basic maintenance and monitoring of critical aspects such as fluid levels etc. and a respect for the limitations of the equipment that reduces unnecessary damage and wear and tear.

Finally, as the PTC becomes a more established and recognised centre of excellence, it would be able to implement a fee for service to ‘non shareholders’ to become the recognised

Proposed Intervention 1: Establish a practical training center (PTC) through a Public Private Partnership (PPP) to bridge the “practical training” gap between the VETCs and employment.


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certification agency for the various sectors and skillsets. The PTC would then also maintain a database of certified artisans that could then be accessed by shareholders for free or by ‘nonmembers’ for a fee to source labor with the knowledge that upon finding the relevant skilled artisan or operator, that the person is certified by a trustworthy PTC. The more efficient sourcing of certified labor also reduces the tracing costs when preparing to execute a project.

In the final analysis, contactors have faith in the students exiting the PTC, student have faith in the certification as increasing their employability, the government has comfort that its skills levy is being well spent as it is represented on the board and the private sector achieves an overall increase in the skills level and a greater number of artisan that reduce the risk of labor inflation and makes retaining artisans earlier as there is less ‘labor churn’ due to all contractors chasing a few certified artisans and poaching from each other on a project by project basis.

Constraint #2: Access to Finance - High cost of capital

Industry Impact LNG Project Impact

Inhibited Sectoral Growth Working capital constraints increase supply

risks

Background:

The Tanzanian construction sector enjoyed 12-15% growth in recent years20, largely stemming from an increase in infrastructure projects and new construction in residential areas due to huge unmet need for housing. However the growth has been distorted by the dominant role of foreign construction firms who dominate the industry. Available statistics show that local contractors, though constituting 97 percent of the Contractors Registration Board's (CRB) list, they merely execute 40 percent of all the market value of construction works in the country. On the other hand, foreign contractors who make three percent of contractors, take the lion share of 60 per cent.21

Access to capital has been a major constraint to the expansion of the sector with regard to the growth of local firms, as large foreign firms raise capital outside of the Tanzanian capital markets and therefore have a distinct advantage both in terms of the volumes of capital available and the significantly lower cost of capital. Most of the issues facing local firms in this regard cannot be addressed through the market alone and government intervention is needed.

20 U.S. & Foreign Commercial Service and U.S. Department of State, 2010. 21 Tanzania: Move to Curb Dominance of Foreign Contractors, Tanzania Daily News (Dar es Salaam), 24 May 2011 - http://allafrica.com/stories/201105250739.html

Proposed Intervention 2: Work with the Ministry of Finance and the Bank of Tanzania to improve policies regarding the access to finance in terms of the borrowing limits and facilitate the establishment of credit guarantee mechanisms.


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Alternatively, there are ‘escrow’ type options available to small businesses using future cash flows as collateral whereby the lender opens a business account for the debtor and all payments are made into the bank account at the lenders bank with a facility to deduct payment to the bank before cash becomes available to the debtor. Amongst the firms interviewed, small firms indicated they are not in favour of this approach as they lost managerial control over their businesses and cannot make strategic decisions regarding the use of capital which in turn “dampened the entrepreneurial spirit.”

Beyond these options, there are also investors with an array of investment options ranging including shareholding as collateral, however the transaction costs in Tanzanian are high due to inefficient origination and perceived weakness in enforcement that deter investors.22

Constraint #3 and 4: Limited local availability of certified goods and locally available certified capital equipment is very costly

Industry Impact LNG Project Impacts

High level of imported certified goods Zero tolerance will promote imports


Zero tolerance will limit use of local firms’ equipment

Background: There are a number of international firms operating in Tanzania (such as SGS and Bureau Veritas Tanzania) but they are perceived to be prohibitively expensive and many local firms reported that they import certification/accreditation experts. In many instances goods that imported from manufacturers are certified via expensive pre-inspection.

While pre-inspection services are regarded as more convenient, they constrain the development of support service with strong linkages to the goods certification, such as non-destructive testing (NDT) services. It is believed that Arusha University is addressing the establishment of an NDT course and related laboratory to begin offering qualifications in NDT; however demand for these services will remain constrained if goods certifications services are not developed locally.

The scoping study should identify potential investors in the development of the center, explore business models for commercial viability, and apply the related regulatory framework for accrediting the center and enforcing adherence to the accreditation.

22 Transaction costs can be divided into three broad categories, namely (1) Search and information costs (2) Bargaining costs are the costs required to come to an acceptable agreement with the other party to the transaction, drawing up an appropriate contract and so on. (3) Policing and enforcement costs are the costs of making sure the other party sticks to the terms of the contract, and taking appropriate action (often through the legal system) if necessary.

Proposed Intervention 3: Scope the feasibility of establishing a goods certification center that can provide affordable goods certification and accreditation services.

Industry:

Metal and Steel Fabrication


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Summary

� This activity broken down by the following sub-activities: 1) building/camp metal works; 2) docks/jetties metal works; 3) site fencing; 4) LNG train facility steel structure work; 5) metal works for tank facility; 6) metal works for offsite port, container and warehouse depots; 7) steel pipe manufacturing; 8) steel plate manufacturing; 9) rolled steel products.

� Total activity demand for Metal and Steel Manufacturing is around USD 2.4 billion, for the 7 year LNG construction phase. With current conditions, this activity will generate ≈ USD 41 million in demand for local goods and USD 94 million in domestic value added (labor and profits), including a yearly average of 300 local jobs over the life of the project.1

� The greatest opportunities for local capture lie in the sub-activities for building/camp metal works and site fencing, because the less technical elements of these sub-activities and that most of the fabrication will be done at yards outside of Tanzania due the limited availability of inputs to the metal fabrication industry and limited scale of available equipment.

� Key constraints preventing greater local participation include: 1. Chronic shortage of O&G certified and experienced labor 2. Limited local availability of certified goods 3. Low levels of coordination and accreditation threatens quality/standards compliance

� Efforts to raise performance of local suppliers in the metal and steel fabrication industry could translate to a domestic value added range between ≈ USD 94 million and USD 164 million, subject to the successful implementation and uptake of the recommended interventions by target markets/ sectors/entities. Increased skills for semi-skilled workers could add another 220 average local jobs per year.2

1 These figures are subject to the successful implementation and uptake of the recommended interventions by the target

markets/ sectors/entities. 2 The implementation of interventions is no guarantee of the uptake of such interventions and the potential upside for

increasing both value added and jobs from any element of the LNG construction project is wholly dependent on the success of the interventions which cannot be measured at this stage.

This industry includes the fabrication of metal products and steel frameworks used for the liquefied natural gas (LNG) facilities and related sites. Tanzanian firms involved in this industry are not specialized and most are mechanical engineering companies that provide a range of products and services. Reportedly, the domestic industry is an even mix between small and medium-sized enterprises (SMEs) and larger firms. These larger firms have been operating in Tanzania for several decades.1 Larger firms also reported that for major fabrication projects all but the most rudimentary plates (formed or flat) and pipes are imported. Few items will be purchased locally, but there may be subcontracting opportunities for firms that can source goods globally that meet the stringent specifications of the IOCs/EPCCs. Potential subcontractors will have to provide evidence of access to have equipment that can be certified for forming the metal products prior to fabrication.

There is the potential for large amounts of direct local labor hire where tasks will be self-performed. Services like welding, shaping and cutting, and assembly of components are core activities that can be upgraded locally in order to increase the participation of Tanzanians in services falling in this industry.


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Examples of metal products: Nails, screws, steel drums, fencing and chain, piping, hand rails, frameworks, and barriers

Examples of steel products: I-beams, T-beams, bars, piping, and plates (flat or formed)

Industry Demand

Demand Characteristics for Metal and Steel Fabrication

Industry tendency is to self-perform the majority of key services associated with metal frameworks fabrication during the construction phase of the LNG project. This can be attributed to a few main reasons. First, metal frameworks fabrication is often an ad hoc (not planned) item that is needed on the construction site. It is therefore easier to fabricate these in-house rather than move through an external procurement process. Second, typical products carry with them high safety risks (such as facilitating the movement of workers or storing valuable items). As such, product standards (such as metallurgical composition, galvanization, and external coating) and fabrication methods (welding techniques) must meet the highest-quality testing. Third, engineering, procurement, construction (EPC) firms and prime contractors often prefer the use of more sophisticated fabrication yards outside of the host country that can respond to large orders very quickly. However, some metal products that can be integrated into the procurement planning of the LNG facility can be subcontracted to local companies (for example, mooring buoys and navigation aids). Where an EPC contractor has a discreet product that can be subcontracted then that may be an opportunity for a local firm – such as a tank.

There is the potential for large amounts of direct local labor hire where tasks will be self-performed. Services like welding, shaping and cutting, and assembly of components are core activities that can be upgraded locally (regardless of whether ultimately subcontracted or self-performed) in order to increase the participation of Tanzanians in services falling in this industry. The challenge is that from a project management and risk management perspective, the subcontracting of ‘sub’ tasks to different subcontractors is unlikely. An EPC or main contractors would not subcontract cutting and then continue with bending.

Industry Supply

Local Suppliers

Currently, there are approximately 16 Class 13 firms that provide services that fall in this industry in Tanzania. Less than half of these firms are considered SMEs. Three principal firms occupy a disproportionate share of the market.4 Additionally, some of the larger firms report partial international ownership, although exact percentages were not available. Local firms report that their entire market is based in Tanzania and they mostly service large purchase orders such as fuel storage tanks (gasoline, propane), steel structures for the commercial building sector, and structural steel products for mining companies. Some local companies have explored venturing into the construction and supply and erection of prefabricated warehouses. 3 There are seven classes for Building, Civil, Electrical and Mechanical contractors primarily defined by the threshold of the

value of contracts that can be awarded to a contractor based on their registration with the CRB with Class 1 being the highest level of registration with unlimited size of contracts. Whilst the classification a primarily defined by the value of the contract that can be awarded there a number of other criteria such as equipment, skill sets available and qualitative references from clients as inputs regarding the expertise of the contractor that are used to determine the registration class of the contractor in the first place.

4 The largest firms are db Shapriya & Co., Enikon, and Taningra. Actual percentage of market share could not be confirmed.


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For this analysis, only three Class 1 companies participated in the focus group (the others were contacted for interviews). Given how the Tanzanian Contractors Registration Board (CRB) classifies companies, this industry group involved mainly mechanical works companies. One local company from the firms interviewed dominates mechanical and specialist works sector, namely db Shapriya & Co. (registered as Class 1 local) and Additional firms were interviewed, namely Enikon (Tanzania) and Taningra Contractors Ltd (both registered as Class 1 foreign) and Bq Contractors Ltd (registered as Class 1 Local) but further investigation is still needed to validate the information shared from these companies as some firms appear to embellish the role they pay on projects. The difficulty in accessing local firms and gathering data on this industry underscores the small size and low capacity. According to the CRB, the five largest firms we interviewed in this industry are:

Firm Rank based on average turnover for past 3 years

Ownership

db Shapriya + Co Ltd 1 (>USD 10MN per year) Local

Enikon (Tz) Ltd, 2 (USD 1 – 10MN per year) Foreign

Shalom Engineering Ltd 3 (USD 1 – 10MN per year) Local

Taningra Contractors Ltd 4 (USD 1 – 10MN per year) Foreign

BQ Contractors Ltd 5 (<USD 1MN per year) Local

In the above table, db Shapriya + Co Ltd is the largest by turnover and dwarfs the others whose cumulative turnover is a third of that of db Shapriya. A number of the Class 1 mechanical engineering contractors retain a secondary civil construction registration that enables them to manage civil works and in that regard, db Shapriya is the only contractor in Tanzania to be registered in class one for all the main contractor fields: building, civil engineering, mechanical and electrical engineering.

Additionally, our focus group work with local building contractors indicated that the most basic structural steel products (for example, the steel structures over which a car port covering might be placed) are imported prefabricated from Turkey and the Middle East—especially the United Arab Emirates—and not manufactured locally. This is an important issue for building works contractors who complained that often such prefabricated items arrive with few if any installation instructions and often the specifications provided are not replicated in the final product and rework of the installation area (such as re-drilling of holes or repositioning of bots etc.) has to be completed before the structure can be installed.

Supply Chain Characteristics

No locally registered firms, including the larger ones such as db Shapriya + Co Ltd, possess the skills, sophistication, and industry experience to be main contractors to the Tanzania LNG project. Despite this assertion, reinforced by the firms themselves, the key goal of the larger firms is to collaborate in advance with the EPC or a main contractor, to win one or two smaller contracts that achieve two outcomes, namely ‘proof of competence’ and ‘locational advantage.’ Firms that prove their competence may also have the opportunity to become the default contractor for other mechanical works. If a main contractor is falls behind schedule, the junior player can be directed to provide support such as labor secondments or procurement of minor (and often locally sourced) goods.

Firms interviewed also indicated that their current major markets are mainly projects with private sector companies such as water companies, oil and gas companies( for downstream


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liquid fuels and upstream gas works), and mining companies for activities such as welding pipes and other structures, installing prefab items, and performing the structural fabrication for building construction. Projects with the engineering and industrial sectors were identified as potential markets. Nevertheless, focus group interviews also indicated that most of the prefab equipment installation projects within the public sector are awarded to international EPC firms and local firms are mostly employed for related but minor supporting work.

A key binding constraint identified in the Tanzanian mechanical engineering sector, from the perspective of the timeframe for the execution of an LNG project, is the shortage of skilled labor.5 Also, the related accreditation with international agencies recognized by the LNG Industry constitutes a serious high barrier to entry. Local companies unable to demonstrate compliance with quality standards and the ability to handle the volume at an acceptable price will not be able to compete successfully for contracts.


The building and camp metals fabrication will likely be assembled and bolted or welded together on site, however the components will need to be prepared in large fabrication yards where multiple components are mass produced and treated (generally galvanized) before delivery to the site. The EPCC will have storage yard or warehouse where large volumes of prefabricated metal items are stored and transported to site to be bolted or welded into place. Such work could be subcontracted to the local firms; however this would require extensive continuous fabricating processes with large galvanizing baths to accommodate bulky items such as stairwell sections or walkway sections etc. No local firms have been identified with such capacity; therefore, it is likely that fabrication will occur abroad. Only simple assembly works are carried out on site and these tasks are normally self-performed. However, significant manual labor is required to assist in positioning parts for installation and skilled equipment operators for operating lifting equipment.

1. Building/Camp Metal Works (Total sub-activity demand ≈ USD 119 Million or 5% of the total industry demand) The Building/Camp Metal Works will include the fabrication of stairwell hand rails, the fabrication of frames for firefighting equipment, frames for car park awnings etc. Despite the not too sophisticated nature of the fabrication, skilled labor is required but the years of experience could be less than that required for a welder on the LNG process train fabrication. The potential domestic value added (labor and profits) range for the building/camp metal works sub-activity is estimated to be between USD 9 and 19 million, subject to the successful implementation and uptake of the recommended interventions by target markets/ sectors/entities.

5 There are approximately 190 certified and experienced welders in and the project will likely need between 500 - 1000 and in

the timeframe for the project as it currently stands there will be insufficient time to train up the required number of welders with 5-10 years’ experience, consequently there will need to be labor imported regardless of the effort to address the constraint of the shortage of skilled and experienced welders


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Tasks*

• Steel building works (including carpentry works and goods) *Additional associated tasks are captured in separate business cases (see building and camps construction)




• Steel warehouse structures • Steel building and related structures, such

as external fire escapes and similar walkways in office block, accommodation blocks etc.

• Skilled/Semi –Skilled: ‒ certified welders ‒ mechanical technicians who can

assemble prefabricated structures

• Unskilled manual labor for manual tasks

2. Docks/Jetties Metal Works (Total sub-activity demand ≈ USD 357 Million or 15% of the total industry demand) The Docks and Jetties Metal Works will be a sophisticated work area where highly skilled and experienced labor will be required and certified goods of exceptional quality. It is anticipated that most goods components will be fabricated elsewhere and transported to the site for installation. Typically the skilled and certified labor will require at least 5-10 years of previous oil and gas experience and goods will be procured from accredited firms with history of supplying certified and reliable products from global suppliers.

The potential domestic value added (labor and profits) range for the docks/jetties metal works sub-activity is estimated to be between USD 11 and 22 million.6

Tasks*

• Channel Markers (piling, welding, finishing, anchoring) *Additional associated tasks are captured in separate business cases (see docks and jetties)




• Steel plate of specified thickness and purity • Welding rods • PPE




3. Site Fencing (Total sub-activity demand ≈ USD 71 Million or 3% of the total industry demand) Fencing Installation Works, despite being a less sophisticated work area will still need to meet specifications set by the IOCs/EPCCs – such as thickness of the wire, galvanizing of the wire/poles, poles of a specific thickness etc. In most cases the specifications are higher than that normally used in other industrial circumstances. However there is

6 These figures are subject to the successful implementation and uptake of the recommended interventions by target markets/

sectors/entities.


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currently a fencing installer supplier services to the IOCs in Tanzania but it is not known if the components (wire/poles etc.) are manufacturer in Tanzania or imported. Un/semi-skilled labor will largely be used in the installation of fencing.

The potential domestic value added (labor and profits) range for the site fencing sub-activity is estimated to be between USD 27 and 36 million.7

Tasks*

• Manufacturing of fencing and poles • Bending • Forming • Assembly

*Additional associated tasks are captured in separate business cases (see site preparation)




• Fencing inputs – wire that meets specifications

• Poles inputs – steel tubing that meets specifications


assemble prefabricated structures ‒ technicians that can operate

machinery/equipment


4. LNG Train Facility Steel Structure Work (Total sub-activity demand ≈ USD 476 Million or 20% of the total industry demand) The LNG Train Facility Steel Structure Works will be a sophisticated work area where highly skilled and experienced labor will be required and certified goods of exceptional quality. It is anticipated that most goods components will be fabricated elsewhere and transported to the site for installation. Typically the skilled and certified labor will require at least 5 years of previous oil and gas experience and goods will be procured from accredited firms with history of supplying certified and reliable products from global suppliers.

The potential domestic value added (labor and profits) range for the LNG train facility steel Structure work sub-activity is estimated to be between USD 14 and 29 million.8

Tasks*

Manufacturing of:

• Pipe Rack Structure • Shelter • Stanchion


sectors/entities. 8 These figures are subject to the successful implementation and uptake of the recommended interventions by target markets/

sectors/entities.


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• Stage (Steel Member Floor/Handrail/Stair/Ladder) • Shelter (roofing and wall)

*Additional associated tasks are captured in separate business cases (see LNG tank and trains)




• Steel plate that meets specifications • Steel tube that meets specifications • Steel beams that meet specifications • Galvanizing inputs • Welding rods • PPE




5. Metal Works for Tank Facility (Total sub-activity demand ≈ USD 357 Million or 15% of the total industry demand) The Metal Works for Tank Facility Works will be a sophisticated work area where highly skilled and experienced labor will be required and certified goods of exceptional quality. It is anticipated that most goods components will be fabricated elsewhere and transported to the site for installation. Typically the skilled and certified labor will require at least 5 years of previous oil and gas experience and goods will be procured from accredited firms with history of supplying certified and reliable products from global suppliers.

The potential domestic value added (labor and profits) range for the metal works for tank facility sub-activity is estimated to be between USD 11 and 22 million.9

Tasks

• Pipe Rack/Structure/Shelter/Stanchion/Stage (Steel Member • Floor/Handrail/Stair/Ladder)Shelter (Roofing and Wall)

*Additional associated tasks are captured in separate business cases (see site preparation)




• Steel plate that meets specifications • Steel tube that meets specifications • Welding rods • PPE




6. Metal Works for Offsite Port, Container, and Warehouse Depots (Total sub-activity demand ≈ USD 238 Million or 10% of the total industry demand) The Metal Works for Offsite Port, Container, and Warehouse Depots Works will be a less sophisticated work area where skilled labor will be required and certified goods of reliable quality. It is anticipated that most goods components will be imported. Typically the skilled and certified labor will require at least 5 years of previous steel construction


sectors/entities.


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experience and goods will be procured from accredited firms with history of supplying certified and reliable products from global suppliers.

The potential domestic value added (labor and profits) range for the metal works for offsite port, container, and warehouse depots sub-activity is estimated to be between USD 7 and 17 million.10

Tasks

• Assembly and placing of prefabricated steel structures , including: o Warehouse buildings o Garages o General storage areas o Workshops




• Steel plate that meets specifications • Steel tube that meets specifications • Welding rods • PPE




7. Steel Pipe Manufacturing (Total sub-activity demand ≈ USD 357 Million or 15% of the total industry demand) The Steel Pipe Manufacturing Works will be a sophisticated work area where highly skilled and experienced labor will be required and certified goods of exceptional quality are produced at the steel mill – from molten steel to pipe of plate to bending to finishing and coating ready for delivery to the LNG development project site. It is anticipated that most goods components will be imported and there will be no subcontracting or employment opportunities.

The potential domestic value added (labor and profits) total for the steel pipe manufacturing sub-activity is estimated at USD 1 million. There is little chance of significant improvements, because of the limited manufacturing capacity in Tanzania as there is not integrated steel mill in Tanzania to produce goods of this nature and such a facility will not likely be built in the next five years.

Tasks

• Steel structure fabrication and assembly • Assembly of prefabricated warehousing structures




• Steel plates that meets specifications • Skilled/Semi –Skilled:


sectors/entities.


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• Steel tube that meets specifications • Steel beams that meet specifications • Welding rods • PPE

‒ certified welders ‒ mechanical technicians who can



8. Steel Plate Manufacturing (Total sub-activity demand ≈ USD 238 Million or 10% of the total industry demand) The Steel Plate Manufacturing Works will be a sophisticated work area where highly skilled and experienced labor will be required and certified goods of exceptional quality are produced at the steel mill – from molten steel to pipe of plate to bending to finishing and coating ready for delivery to the LNG development project site. It is anticipated that most goods components will be imported and there will be no subcontracting or employment opportunities.

The potential domestic value added (labor and profits) total for the steel plate manufacturing sub-activity is estimated at USD 1 million. There is little chance of significant improvements, because of the limited manufacturing capacity in Tanzania.

Tasks





• Steel plates that meets specifications • Steel beams that meet specifications • Welding rods • PPE




9. Rolled Steel Products (Total sub-activity demand ≈ USD 167 Million or 7% of the total industry demand) The Rolled Steel Products Works will be a sophisticated work area where highly skilled and experienced labor will be required and certified goods of exceptional quality are produced at the steel mill ready for delivery to the LNG development project site. It is anticipated that most goods components will be imported due to the poor quality and/or limited range of most rolled products – good quality rolled products such as rebar can be produced in Tanzania but from imported billets and therefore there could be subcontracting opportunities however the firms would have to be at least ISO accredited and be trusted to produce goods of consistent quality. Tanzanian steel products manufacturers do not produce simple I-Bars locally. The potential domestic value added (labor and profits) range for the rolled steel products sub-activity is estimated to be between USD 12 and 17 million.11


sectors/entities.


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Tasks





• Steel plate that meets specifications • Steel tube that meets specifications • Steel beams that meet specifications • Welding rods • PPE




Table 1: Demand for Local Goods per Year by Sub-activity


Y1 Y2 Y3 Y4 Y5 Y6 Y7

1. Building/camp metal works

0 333,200 380,800 642,600 571,200 285,600 166,600

2. Docks/jetties steel works 0 399,840 456,960 771,120 685,440 342,720 199,920

3. Site Fencing 0 3,198,720 3,655,680 6,168,960 5,483,520 2,741,760 1,599,360

4. LNG train facility steel structure work

0 266,560 304,640 514,080 456,960 228,480 133,280

5. Metal works for tank facility

0 199,920 228,480 385,560 342,720 171,360 99,960

6. Metal works for offsite port, container and warehouse depots

0 133,280 152,320 257,040 228,480 114,240 66,640

7. Steel Pipe Manufacturing 0 199,920 228,480 385,560 342,720 171,360 99,960

8. Steel Plate Manufacturing 0 133,280 152,320 257,040 228,480 114,240 66,640

9. Rolled Steel Products 0 932,960 1,066,240 1,799,280 1,599,360 799,680 466,480

Total by Year 0 5,797,680 6,625,920 11,181,240 9,938,880 4,969,440 2,898,840


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Table 2: Average Demand for Local Labor per Year by Sub-activity12

Sub-activities Local Labor

Y1 Y2 Y3 Y4 Y5 Y6 Y7 Total Avg.

1. Building/camp metal works

Skilled

0 11 12 20 18 9 5 11 Semi-skilled 0 11 12 20 18 9 5 11


2. Docks/jetties steel works

Skilled

0 13 15 25 22 11 6 13 Semi-skilled 0 13 15 25 22 11 6 13


3. Site Fencing

Skilled

0 22 25 43 38 19 11 23 Semi-skilled 0 22 25 43 38 19 11 23


4. LNG train facility steel structure work

Skilled

0 17 19 33 29 15 8 17 Semi-skilled 0 17 19 33 29 15 8 17


5. Metal works for tank facility

Skilled

0 13 15 25 22 11 6 13 Semi-skilled 0 13 15 25 22 11 6 13


6. Metal works for offsite port, container and warehouse depots

Skilled

0 8 10 16 15 7 4 9 Semi-skilled 0 8 10 16 15 7 4 9


7. Steel Pipe Manufacturing

Skilled

0 1 1 2 2 1 0 1 Semi-skilled 0 1 1 2 2 1 0 1


8. Steel Plate Manufacturing

Skilled

0 1 1 1 1 1 0 1 Semi-skilled 0 1 1 1 1 1 0 1


9. Rolled Steel Products

Skilled

0 15 17 29 26 13 8 15 Semi-skilled 0 8 9 14 13 6 4 8


Industry Total Local Employment 0 288 329 556 494 247 144 294



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Metal fabrication work begins early in the project and continues until the last few months of the construction phase, because the construction of the LNG processing trains is staggered and requires fabrication work into the final year of the project. Metal fabrication works are also needed during the MOF and camp construction in the early works phase. The EPC contractor will also be implementing numerous metal fabrication activities during site mobilization as infrastructure is installed – such as prefabricated warehousing units etc. Early works metal fabrication works are generally of a smaller scale than the EPC contract work and may open up opportunities for local firms should they be able to provide the necessary verifiable and appropriate accreditation with reliable agencies, such as an ISO 9000 accreditation. Metal fabrication work peaks in years 4 and 5 when the main process and related utilities and offsite installations are being constructed or installed.

The employment opportunities point to a predominance of semi/unskilled labor demand, however the rapid upskilling and certification of metal fabrication technicians and artisans to meet these standards or assist in certification (such as through a broad based certification pregame) should improve the ability to leverage greater jobs and in some cases subcontracts going forward.

Most of metal fabrication will be carried out in fabrication yards across the world – from the simplest items such as hand rails that are mass produced in continuous production plants to the most sophisticated elements that are required for the facility. It is unlikely that the Tanzanian manufacturing industry will be able to meet high product standards (such as metallurgical composition, galvanization, and external coating) and fabrication methods (welding techniques) that must meet the highest-quality testing. Also, EPC contractors prefer the use of more sophisticated fabrication yards outside of the host country that can respond to large orders very quickly.

Domestic Value Added and Employment

The total domestic value added over the seven-year construction period is estimated to be ≈ USD 94 million, composed of USD 77 million in labor and USD 17 million in profit. In addition, the activity would also result in the purchase of some ≈ USD 41 million in local goods, part of which will also stimulate the local economy (for example, linking to the mining sector to leverage the development of an iron and steel value chain – there are plans to establish a small steel mill in the Bagamoyo EPZ, however plans are not advanced at this stage).


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Figure 1: Domestic Value Added per Year

As seen in Figure 2, projections imply a relatively balanced pattern for the three skill categories, skilled, semi-skilled and unskilled. The double peak relates to the use of steel in the early works and construction of the MOF and erection of the site mobilisation temporary structures such as warehouses etc.

Figure 2: Local employment by skills level

Finally, the trend for the procurement of goods shows an extremely limited amount of local goods relative to imports. This is because of the limited amount of high quality, certified goods manufactured or assembled in Tanzania as there is not integrated steel mill in Tanzania to produce goods of this nature and such a facility will not likely be built in the next five years.


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Key Industry Constraints and Outcomes

Many of the industry gaps that the team observed for this industry are similar to those found in the buildings and concrete works analyses (both of which are construction-related sets of activities). Where the gaps have been observed as the same we refer the reader back to these other analyses. Otherwise, below we discuss particular gaps for this industry.


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1. Chronic shortage of O&G certified and experienced labor



• There is a lack of O&G certified/accredited technicians and laborers who meet international standards and specifications.

• There is an absence of trained inspectors, accredited instructors, and internationally accredited certifying centers in Tanzania

• Contractors cannot use artisans who are experienced but uncertified artisans on site. Therefore they have to incur significant cost to have workers O&G certified outside of Tanzania or to bring certification agency staff to Tanzania.

• Even well trained and registered technicians often lack practical training and a ‘compliance driven work ethic’ resulting in inadequate supervision and overlooked poor workmanship resulting in costly reworking.

• Across most industries, firms consulted indicated that lack of supervisory staff resulted on poor workmanship and finishing which reinforces the IOC/EPCC perception that local firms will not be able to execute projects of any scale, except for small Building/ camp metal works and Metal works for offsite port, container and warehouse depots where the EPC contractor will likely self-perform this sub-activity but seeking semiskilled supervisors

• Most of the sophisticated fabrication works; such as Docks/jetties steel works will likely be subcontracted to an international prime contractor who will likely self-perform this will be sourcing skilled technical supervisors where possible – current shortages will limited employment prospects.

• Site Fencing – there will be demand for O&G pre-certified artisans but a lack of affordable certification services will hamper local labor




• There are limited affordable certification services in Tanzania to test goods for oil and gas projects and similar complex construction works

• There are no dedicated nondestructive testing (NDT) facilities in Tanzania

• High input prices for items such as pipes

• Even when goods are certified, the perception is that the certification may not be reliable unless it was conducted by a globally recognized certification agency which further increases the input costs.



• Across all industries except Site Fencing the shortage of certified and high quality steel manufacturing will limited the use of local goods and it is not believed that local steel manufactures will be able to upgrade facilities, obtain accreditations within the next three years and in a number of cases, steel manufacturers indicated that they may not see the benefit of doing so for one project and unsustainable demand once the project is finished.

• The Site Fencing is believe to be able to source local inputs but the ability to galvanize fencing inputs will be a constraint but the demand for high quality fencing is seen as more sustainable and therefore it may be worthwhile to overcome the constraints and manufacturing high quality fencing in Tanzania.

3. Low levels of coordination and accreditation threatens quality/standards compliance

Compliant firms are poorly marketed and not competitive in

the Tanzanian Market

Poor Perception of local suppliers by the IOCs/EPCCs

• National quality standards are not enforced with ‘zero tolerance’ approach by regulatory authorities

• Compliant firms do not have the

• A ‘dual market’ exists where clients accept noncompliance in lieu of lower cost for services,

• Where utilization is low, firms have to incur costs to maintain

• IOCs and EPCCs do not know the Tanzanian market and across all sub-activities, the perception of the IOCs is that very little accredited capacity exists to deliver on contracts related


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means to pass on the cost of compliance except where firms, such as oil and gas sector accept the cost of compliance as a cost of doing business

• There is weak industry database management and technical verification of firms data incorporating, inter alia,: - Verified accreditations,

• Technical outlines of expertise

accreditation in terms of standards and maintain certification of equipment and labor force

• Industry associations are weak as membership is forfeited as cost of accreditation becomes a priority over marketing and coordination

to the LNG construction project. • The lack of a reliable database of

accredited firms means that IOCs and EPCCs often only make cursory investigations of the local markets for suppliers.

Recommendation to Address Constraint The following interventions are recommended to alleviate the aforementioned constraints and subsequently reverse the adverse impacts on sub-activities. The industry specific interventions will be addressed in the order of significance, determined by the potential positive impact on the improvement of the competitiveness of local firms and subsequent improvement in the value added that can be captured locally.

Constraint 1: Chronic shortage of O&G certified and experienced labor




Targeted programs to improve the skills and certifications of local workers can help both local firms and EPC contractors to seek local talent. The employment impacts depend critically on the demonstrated (and certified) skills of the local workforce. Programs to upgrade the skill base are discussed in detail in the building and camp construction industry profile as only the main intervention is discussed here again:

The private sector would contribute to both the PTC’s start-up funding and management funding and a third-party private company could be awarded the rights to operate the center. A PPP approach would allow for commercial viability of the center, introduce good business practices and sustainability (something often lost with publicly-operated training centers), and continue to adjust to the market needs in order to earn revenue. A steering board would be established that would provide guidance on the curricula and strategic direction to ensure relevance for the stakeholders. A third-party private company would be accountable for the day to day operations, including implementing courses, regulatory compliance, sourcing qualified trainers and mentors. For additional detail please see the camps and building industry profile recommendations.

Constraint 2: Limited local availability of certified goods





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The constraint regarding shortage of certified steel goods is a chronic problem in Tanzania that is compounded by the shortage of manufacturing facilities that produce anything beyond basic rebar and roofing sheet manufacture (manufactured from imported Hot Rolled Coils). There are firms that produce basic black pipe and small plated and related products, however the quality is questionable and the size of the articles will in most cases simply be too small for the general use on the LNG projects.13 Many contractors consulted locally, indicate that the shortage of even the most basic good quality steel goods curtails their ability to provide metal fabrication services, as the imported goods are subject to high import duties – as much as 25% in some cases.

This will have significant impacts on the ability of local firms to perform on even simple projects, such as the perimeter fencing – however it is believed that a local firm is currently installing accredited fencing to the specifications of the IOCS and that because of the unsophisticated nature of fencing material there is the possibility of establishing an accredited fencing manufacturing facility which take this opportunity beyond the strengthening intervention of establishing certification center to intervening in the production of certified goods. If a local manufacturer can be accredited to produce certified fencing inputs that could be used as leverage to subcontract a local fencing installation firms that would then have access to accredited local supplies.14

Recommendation to Address Constraint

An investment in an engineering-linked discipline, such as fencing installation, will be an important way to build ground up expertise in hard skills. The manufacturing sector in Tanzania is small and suffers from weak growth due to the market power of the traders. These traders have no interest in supporting local producers because they can import goods with a higher margin. There is a growing need for high quality fencing from the mining and the O&G sector. A local manufacturer and installer of high quality fencing will also enable a local firm to increase the use of local labor.

13 It is believed at this stage that local roofing sheet manufacturers cannot produce the size of galvanised roofing sheets hat

will be required to clad steel structures and such items as basic as they are may be imported due to scale issues. 14 It is believed that some actions have been taken to upgrade a fencing installer for supply base facilities in Mtwara.

Proposed Intervention 3: Source an investor for a fencing company in order to purchase the equipment required to manufacture fencing to implement the perimeter fencing contract. The fencing company should be prequalified for the contract so as to attract investors.

Industry:

LNG Tank and Trains

LNG Tank and Trains

Page 1

Summary

� This activity is broken down into the following sub-activities: 1) process/train pre-manufactured equipment and installation; 2) power generation and distribution utility; 3) piping works; 4) instrumentation; 5) fireproofing/insulation works; 6) LNG storage tank steel plate erection and assembly; 7) coating and painting tanks; 8) electricals for tanks; 9) support equipment; and 10) LNG tank pad installation.

� Total activity demand for the LNG Train and Tanks industry is around USD 3.5 billion. With current conditions, this activity will generate ≈ USD 33 million in demand for local goods and USD 80 million in domestic value added (labor and profits), including a yearly average of 200 local jobs over the life of the project.1

� Most of the local capture will be in the form of labor hired for activities performed by the EPCC or prime contractor. In some cases, a LNG train EPCC and a LNG tanks EPCC will form a Joint Venture (JV) for the project.2

� Key constraints preventing greater local participation include: 1. Chronic shortage of oil and gas industry certified and experienced labor; 2. Limited local availability of certified; and 3. Low levels of recognized accreditation risks quality and standards compliance.

� Efforts to improve local supplier performance in the concrete industry could translate to a domestic value added range between ≈ USD 80 and 130 million, subject to the successful implementation and uptake of the recommended interventions by the target markets/sectors/entities. Increased skills for semi-skilled workers could add another 100 average local skilled and semi-skilled jobs per year.3


markets/ sectors/entities. 2 The Papua New Guinea (PNG) LNG project is an integrated development that includes gas production and processing

facilities in the Southern Highlands, Hela, Western, Gulf, and Central Provinces. Chiyoda and JGC formed a JV for this project to install the main LNG plant facilities. Total investment for the initial phase of the project, excluding shipping costs, is estimated at US$19 billion.

3 Implementation of interventions does not guarantee their sustained uptake. Consequently, the potential upside for increasing value added and jobs from any element of the LNG construction project is wholly dependent on the successful uptake by target market actors, which cannot be measured at this stage.

This industry includes the fabrication, installation assembly, and related activities to build the liquefaction trains used for producing liquefied natural gas (LNG) facilities and the tanks for storing the LNG in once the gas has been liquefied. Activities will likely be self-performed directly by the engineering, procurement and construction contractor (EPCC) or prime contractors.

Tanzanian firms involved in this industry are not specialized, and instead most consider themselves as mainly electromechanical engineering companies that provide a range of products and services. Larger firms also reported that most fabricated steel items are imported for major fabrication projects and suggested that few goods are purchased locally. There may, however, be subcontracting opportunities for firms that can source goods globally that meet the stringent specifications of the IOCs/EPCCs. Potential subcontractors will have to provide evidence of accreditation to implement sophisticated electromechanical engineering projects. Key constraints include limited availability of accredited equipment, artisans/technicians, and goods as well as poor quality economic infrastructure and negative IOCs/EPCCs perceptions of local suppliers. Addressing these constraints in the LNG Train/Tanks industry could translate to a domestic value added range from ≈ USD 80 to 130 million and around 200 direct jobs could be created subject to significant upskilling and accreditation.


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Industry Demand

Demand Characteristics for LNG Tank and Trains

The fabrication and installation of LNG and other LNG facility storage tanks account for a significant portion of total project costs. LNG storage tanks and the fabrication and installation of other large pressurized and non-pressurized tanks are expected to cost around USD 3.5 billion. This industry includes the fabrication, installation assembly, and related activities to build the liquefaction trains used for producing liquefied natural gas facilities and the LNG storage tanks used once the gas has been liquefied. EPCCs and prime contractors tend to perform the majority of key services associated with LNG trains and tanks themselves during the construction phase of LNG projects given their preference to use sophisticated fabrication yards and equipment manufacturers outside of the host country to respond to large orders very quickly.

Installation of LNG storage tanks also consists of a set of highly technical activities, including major site preparation and foundation infrastructure. This requires specialized cements and metals (e.g. 15mm nickel steel plates). Nevertheless, installation activities open some opportunities to local firms (see Site Preparation and Roads and Landing Strips industry profile) in clearing and leveling and concrete works. Additionally, there will be a number of direct employment jobs for activities that the EPCC or prime contractor performs directly. Services like welding, shaping and cutting, and assembly of components are core activities that can be upgraded locally (regardless of whether ultimately subcontracted or self-performed) to increase Tanzanian participation in the services within this industry. The challenge increasing local content is that, from a project management and risk management perspective, outsourcing discrete activities to several different subcontractors is unlikely. In the case of plates, for example, an EPCC or prime contractor would not subcontract cutting and then resume production at the bending stage. Rather, both activities would take place at the mill under their watch, as would others (coating, assembly, welding, etc.).

Industry Supply

Local Suppliers

Presently, there is no Tanzanian industry specific to LNG trains or tank installation. There are, however, approximately sixteen Class 1 firms that provide services that loosely fall in this industry in terms of the range of engineering services offered. 4 Even among the firms with the highest registration class, the levels of accreditation with basic internationally recognized standards are limited. Less than half of Class 1 firms are considered small and medium sized enterprises (SMEs) and a few large companies dominate the industry. Some of the larger firms report partial international ownership, although exact percentages were not available. Local firms report that their entire market is based in Tanzania and they mostly service large purchase orders such as fuel storage tanks (for gasoline, propane), steel structures for the commercial building sector, and structural steel products for mining

4 There are seven classes for building, civil, electrical, and mechanical contractors defined primarily by the threshold of the

value of contracts that can be awarded to a contractor based on their registration with the Contractors Registration Board (CRB). Class 1 is the highest level of registration, which places no limits on the size of contracts that a contractor can receive. There are also a number of other criteria such as equipment, available skill sets, and qualitative references from clients that are used to determine the registration class of the contractor.

LNG Tank and Trains

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companies. Some local companies have explored venturing into the construction and assembly of prefabricated warehouses.

According to the CRB, the five largest firms we interviewed in this industry are:

Firm Rank based on average

turnover for past 3 years Ownership

db Shapriya & Co Ltd 1 (>USD 10MN per year) Local

Enikon (Tz) Ltd 2 (USD 1 – 10MN per year) Foreign

Shalom Engineering Ltd 3 (USD 1 – 10MN per year) Local

Taningra Contractors Ltd 4 (USD 1 – 10MN per year) Foreign

BQ Contractors Ltd 5 (<USD 1MN per year) Local

Of these, db Shapriya & Co Ltd is the largest in terms of annual revenue, which dwarfs the cumulative turnover of the next four largest contractors by threefold. A number of the Class 1 mechanical engineering contractors retain a secondary civil construction registration that allows them to manage civil works. db Shapriya is the only contractor in Tanzania to be registered in Class 1 for all the main contractor fields: civil, mechanical, and electrical engineering and building, enabling them to bid for and implement integrated projects.

While we did not conduct a focus group for this industry, we interviewed three firms providing electro-mechanical engineering services, which revealed that the primary firm-level challenges are limited accreditation, chronic shortage of accredited/certified artisans, and limited confidence of IOCs and EPCCs in local service provider capacity. The difficulty in accessing local firms and gathering data on this industry underscores the need for a reliable data base that has been rigorously vetted.


No locally registered firms, including the larger ones such as db Shapriya, possess the technical skills and industry experience necessary to be considered legitimate options for prime contracts for the Tanzania LNG project. Despite this assertion, which was reinforced by the firms themselves, the goal of larger firms is to partner with EPCCs or prime contractors in advance of contract awards to win smaller contracts, which will, effectively, serve as proof of their competence and demonstrate their locational advantage. Firms with proven capacity may have the advantage of becoming the default contractor for other mechanical works or can be directed to provide support, such as labor secondments or procurement of minor (and often locally sourced) goods.

Firms interviewed also indicated that their current major markets are projects with private sector firms such as water, oil and gas, and mining companies for activities such as pipe welding, structural fabrication for building construction, and prefab equipment installation. Projects with the engineering and industrial sectors were identified as potential markets. The firms also indicated that most prefab equipment installation projects funded by public sector are awarded to international EPCCs and that local firms are relegated to minor supporting roles. For example, Indian EPCC PRAJ Industries recently awarded db Shapriya a subcontract as part of a larger contract with Illovo to build an ethanol plant in Kilombero.5

5 Illovo’s new distillery at Kilombero was commissioned in August 2014 and commercial production began in September

2014. The distillery plant is adjacent to Kilombero Sugar’s K2 sugar mill in Tanzania. The project was constructed by international EPCC PRAJ Industries, with db Shapriya as their major Tanzanian subcontractor. Following successful startup


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A key binding constraint in the mechanical engineering sector, within the context of an LNG project, is the shortage of skilled labor and the related accreditation with international agencies recognized by the LNG industry. Local companies that cannot demonstrate compliance with quality standards nor the ability to handle the volume at an acceptable price will not compete successfully for contracts. The limited accreditation of firms reinforces IOC and EPCC concerns with local supplier capacity.


In most cases, LNG trains and tanks fabrication is conducted off site by highly specialized suppliers while EPCCs manage installation themselves. While fabrication of LNG trains and tanks is unlikely to provide any opportunities for local firms, fabrication of atmospheric storage tanks for refrigerants, fuels, and other bulk liquids can be captured locally. Likewise, tanks installation (LNG and others) will open up significant employment opportunities for self-performed work and support activities, such as site preparation and concrete pad installation. Most components are bolted and/or welded together on site but generally manufactured as modules in factories abroad, often in Korea or Singapore. Tanks can be assembled on site (stick built) or delivered to site in preassembled units (modularization), both of which involve positioning and placement that requires significant manual labor as well as skilled technicians to operate lifting equipment.

1. Process/train pre-manufactured equipment and installation (Total sub-activity demand ≈ USD 945 million or 27% of total industry demand) The installation of prefab equipment, such as gas turbines, is typically performed by EPCCs under the supervision of a representative from the original equipment manufacturer (OEM) to ensure proper installation and reduce risk. While this leaves little possibility for local subcontracting, these activities will create a substantial volume of local but temporary job opportunities. The potential domestic value added (labor and profits) range for the process/train pre-manufactured equipment and installation sub-activity is estimated between USD 20 and 32 million, subject to the successful implementation and uptake of the recommended interventions by target markets/ sectors/entities.

Tasks

• Static Equipment: process vessel installation and related walkways and stages • Internal/Tray: installation of various pieces of process internal equipment and hookups • Air Fin Cooler (AFC): preassembled AFC installation • Rotating Machine: installation of various pieces of moving equipment such as compressors • Packaged Plant/Equipment: installation of various utilities and related process integrating

equipment, including waste material handling equipment such as sludge processing

*Additional associated tasks are captured in separate business cases (see Electrical Works and Metal/Steel Fabrication industry profiles)


and performance testing, the plant will be operated principally by Tanzanian nationals. The project recorded excellent safety statistics.

LNG Tank and Trains

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• Prefabricated equipment • Prefabricated structural components • Welding equipment and consumables


assemble prefabricated structures ‒ lifting equipment operators


2. Power generation and distribution utility (Total sub-activity demand ≈ USD 350 million or 10% of total industry demand) This sub-activity is essentially the installation of prefabricated, off-the-shelf power generation units supplied by OEMs such as General Electric or Anadarko. Often, OEMs will supervise to improve efficiencies and ensure reliable and safe installation. The potential domestic value added (labor and profits) range for the power generation and distribution utility sub-activity is estimated to be between USD 6 and 11 million.6

Tasks

• Connections for process area for feed gas to generator • Installation of generation units and related switch gear for electricians to install hookups to the

process area and other areas *Additional associated tasks are captured in separate business cases (see Concrete Works and Metal/Steel Fabrication industry profiles)




• Prefabricated equipment • Prefabricated structural components, • Welding equipment and consumables • Personal Protection (PPE)




3. Piping works (Total sub-activity demand ≈ USD 560 million or 16% of total industry demand) This sub-activity involves the welding of pipes for use as units in the construction process. In many cases pipes, will be welded together to meet specifications of the engineering design at a spooling yard and transported the short distance to site on flatbed truck or mobile crane. Almost all fabrication takes place at foreign production centers that have a highly skilled labor force that can reliably execute orders on time. Thereafter, EPCCs usually assemble and install piping on site themselves. The potential domestic value added (labor and profits) range for the piping works sub-activity is estimated to be between USD 12 and 23 million.7



sectors/entities.


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Tasks

• Above/under-ground: assembly and installation of various piping elements, including specialized steel and non-steel and nonmetal piping components

• Field installation • Welding • Steam trace piping • Installation and pressure testing and cleaning • Fabrication support *Additional associated tasks are captured in separate business cases (see Metal/Steel Fabrication industry profile)




• Prefabricated equipment • Prefabricated structural components, • Welding equipment and consumables • PPE




4. Instrumentation (Total sub-activity demand ≈ USD 175 million or 5% of total industry demand) This sub-activity involves the positioning and connection of prefabricated instrumentation to the various monitoring systems within the processing plant and related support areas (power generation, refrigeration storage etc.) and LNG Tank etc. Almost all of the fabrication of these components takes place at foreign production centers that have a highly skilled labor force with the capacity to reliably execute an order on time. In almost all LNG projects, these activities are self-performed by the EPCC under supervision of the OEM. The potential domestic value added (labor and profits) range for the instrumentation sub-activity is estimated to be between USD 4 and 7 million.8

Tasks

• Control Room: installation and set-up (panel installation; cable tray; interconnect cable laying and termination; plug-in cable connection; fiber optic splicing; instrument mounting; etc.)

• Junction box installation • Instruments: flow-level pressure instruments, control valves, relief valves • Instrument and tubing installation: instrument stands and supports, tubing tray, tubing, instrument

device check and inspection • Calibration of instruments

*Additional associated tasks are captured in separate business cases (see Electrical Works industry profile)




• Pre-manufactured instruments and sensors • Skilled/Semi –Skilled:


sectors/entities.

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• Electronics consumables • Tubing and piping consumables

‒ certified electronics engineers as supervisory staff

‒ electronics technicians who can assemble pre-manufactured equipment


5. Fireproofing/insulation works (Total sub-activity demand ≈ USD 175 million or 5% of total industry demand) This sub-activity involves the coating and protection of various parts of the plant (pipes, valves, instrumentation) to protect against heat or cold loss. It also involves installation of the insulation between the concrete outer shell and inner steel tank. This is a highly specialized sub-activity that EPCCs generally perform themselves using specially trained artisans dedicated to LNG tank construction. Yet, these activities do create a substantial volume of job opportunities through temporary labor hiring. The potential domestic value added (labor and profits) range for the fireproofing/insulation works sub-activity is estimated to be between USD 4 and 6 million.9

Tasks

• Cold insulation (pipe, valves, instrumentation) • Hot insulation (pipe, valves, instrumentation) • Acoustic insulation • Fireproofing




• Pre-manufactured instruments and sensors • Electronics consumables • Tubing and piping consumables • PPE

• Semi –Skilled: ‒ certified electronics engineers as

supervisory staff ‒ electronics technicians who can

assemble pre-manufactured equipment


6. LNG storage tank steel plate construction and assembly (Total sub-activity demand ≈ USD 945 million or 27% of total industry demand) Pre-milled plates will be cut, bent, coated and transported to the site for positioning and installation. This will be conducted outside of Tanzania with zero subcontracting or labor opportunities. After being transported to Tanzania, prefabricated plates will then be lifted, positioned, and welded into place. While these activities are generally performed directly by the EPCC, such as the installation of prefab components (e.g. tank plates), they also create a substantial volume of temporary job opportunities. The potential domestic value added (labor and profits) range for the LNG storage tank steel plate erection and assembly sub-activity is estimated to be between USD 18 and 29 million.10



sectors/entities.


Page 8

Tasks

• Placing of prefabricated steel plates • Welding of prefabricated steel plates • Assembly and placing of prefabricated steel structures

*Additional associated tasks are captured in separate business cases (see Electrical Works industry profile)




• Steel plate and piping that meets specifications

• Prefabricated equipment – valves etc. • prefabricated structural components, • Welding equipment and consumables • PPE


assemble prefabricated structures ‒ lifting equipment operators


7. Coating and painting tanks (Total sub-activity demand ≈ USD 175 million or 5% of total industry demand) Tanks are first sand-blasted and then prime and final coated with paint that meets IOC and EPCC specifications. When completed effectively, painting decelerates the rate of corrosion accelerate, a problem that has garnered attention of late in Angola where the LNG plant shut down. Amongst other problems, the plant operator cited accelerated corrosion of various elements of the plant caused in part by improper coating and painting during construction as a key cause that instigated the shutdown. In almost all LNG projects, EPCC coat and paint tanks themselves. Yet, these activities do create a substantial volume of temporary job opportunities. The potential domestic value added (labor and profits) range for the coating and painting tanks sub-activity is estimated to be between USD 10 and 15 million.11

Tasks

• Structural steel surface preparation and painting • Tank/vessels surface preparation and painting • Piping and valves surface preparation and painting




• Sandblasting equipment and related consumables

• Spray painting equipment and related consumables

• PPE

• Semi –Skilled: ‒ accredited artisans such as painters ‒ metal working technicians who can

prepare, paint and finish structures • Unskilled manual labor for manual tasks

8. Support equipment

(Total sub-activity demand ≈ USD 175 million or 5% of total industry demand) 11 These figures are subject to the successful implementation and uptake of the recommended interventions by target markets/

sectors/entities.

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This sub- activity involves control mechanism installation in process areas and typically involves the installing specialized and prefabricated pumps and valves that are then connected to the monitoring and instrumentation systems used to control production remotely. Prefabricated support equipment, such as the cryogenic pumps, is typically installed by EPCCs under the supervision of a representative from the OEM. This ensures proper installation, increases efficiency, and reduces the risk of damaging equipment. The potential domestic value added (labor and profits) range for the support equipment Sub-activity is estimated to be between USD 3 and 4 million.12

Tasks

• In-tank pump installation • Crane and hoist installation • Hydro-pneumatic test (inner tank) • Pre-commissioning (final checkout and nitrogen purging)




• Pre-manufactured instruments and sensors • Welding and mechanical consumables • Tubing and piping consumables

• Skilled/Semi –Skilled: ‒ certified mechanical engineers as

supervisory staff ‒ mechanical technicians who can

assemble pre-manufactured equipment



LNG tanks and train work begins early in the project lifecycle and continues until the last few months. Many activities related to LNG tank and trains are carried out in fabrication yards across the world – from the simplest items such as walkways and steel framework structures to the most sophisticated elements like steel plates that can withstand cryogenic stresses.

LNG Tank and Trains work peaks in years four and five when the main process and related utilities and offsite installations are being constructed or installed. As noted above, LNG tank and trains works are conducted throughout the project construction period post FID. The employment opportunities point to a predominance of semi/unskilled labor demand. Rapid upskilling and certification of metal, electronics, and materials technicians and artisans to meet IOC and EPCC standards (through, for example, a broad-based certification program) should improve local job capture and firms’ ability to win subcontracts.


sectors/entities.


Page 10



Y1 Y2 Y3 Y4 Y5 Y6 Y7 1. Process/train pre-

manufactured equipment and installation

0 0 170,100 1,814,400 1,701,000 1,587,600 396,900

2. Power generation and distribution utility

0 0 134,400 1,433,600 1,344,000 1,254,400 313,600

3. Piping works 0 0 201,600 2,150,400 2,016,000 1,881,600 470,400

4. Instrumentation 0 0 126,000 1,344,000 1,260,000 1,176,000 294,000

5. Fireproofing/insulation works

0 0 63,000 672,000 630,000 588,000 147,000

6. LNG storage tank steel plate erection and assembly

0 0 170,100 1,814,400 1,701,000 1,587,600 396,900

7. Coating and painting tanks 0 0 105,000 1,120,000 1,050,000 980,000 245,000

8. Support equipment 0 0 33,600 358,400 336,000 313,600 78,400

Total by Year 0 0 1,003,800 10,707,200 10,038,000 9,368,800 2,342,200

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Sub-activities Local Labor


1. Process/train pre-manufactured equipment and installation

Skilled

0 0 4 40 37 35 9 18

Semi-skilled 0 0 4 40 37 35 9 18

Unskilled 0 0 9 99 93 87 22 44

Subtotal 0 0 17 179 168 156 39 80

2. Power generation and distribution utility

Skilled

0 0 1 9 9 8 2 4

Semi-skilled 0 0 2 19 18 16 4 8

Unskilled 0 0 0 0 0 0 0 0

Subtotal 0 0 3 28 26 25 6 13

3. Piping works

Skilled

0 0 2 19 18 16 4 8 Semi-skilled 0 0 4 37 35 33 8 17

Unskilled 0 0 0 0 0 0 0 0

Subtotal 0 0 5 56 53 49 12 25

4. Instrumentation

Skilled

0 0 1 7 7 6 2 3 Semi-skilled 0 0 1 10 10 9 2 5

Unskilled 0 0 1 7 7 6 2 3

Subtotal 0 0 2 24 23 21 5 11

5. Fireproofing/insulation works

Skilled

0 0 1 6 6 5 1 3 Semi-skilled 0 0 1 9 8 8 2 4

Unskilled 0 0 0 3 3 3 1 1

Subtotal 0 0 2 18 17 15 4 8

6. LNG storage tank steel plate erection and assembly

Skilled

0 0 3 32 30 28 7 14 Semi-skilled 0 0 4 48 45 42 10 21

Unskilled 0 0 1 16 15 14 3 7

Subtotal 0 0 9 95 89 83 21 43

7. Coating and painting tanks

Skilled

0 0 1 14 13 12 3 6 Semi-skilled 0 0 2 21 20 18 5 9

Unskilled 0 0 1 14 13 12 3 6

Subtotal 0 0 5 49 46 43 11 22

8. Support equipment - cryogenic pumps etc.

Skilled

0 0 1 6 6 5 1 3 Semi-skilled 0 0 1 9 9 8 2 4

Unskilled 0 0 1 9 9 8 2 4

Subtotal 0 0 2 24 23 21 5 11


13 Figures presented are rounded


Page 12


The total domestic value added over the seven-year investment period is estimated to be ≈ USD 80 million, composed of ≈ USD 62 million in labor and ≈ USD 18 million in profit. In addition, the activity would also result in the purchase of some ≈ USD 33 million in local goods, part of which will also stimulate the local economy (e.g. linking to domestic road and paving services, regional transportation infrastructure construction services, and maintenance and repair work).

Figure 1 reflects the potential for local jobs over local subcontracting, though it is important to note that the overall potential for any value added from this industry is low. If local firms can upgrade to meet the stringent accreditation criteria of IOCs and EPCCs, there is potential for a greater proportion of local value added to be captured by local firms that can provide higher quality, locally sourced goods. It is expected, however, that even such improvements will only result in a few high value subcontracts. It is not anticipated that multiple contracts will be captured by local players.


Figure 2 shows the extremely small local capture of goods demanded over the life of the project. This is due to the highly technical nature of the inputs for LNG train and tanks construction. While there is a significant amount of civil, concrete, and metal fabrication works associated with LNG train and tanks construction, the inputs for these activities are captured in separate industry profiles.

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Finally, Figure 3 shows the projected local employment for this industry by skill category. In terms of full-time equivalents on a yearly basis, local employment peaks twice as the EPCC strives to optimize the construction and the ability to monetize LNG for the IOC. Trains and tank installation are sequenced such that the first train and tank will be ready to produce LNG and receive LNG respectively for first shipment while the second train and tank are being completed. This creates a fluctuation in the labor demand for the LNG process trains and tanks, but the EPCC may rotate many workers around the site so the overall demand for labor will not likely reflect these anomalies.

While the number of jobs demanded is low relative to other the industries profiled, the high level of potential employment for local, semi-skilled labor is a positive note. There is a critical need to build the capacity of experienced technicians to develop their transferable skills and set them on trajectories toward supervisory roles. Once the LNG project moves into the operations phase, supervisory technicians could seek employment in a wide range of construction environments. This would raise the overall skill level in the specialized construction sector while also reducing the distorted wage inflation caused by a shortage of specialized and skilled technicians during periods of growth in the construction sector, as currently exists in Tanzania. Figure 3: Local employment by skills level


Page 14


Many of the gaps observed for this industry are similar to those found in the metal and steel fabrication industry profile (which also consists of sub-activities related to electromechanical engineering). Where the same gaps have been observed as the same, we refer the reader back to these other analyses. Otherwise, below we discuss particular gaps for this industry.


1. Chronic shortage of oil and gas certified and experienced labor



• There is a lack of oil and gas certified/accredited technicians and laborers who meet international standards and specifications.

• There is an absence of trained inspectors, accredited instructors, and internationally accredited certifying centers in Tanzania.

• Contractors cannot use experienced but uncertified artisans on site. Therefore, they have to incur significant cost to have workers certified outside of Tanzania or to bring certification agency staff to Tanzania.

• Even well-trained and certified technicians and equipment operators often lack practical training and a compliance- driven work ethic resulting in inadequate supervision and increased maintenance/repairs to equipment.

• Process/train pre-manufactured equipment and installation, piping works, instrumentation and controls works, fireproofing/ insulation works, coating and painting tanks - the EPCC will likely these sub-activities themselves and employ some unskilled labor. But they will seek skilled technical supervisors and equipment operators, who are essential for reliable compliance. Certification could improve employment prospects.

• Power generation and distribution utility, LNG tanks construction (LNG storage tank steel plate erection and assembly, LNG tank pad installation, support equipment) – will likely be subcontracted to an international contractor who will perform these tasks themselves and may employ some unskilled labor. Skilled technical supervisors, however, are essential for reliable compliance and certification but accreditation will be essential.




• There are no dedicated non-destructive testing (NDT) facilities in Tanzania.

• The perception is that the certification may not be reliable unless from a globally recognized certification agency.

• High quality goods are imported with significant tariffs in most sectors resulting in high input costs.

• Supply of locally produced industrial gases is unreliable and insufficient.

• Across all sub-activities there will strict enforcement of standards and compliance. It is expected that most goods, even seemingly basic ones such as paint, will be subject to global standards established by IOCs and EPCCs that local suppliers will not comply with.

3. Low levels of coordination and accreditation threatens quality/standards compliance

Compliant firms are poorly marketed and not competitive in

the Tanzanian market

IOCs and EPCCs have little confidence in local suppliers’

capacity • National quality standards are not

enforced with a “zero tolerance” approach by regulatory authorities.

• Compliant firms do not have the means to pass on the cost of compliance except where firms IOCs, EPCCs, or other prime contractors accept the cost of

• A “dual market” exists where clients accept non-compliance in lieu of lower costs for services.

• Where utilization is low, firms have to incur costs to maintain accreditation and certification of equipment and labor force.

• Industry associations are weak as membership is forfeited as cost

• IOCs and EPCCs do not know the Tanzanian market and across all sub-activities, the perception of the IOCs is that very little accredited capacity exists to deliver on contracts related to the LNG construction project.

• The lack of a reliable database of accredited firms means that IOCs and EPCCs often only make cursory

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compliance as a cost of doing business.

• There is weak industry database management and technical verification of firm data incorporating: - Verified accreditations, - Technical outlines of expertise

of accreditation becomes a priority over marketing and coordination.

investigations of the local markets for suppliers.

Recommendations to Address Constraints

The following interventions are recommended to alleviate the key industry constraints and reverse the adverse impacts on sub-activities. The industry-specific interventions will be addressed in the order of significance, determined by the potential positive impact on the competitiveness of local firms and improvement in the value added captured locally.

Constraint 1: Chronic shortage of oil and gas industry certified and experienced labor





The private sector would contribute to both the PTC’s start-up funding and management funding and a third-party private company could be awarded the rights to operate the center. A PPP approach would allow for commercial viability of the center, introduce good business practices and sustainability (something often lost with publicly-operated training centers), and continue to adjust to the market needs in order to earn revenue. A steering board would be established that would provide guidance on the curricula and strategic direction to ensure relevance for the stakeholders. A third-party private company would be accountable for the day to day operations, including implementing courses, regulatory compliance, sourcing qualified trainers and mentors. For additional detail please see the camps and building industry profile recommendations.

Constraint 2: Limited local availability of certifi ed goods


High level of imported certified goods Zero tolerance for using uncertified goods

will further promote imports



Page 16

While many projects will accept high quality but uncertified goods, oil and gas industry projects will hold suppliers to a higher standard, reducing the potential for local suppliers to provide goods. This will force local firms to acquire equipment and goods that meet stringent IOC and EPCC requirements to perform on even simple projects. (In other countries, such as Egypt, local providers have needed five to ten years to reach a level of sophistication to provide basic but certified goods and services to the oil and gas sector.) With regard to the issue of bulk materials such as industrial gases, the market will likely be the best gauge of investment climate as oversupply with the high capital intensity could result in stranded assets. Firms will have to provide evidence that they have quality management systems that ensure that goods procured have quality assurance from cradle to grave. For IOCs and EPCCs, access to goods alone is not enough. They want a fully audited supply chain to ensure standards and specifications are maintained throughout.


Globally, the oil and gas sector uses this approach to gradually but steadily build capacity while simultaneously developing a close working relationship that nurtures trust. This is a long term process and can take many years (in some cases more than ten) to reach a point where IOCs are confident to subcontract directly to local firms. In South Africa, for instance, a small engineering firm started developing a relationship with Sasol, a major southern Africa oil and gas company. Eighteen years later, the engineering firm landed its first preferential contract to refurbish pressure vessels. It is for these reasons that early investments in small firms will be important to building ground-up expertise in hard skills in areas where manufacturing will benefit. The manufacturing sector in Tanzania is small and suffers from weak growth due to the market power of the traders who have little interest in supporting local producers when they can import goods and services with a higher margin despite. Developing local suppliers in this industry is not a quick win game and requires IOCs and suppliers to take a long-term view to build trust and mutual respect over the long term.

Constraint 3: Low levels of coordination and accreditation threatens quality/standards compliance


Compliant firms are poorly marketed and not competitive in the Tanzanian Market

IOCs and EPCCs have little confidence in local suppliers’ capacity

A general constraint across all sectors in Tanzania is the asymmetry of information that raises transaction costs and reduces the efficiency with which projects are originated, resourced, and assessed in terms of risk. Therefore, technical support is needed for sector-based agencies that collect and manage data regarding firms in terms of their basic information and more specific registration data related to the sector.

Proposed Intervention 2: The main intervention is to identify a local firm that can deliver the services required and has access to supply chains but requires business strengthening to meet high oil and gas industry standards. This will be augmented by matching investors to such firms to provide the capital need to make the investments to meet IOC and EPCC demands.

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We recommend that financial and technical assistance be offered to the Contractors Registration Board and the Professional Registration Boards (e.g. the Engineers Registration Board) because of the direct support these organizations provide to the oil and gas sector. Technical support will focus primarily on database information auditing and verification and systems upgrades for efficient future data capture by enabling online registration and uploading of certificates.

Other general data collection agencies that have indirect relation to the oil and gas sector should be provided an appropriate combination of financial and technical support to conduct similar database auditing and verification. For example, SPX databases, while well-funded by UNIDO, are considered by industry experts to be dated and contain information validated on an inconsistent basis. Support is needed to strengthen this database through proper in-person data entry, validation, and routine audit of firm information. Additional database work must focus on SMEs and other enterprises not typically captured in database development activities in oil and gas in more established markets.

The enhanced database would provide visible but transparent information about potential suppliers that would suffice as the first pass in a project origination process. The database also provides marketing for the demand side (firms seeking capital injection) and a readily available source of basic information for the supply side (lenders/investors).

Proposed Intervention 3: work closely with SPX and UNIDO to enhance the value of the supplier database, ensure it is updated with relevant, audited, and verified data, and promote it to investors as a reliable source of first line data on potential suppliers.

Industry:

Electrical Works

Electrical Works

1

Summary

� This industry broken down by the following sub-activities:1) Tanks; 2) MOF and Jetty; 3) Electromechanical Installation; 4) Generator/substation Installation; 5) Site Lighting; 6) System Grounding; 7) Security and Access Control Systems.

� Total activity demand for Electrical Works is around US 120 million, for the 7 year LNG construction phase. With current conditions, this activity will generate ≈ USD 7 million in demand for local goods and USD 10 million in domestic value added (labor and profit), including a yearly average of 55 local jobs over the life of the project.1

� Local companies will need to acquire ISOS certifications, employ experienced certified electricians, and demonstrate compliance with quality management standards.

� Opportunities for local capture lie in the areas of local employment and subcontracted work specifically in site lighting and building electrical works sub-activities, as these do not require a high level of technical sophistication relative to other areas on the LNG site.

� Key constraints preventing greater local participation include: 1. Chronic shortage of oil and gas (O&G) certified and experienced labor 2. Limited local availability of certified goods 3. Low levels of recognized accreditation risks quality and standards compliance

� Efforts to raise performance of local suppliers in the Electrical Works industry could translate to a domestic value added range between ≈ USD 10 million and USD 14 million, subject to the successful implementation of the recommended intervention(s) and the successful uptake of these interventions by the target markets/sectors/entities.

Increased skills for semi-skilled workers could add another 15 average local semi-skilled and skilled jobs per year.2




The electrician, or electrical services, industry relates mostly to the installation of electrical systems into various buildings such as control rooms, offices, camps, and accommodation buildings as well as more complex electrical installation work around the LNG facility itself. This work is commonly self-performed by the EPC contractor but can often be complemented by some subcontracted work depending on the procurement arrangements (combination of EPCC[s] and prime contractor[s]), schedule, and local capacity.

In Tanzania, there are a multitude of firms that operate in the electrician services industry, with the majority self-reporting that they are small and medium-sized enterprises (SMEs). Although there are only a few medium-to-large firms, they usually manage to secure the largest projects in Tanzania. Most firms lack accreditation, beyond local registration, that would meet the standards of the oil and gas industry. Furthermore, firms struggle to find experienced electricians that have certifications specific to work on oil and gas sites. Even for firms that have the requisite accreditation and staff, qualification for contracts is largely dependent on the IOC’s choice in standards. US standards could be required by an engineering, procurement, and construction (EPC) contractor, thus increasing the barrier of entry for local, U.K standards-compliant firms.

Despite these constraints and uncertainties, the best opportunities for local firms exist in the areas of site lighting and building electrical works and for the certification of experience electricians in term of local labor. This could translate to a domestic value added (labor and profits) range from USD 10 million anywhere up to USD 14 million. Additionally, if the quality of inputs can be improved sufficiently, purchase of local goods could increase to USD 8 million, compared to a baseline estimate of some USD 7 million.


2

Industry Demand

Demand Characteristics for Electrical

The EPC contractor will likely hold the contract to conduct all electrical work on the LNG site, except necessary electrical work to be completed during the early works phase. For example, since the MOF constructed before the EPC contractor is on site, this may be subcontracted directly by the IOC to an international prime contractor. There is the potential that this subcontract may be transferred from the IOC to the EPC contractor if there is a continuation of work after FID. Aside from this, once on site, the EPC contractor is likely to self-perform much of the electrical work, especially in high risk areas on the LNG site. Where the EPC contractor can reduce costs and contain risk, there is a potential for subcontracting to local electrical services companies (particularly in sub-activities such as site lighting and building electrical works).

In terms of demand for basic electrical services, much of the prefabricated equipment or housing arrive with electrical wiring already complete and included in the structures, however there will still be a great deal to be done on-site. The EPC contractor will employ highly efficient teams, consisting of mostly skilled and semi-skilled workers, to move around the site. The number and skill level of workers on a team is related to the risk involved with the installation; small highly skilled teams will work on high risk installations. The key personnel required for the electrician services industry are engineers (electrical, mechanical), technicians, artisans, and linemen. Consulting engineers also play a role in the industry as they oversee work to ensure that it has been performed according to standards and safety measures, and they oversee the main contractor.

The IOCs/EPCCs will contract labor recruiting offices throughout Tanzania to recruit artisan such as electricians, and refusing to engage with those that do not apply via the recruitment office/agencies in order to dissuade them from relocating to Mtwara/Lindi regions in the ‘hope’ of finding works and putting a heavy burden on local infrastructure.

In terms of goods demanded, there are two levels of electrical inputs needed on site depending on the associated risk. However, even the most basic inputs will have a level of standard that have to be met. For example, general cabling must be strong enough to be pulled through cable trenches for hundreds of meters without being damaged internally. Some specifications will be more stringent depending on the environment in which they will be used (i.e. wiring for the LNG tank will require high tech, explosion proof cables).

Industry Supply

Local Suppliers

There are an estimated 570 electrician services companies currently active in Tanzania. Approximately 70 percent of these qualify as SMEs as they self-report having fewer than 20 employees. Of these 570 firms, approximately 36 firms are classified as Class 1 with the CRB.3 The dominant large firms interviewed/surveyed in the local market include Mollel Electrical Contractors Ltd., Derm Electrics (Tz) Ltd., CSI Electrical & Maintenance Limited, Electro - Mechanical Agencies Limited, and Berkeley Electrical Ltd (foreign). For this industry, firms report a fairly low percentage of involvement of foreign companies in Tanzania. However, like other industries, foreign companies operating locally still capture the

3 CRB = Contractors Registration Board, Tanzania.

Electrical Works

3

largest portions of the large project market.4

Firms interviewed indicated that their current major markets are domestic construction, infrastructure, and large-scale energy (largely for TANESCO) and mining-related project installations. A reliable breakdown of the relative percentage of each of these of the overall end market was also not available.

In Tanzania, small firms in the sector focus their service offerings on small-scale electrical services like residential installations and repairs. Large firms focus on large-scale infrastructure projects and often provide related services such as HVAC, security systems, and communication systems. All firms confirmed that 100 percent of their services are delivered to the Tanzanian market. Most firms have localized their services to the domestic market because there is enough domestic work. Another reason to keep business in Tanzania is the considerable cost that would be involved in exporting their services. Firms also indicated that other potential markets could include factories, commercial and residential buildings, telecommunication companies, and government electric distribution projects.

Subcontracting is unlikely in highly sensitive areas of the site, such as the control room, LNG process areas, and the LNG jetty. However, any general electrical works, such as street lighting, buildings such as offices, guard house, canteens, kitchens etc. have the potential for subcontracting.

The electrical services industry in Tanzania has strong backward linkages in the economy, and increasing the local market capture of the demand associated with the LNG facility construction could have valuable effects in the economy in terms of job creation and economic growth more so than metal product manufacturing and fabrication-related industries.


The primary equipment used in this industry includes vehicles, tools such as special testing equipment, crimping machines, storage containers, stringing machines, mega testers (high voltage), power analyzers, cable, outlets, lighting equipment and fixtures, breakers, converters, relays, appliances, and various electrical services goods (tape, nuts, and so on). Leasing equipment is not common in the industry. Most goods used in the Electrical Works Industry are imported, particularly from the United Kingdom. The United Kingdom and Tanzania have the same standards and U.K. products meet Tanzanian requirements. As most products are imported, exchange rate fluctuations greatly affect firms in the industry, along with the import tariffs of between 10 and 25% that drive up the input costs into electrical works making electrical services expensive and firms experience losses arising from weak tender management procedures and poorly budgeted projects. A small amount of basic electrical goods and consumables are produced locally, however manufacturers consumables will need to be at least ISO accredited, which may be a challenge in Tanzania where ISO accreditation is the exception rather than the rule. With regard to skilled labor, electrical engineers graduating from university are only exposed to around six months of practical training during their four years of academic education. This

4 Firms could not provide reliable percentages of this market capture nor could the team gather reliable evidence on the extent

to which foreign firms operating locally include local Tanzanian investors.


4

is not considered, by the firms interviewed, to be an appropriate amount of training time given the nature of the work. Consequently, regardless of the certification and registration locally, local graduates are unlikely to have the necessary experience to operate equipment that incorporates new technology. These firms also indicated that graduates from technical colleges tend to perform better than university graduates because technical graduate work in the market after they finish their studies. After acquiring experience, they may enroll in universities to obtain degrees, but start off with practical experience.

Firms interviewed also suggested that there is a need to re-introduce apprentice programs, especially now that Vocational Education and Training Authority (VETA) centers have limited practical training time and only focus on academic examinations. Therefore, students move from one level of craftsmanship to the other without going through the necessary practical training. While firms interviewed responded positively to the idea of apprentice programs, they indicated their preference towards the development of training centers over standalone apprentice programs, as they would be more comprehensive.

There is a significant labor force of experienced electrical professionals available in Tanzania but due to lack of oil and gas expertise, most are not ready to operate on an LNG site. A limited number of experienced electrical professionals are certified beyond what is required for their registration in Tanzania. Therefore, there is an urgent need to certify/accredit electrical works technicians to the standards required for the LNG construction projects. However, certification/accreditation initiatives cannot commence with any certainly of standards, because these decision have not been announced by the IOCs. Similarly, because the IOCs/EPCC will hire through labor brokers/agencies, it is critical that they up to speed with the specifications and have the necessary administration to scrutinize the artisans’ applications for work before sending then to the construction site. The efficiency and reliability of this ‘supply chain’ of artisans to the project will also have a direct bearing on the successful leveraging of employment opportunities.


The key demand areas translate into a series of industry sub-activities that will need to be carried out to deliver on an LNG contract. While it is unlikely that local firms have the capacity to win a large contract, they may be subcontracted by an EPC or Prime contractor for smaller related activities. These activities are outlined below with the relevant characteristics that will impact the value added for the Tanzanian economy.

1. Tanks Electrical Work (Total Sub-activity Demand ≈ USD 36 Million or 30% of Total Activity Demand) This sub-activity includes the electrical works for the LNG main tank and associated tanks (i.e. refrigerant, water tanks, fuel tanks, etc.). The potential domestic value added (labor and profits) range for the Tanks Electrical Work Sub-activity is estimated to be between USD 2 million and is unlikely to be affected significantly by a market intervention, as local firms are not expected to be able to compete for subcontracts for the Tanks electrical work

Tasks

• Underground electrical (grounding and cathodic protection) • Above-ground electrical cable tray and conduit (cable and tray channel, lighting fixtures,

receptacles/welding/twist lock outlet

Electrical Works

5

• Wire and cable (power wire and cable, terminations, instrumentation power) *Additional associated tasks are captured in separate business cases




• Some of the basic cabling and consumables could be sourced locally; however potential is limited by the high specifications required for LNG Tank works.

• Specialized equipment will likely be imported.

• Demand for labor will be largely highly skilled electrical technicians who are certified/accredited to meet international standards such as the Electrical Contractors Association in the UK or a Part P certified electrician in the UK as the work should meet the UK national standard, BS 7671 (Requirements for Electrical Installations)5.

2. MOF & Jetty Electrical Work (Total Sub-activity Demand ≈ USD 30 Million or 25% of Total Activity Demand) There is a distinction between MOF (standard run of the mill high voltage type installation that you would expect in a general port environment). In contrast, the electrical work for the LNG jetty is highly sophisticated, with special cabling and extra precautions taken because of the risk from poor contact or sparking. Electricians on this site will need to have experience working in explosion risk facilities. The MOF and Jetty electrical installation will likely have separate prime contractors due to the differing levels of technical work. The MOF electrical work could be subcontracted to a local firm because of the basic services required; however firms will need to be ISOS accredited. Construction of the LNG Jetty and all associated works may be subcontracted separately to a specialized international firm, due to the high risk and technical work required.6 Potential domestic value added (labor and profits) for the MOF and Jetty Electrical Work Sub-activity is estimated to be about USD 2 million and is unlikely to be affected significantly by a market intervention, as local firms are not expected to be able to compete for subcontracts for the MOF electrical work.

Tasks

• Electrical and mechanical hookups (high and low voltage, grounding, telecoms and communications)

*Additional associated tasks are captured in separate business cases




• LNG Jetty: - Some of the basic cabling and

consumables could be sourced locally; however potential is limited by the high specifications required for LNG Tank works and will likely be imported

• Jetty - Highly technical electricians – likely

these jobs will draw from an international pool of skilled and experienced electricians.

• MOF

5 According to the Electrical Works firms represented at the Focus Group, Tanzania has adopted the Brutish standards for

electrical works 6 In Papa New Guinea, Chiyoda JGC JV sub-contracted the design and construction of the LNG jetty, including fabrication

and construction of topsides, to BAM Clough JV.


6

- Specialized equipment will likely be imported.

• MOF - Goods demanded are not specific to the

MOF. Contractors will source these goods locally as they will usually be more cost effective so long as they meet the standards and are from accredited manufacturers.

- Standard electricians – all must be locally registered with the prescribed certification. Local availability of workers depends on the standards chosen by the IOC. If ‘ISO’ standards are adopted, it will improve chances of subcontracting. Electricians will have to have the same basic certifications however the skill and certification level of the electricians for less sophisticated work will likely be more general

3. Buildings Electrical Work (Total Sub-activity Demand ≈ USD 12 Million or 10% of Total Activity Demand) This sub-activity covers the general electrical works typically employed for normal building construction. Electricians need to be registered and qualified but work will not be specialized for the LNG site and will likely not require any specific oil and gas certification.7 The only area that may have a high degree of sophistication is the Process Control Room (PCR) building. The potential domestic value added (labor and profits) range for the Buildings Electrical Work Sub-activity is estimated to be ≈ USD 1 million and is unlikely to be affected significantly by a market intervention, as local firms are not expected to be able to compete for subcontracts for the buildings electrical work.

Tasks

• Wiring (industrial and residential) • Fixture and outlet connections • Main connections • Generator (individual units only) wiring and connection with back-up systems • Trenching and sand bedding for underground cabling (inspections) • Cable pulling (spool transportation, spool racks, pulling equipment), splicing, and sheathing





• Some of the basic inputs like cabling and ducting could be sourced in Tanzania

• Engineering Technicians • QA/QC Managers • Health, Safety, and Environment (HSE)

Managers • Electricians • Electrician assistants • Range of workers will be hired, but relying

heavily on unskilled workers. • Skilled- Supervising electrical engineer and

electricians. • Semi-skilled- apprenticed electrician with • Heavy unskilled support staff for basic tasks • For the PCR – will employ highly skilled and

semi-skilled labor due to the risk factor

7

Electrical Works

7

4. Electromechanical Installation (Total Sub-activity Demand ≈ USD 12 Million or 10% of Total Activity Demand) This sub-activity includes the installation of electrical and mechanical components into electromechanical devices, such as HVAC systems, lifts, and high voltage appliances. The challenge is finding local semi and skilled workers who are oil and gas certified, despite being registered electricians in Tanzania. The local labor pool has electromechanical technicians with experience working high voltages but the challenge is finding local skilled and semi-skilled workers that are certified under the standard chosen by the IOC. This is the ‘bread and butter’ work of the EPCC and is likely to self-perform a majority of the work. The EPCC will source local labor to augment its skilled team that is brought to site. The potential domestic value added (labor and profits) range for the Electromechanical Installation Sub-activity is estimated to be ≈ USD 1 million and USD 1.5 million, subject to the successful implementation of the recommended intervention(s) and the successful uptake of these interventions by the target markets/ sectors/entities..

Tasks

• HVAC electrical installation • Lifts electrical installation • High voltage appliances electrical installation • Installation of substation-high voltage switch gear





• Due to the level of sophistication, most will be imported.

• While equipment is available to be purchased locally, it is not produced in Tanzania.

• HVAC electrical installation specialists • Engineering Technicians • QA/QC Managers • Health, Safety, and Environment (HSE)

Managers • Electricians • Electrician assistants • Mix of skilled and semi-skilled workers • Local workers may have the requisite

experience but not the proper certification.

5. Generator/Substation Installation (Total Sub-activity Demand ≈ USD 12 Million or 10% of Total Activity Demand) This sub-activity includes the installation of generators and substations for distributing power to the various construction areas until the power generation utilities are installed and commissioned. Since site is expected to produce its own energy from boil-off gas, the main generator then becomes a backup safety mechanism to provide enough power to for site to slow and shut the power down in an orderly manner in the event of an emergency. For an additional safety measure, the generator will likely be isolated from the processing centers and cabled in to the site.8 An equal amount of unskilled and semi-skilled workers

8 The Fukushima Daiichi nuclear disaster could have been prevented in the design of the power plant, had the backup diesel

GenSets been located behind the nuclear reactors and on higher ground rather than on the site in front of the reactors. When the tsunami stuck (albeit it three time higher than anticipated by the design engineers) it knocked out the diesel GenSets therefore disabling the emergency back up power systems and which then prevented an orderly shutdown of the Fukushima


8

will be employed for this sub activity and about half the total amount will be reserved for skilled supervisory engineers. Generators are typically procured as a package and arrive with all the associated cables etc., limiting local procurement of goods. The potential domestic value added (labor and profits) range for the Generator/Substation Installation Sub-activity is estimated to be between USD 1 million and USD 1.5 million, subject to the successful implementation of the recommended intervention(s) and the successful uptake of these interventions by the target markets/ sectors/entities.

Tasks

• Equipment/Panel Installation • Generator with Driver installation • Power Transformer installation *Additional associated tasks are captured in separate business cases




• Generators of varying sizes • Power transformers • Bus Duct, switchgear, UPS, panel systems,

cable tray • Electrical consumables would procured

locally

• The generators and substation installation will almost certainly be self-performed under the supervision of the OEM,

• There may be opportunities for local labor to be employed at a unskilled and semi-skilled level.

6. Site Lighting (Total Sub-activity Demand ≈ USD 6 Million or 5% of Total Activity Demand) This sub-activity involves the general lighting for site facilities including parking lot lighting, street lighting, and cable laying. There will be varying levels of technical sophistication within the perimeter of certain locations on the site. Parts of the plant, such as the processing units, where there is a high risk of explosion will require special products such as explosion proof cabling. The office blocks and residences will require goods that are up to standards, but are less sophisticated than the processing units. Installation is similar to other construction sites and thus the skills are easily translatable. The jobs required for installation will be similar to the Electrical Works for Buildings Sub-activity with a balance of semi-skilled and unskilled workers. The potential domestic value added (labor and profits) range for the Site Lighting Sub-activity is estimated to be between USD 1 million and USD 2 million, subject to the successful implementation of the recommended intervention(s) and the successful uptake of these interventions by the target markets/ sectors/entities.

Tasks

• Field (Outdoor) Lighting • Panel Installation & Termination • Lighting Fixture Installation & Termination • Street Area Lighting Installation & Termination

Daiichi reactors and the operation of the cooling water pumps. With no control over the nuclear reaction happening in the reactors and no way to keep the reactors cool, the ensuing chain of events was set in motion that culminated in the Fukushima Daiichi nuclear disaster. It is now claimed that simple spatial design flaws led to the disaster.

Electrical Works

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• Cable Laying • JB Installation & Termination • Cable Tray Installation • Conduit Installation *Additional associated tasks are captured in separate business cases




• Elements may be local • All driven by standards and specs

• Electricians • Electrician assistants

7. System Grounding (Total Sub-activity Demand ≈ USD 6 Million or 5% of Total Activity Demand) This sub-activity includes the diversion of electrical currents on site to the earth by way of an earth electrode system. This involves installation of grounding wires and connection and installation of grounding electrodes. The potential domestic value added (labor and profits) range for the System Grounding Sub-activity is estimated to be ≈ USD 0.5 million with little opportunity for improvement as it is a highly specialized sub-activity.

Tasks

• Field Grounding • Grounding Electrode Installation with Well • Grounding Wire Installation and Connection *Additional associated tasks are captured in separate business cases




• Most materials will be sourced internationally

• The grounding is believed to be specialized on an LNG Facility and will almost certainly be self-performed,

• There may be opportunities for local labor to be employed at the unskilled and semi-skilled level.

8. Security & Access Control System (Total Sub-activity Demand ≈ USD 6 Million or 5% of Total Activity Demand) This sub-activity includes the installation of security and access control systems (such as CCTV, booms for vehicle checkpoints, and buildings access cards). There are a number of firms that are providing security installation systems, however they will need to demonstrate compliance with ISOS requirements. Normally, these companies import the systems directly. There are cheap imported goods available on the local market but there is a tradeoff in quality. The potential domestic value added (labor and profits) range for the Security and Access Control System Sub-activity is estimated to be ≈ USD 0.5 million with little opportunity for improvement as it is a highly specialized sub-activity.

Tasks


10

• Installation could be outsourced to a local security firm • Communications: telephone system, paging system, CCTV system) • Security electrical installation: security access control system, security fence intrusion detecting

system • Other: ship-to-shore link system, entertainment system, applied electrical facilities




• Specialized security and access are not produced locally

• Communication systems installation specialists

• Control systems specialists • Computer programmers • Systems programmers • Semi and unskilled • The equipment producer or Original

Equipment Manufacturer (OEM) will provide training for the specific programming etc.

• Not top heavy but for the few positions required, they used imported labor

• Most skilled engineers are imported as well


Electrical work begins early in the project and continues until the last few months as it is the essential ‘hook-up’ activity that enables the electrification of elements that have been constructed or installed. Electrical works are necessary during the MOF and accommodation camp construction and therefore are part of early works and often prior to FID once there is sufficient certainty that the project will go ahead. Early works electrical works are generally of a smaller scale than the EPC contract work and may open up opportunities for local firms should they be able to provide the necessary verifiable and appropriate accreditation with reliable agencies, such as an ISO 9000 accreditation. As all electricians are registered to be able to operate in Tanzania at based on British standards, there is a likelihood that for the more specialized work, an additional certification or accreditation (in the case of firms) to enable being involved in the Electrical works of the LNG construction projects.

Electrical work peaks in year 5 when the main process and related utilities and offsite installations are being constructed or installed. As noted above electrical works are being conducted throughout the project period. There are a number of smaller contracts such as the wiring of permanent accommodation, offices, security guard houses etc. that could conceivably subcontracted to local firms, and there are consequently reasonable employment opportunities through the project period as noted in Table 2. The employment opportunities point to a predominance of semi/unskilled labor demand, however once the TLNG consortium publish the electrical standards, the rapid upskilling and certification of electricians and electrical technicians to meet these standards should improve the ability to leverage greater jobs and in some cases subcontracts going forward.

Electrical Works

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Y1 Y2 Y3 Y4 Y5 Y6 Y7

1. Tanks Electrical Work 0 302,400 172,800 475,200 864,000 302,400 43,200

2. MOF and Jetty Electrical Work 0 168,000 96,000 264,000 480,000 168,000 24,000

3. Buildings Electrical Work 0 100,800 57,600 158,400 288,000 100,800 14,400

4. Electromechanical Installation 0 100,800 57,600 158,400 288,000 100,800 14,400

5. Generator/substation Installation 0 67,200 38,400 105,600 192,000 67,200 9,600

6. Site Lighting 0 67,200 38,400 105,600 192,000 67,200 9,600

7. System Grounding 0 16,800 9,600 26,400 48,000 16,800 2,400

8. Security and Access Control Systems 0 151,200 86,400 237,600 432,000 151,200 21,600

Total by Year 0 974,400 556,800 1,531,200 2,784,000 974,400 139,200




1. Tanks Electrical Work

Skilled 0 3 2 5 10 3 0 3

Semi-skilled 0 3 2 5 10 3 0 3

Unskilled 0 7 4 11 19 7 1 7

Subtotal 0 14 8 21 39 14 2 14

2. MOF and Jetty Electrical Work

Skilled 0 3 2 4 8 3 0 3

Semi-skilled 0 3 2 4 8 3 0 3

Unskilled 0 6 3 9 16 6 1 6

Subtotal 0 11 6 18 32 11 2 12

3. Buildings Electrical Work

Skilled 0 3 2 5 10 3 0 3

Semi-skilled 0 3 2 5 10 3 0 3

Unskilled 0 5 3 8 14 5 1 5

Subtotal 0 12 7 18 33 12 2 12

4. Electromechanical Installation

Skilled 0 1 1 2 3 1 0 1

Semi-skilled 0 1 1 2 3 1 0 1

Unskilled 0 2 1 4 6 2 0 2

Subtotal 0 5 3 7 13 5 1 5



12

5. Generator/ Substation Installation

Skilled 0 1 1 2 3 1 0 1

Semi-skilled 0 1 1 2 3 1 0 1

Unskilled 0 2 1 4 6 2 0 2

Subtotal 0 5 3 7 13 5 1 5

6. Site Lighting

Skilled 0 1 1 2 4 1 0 1

Semi-skilled 0 2 1 3 6 2 0 2

Unskilled 0 1 1 2 4 1 0 1

Subtotal 0 5 3 8 14 5 1 5

7. System Grounding

Skilled 0 1 0 1 2 1 0 1

Semi-skilled 0 1 0 1 2 1 0 1

Unskilled 0 1 1 2 3 1 0 1

Subtotal 0 2 1 4 6 2 0 2

8. Security and Access Control Systems

Skilled 0 0 0 0 1 0 0 0

Semi-skilled 0 0 0 0 1 0 0 0

Unskilled 0 0 0 0 1 0 0 0

Subtotal 0 1 0 1 2 1 0 1

Industry Total Avg. Local Employment 0 54 31 84 153 54 8 55


The distribution of employment by sub-activity between skill categories and origin (local vs. expatriate), suggests that the total domestic value added over the seven-year investment period is approximately USD 10 million, composed of ≈ USD 7 million in labor and ≈ USD 2 million in profit. In addition, the activity would also result in the purchase of some ≈ USD 7 million in local goods, part of which will also stimulate the local economy (for example, linking to the bulk supply of concrete inputs).


The estimated pattern over time for total value added suggests a peak in year 5 at nearly USD 3 million, due to the increased intensity of construction of the process areas and related utilities. Figure 1 shows robust demand for local labor due to the large labor force of electrical works professionals in Tanzania and a relatively low potential for profits as it

Electrical Works

13

relates to local subcontracting. As discussed, the EPC contractor will likely self-perform a majority of the electrical works and while there are opportunities for subcontracting, there are few companies with the proper accreditation and O&G certified employees.

Local employment is projected to grow from an average yearly total of ≈ 55 local jobs in year 2 to over ≈ 150 local jobs in year 5, reaching a peak in Quarter 18 with ≈ 180 local jobs. While the workforce is relatively small, this industry provides a significant amount of skilled local labor as illustrated in the graph below.

Figure 2: Average Local employment by skills level

Finally, the trend for the procurement of inputs and capital equipment shows a small local capture over the seven-year investment period at approximately USD 7 million, reaching a quarterly expenditure peak of just under USD 1 million. This is due to the highly specific nature of the goods required and the lack of a manufacturing base for goods compliant with international standards.


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Many of the industry gaps that the team observed for this industry are similar to those found in the Buildings and Concrete Works Analyses (both of which are construction-related sets of activities). Where the gaps have been observed as the same we refer the reader back to these other analyses. Otherwise, below we discuss particular gaps for this industry.


1. Chronic shortage of O&G certified and experienced labor



• There is a lack of O&G certified/accredited technicians and laborers who meet international standards and specifications.

• There is an absence of trained inspectors, accredited instructors, and internationally accredited certifying centers in Tanzania

• Contractors cannot use artisans who are experienced but uncertified artisans on site and therefore have to incur significant cost to have workers O&G certified outside of Tanzania or to bring certification agency staff to Tanzania.

• Even well trained and registered technicians often lack practical training and a ‘compliance driven work ethic’ resulting in inadequate supervision and overlooked poor workmanship resulting in costly reworking.

• Tanks - the EPC contractor will likely self-perform this sub-activity and may employ some unskilled labor – skilled technical supervisors are essential for reliable compliance and certification could improve employment prospects

• MOF & Jetty – will likely be subcontracted to an international prime contractor who will likely self-perform this and may employ some unskilled labor – skilled technical supervisors are essential for reliable compliance and certification could improve employment prospects

• Buildings – there will be demand for O&G pre-certified artisans but a lack of affordable certification services will hamper local labor

• Electromechanical Installation– there will be demand for O&G pre-certified artisans but a lack of affordable certification services will hamper local labor

• Generator/Substation Installation – specialized and mostly imported skilled labor

• Site Lighting - there will be demand for O&G pre-certified artisans but a lack of affordable certification services will hamper local labor

• System Grounding - specialized and mostly imported skilled labor

• Superstructure assembly and installation – there will be demand for O&G pre-certified artisans but a lack of affordable certification services will hamper local labor – however OEM certified installers will likely be acceptable – so early choice of systems will increase potential for local subcontract



Electrical Works

15


• There are limited affordable certification services in Tanzania to test goods for oil and gas projects and similar complex construction works

• There are no dedicated nondestructive testing (NDT) facilities in Tanzania

• High input prices for items such as lumber and pipes and even when certified the perception is that the certification may not be reliable unless from a globally recognized certification agency which further increases the input costs.



• Tanks – most goods – especially consumables imported – few supply contract opportunities

• MOF & Jetty – most goods – especially consumables imported – few supply contract opportunities

• Buildings – basic consumables are manufactured in Tanzania, such as plastic ducting and basic cabling but more sophisticated items will be imported – probably numerous subcontract opportunities for building electrical works

• Electromechanical Installation – basic consumables are manufactured in Tanzania, such as plastic ducting and basic cabling but more sophisticated items, especially OEM specified items will be imported – probably limited subcontract opportunities for building electrical works

• Generator/Substation Installation – most goods – especially consumables imported – few supply contract opportunities

• Site Lighting – basic consumables are manufactured in Tanzania, such as plastic ducting and basic cabling but more sophisticated items will be imported – probably numerous subcontract opportunities for building electrical works

• System Grounding most goods – especially consumables imported – few supply contract opportunities

• Security & Access Control System – basic consumables are manufactured in Tanzania, such as plastic ducting and basic cabling but more sophisticated items, especially OEM specified items will be imported – probably limited subcontract opportunities for building electrical works

3. Low levels of recognized accreditation risks quality and standards compliance


Market



• Compliant firms do not have the means to pass on the cost of compliance except where firms, such as oil and gas sector accept the cost of compliance as a cost of doing business


• Compliant firms that target only the oil and gas sector face sustainability challenges if there is insufficient work to maintain viable levels of utilization

• Where utilization is low, firms have to incur costs to maintain accreditation in terms of standards and maintain certification of equipment and labor force

• Across all sub-activities there will strict enforcement of standards and compliance will advantage those firms with globally accepted accreditations that meet O&G standards however for firms not yet accredited, the risk of unsustainable demand for the more expensive ‘accredited’ might deter firms form taking up accreditation services.


16


The challenges facing electrical works will likely only be alleviated at the general electrical works level. High tech, specialized works such as LNG tanks and process areas and LNG jetty electrical works will provide little subcontracting opportunities and it is unrealistic that local electrical firms could be strengthened sufficiently to be competitive. However, a JV-type arrangement could be useful to build the capacity of more advanced local firms. General electrical works such as building, accommodation camps, street lighting, security and similar systems could have subcontracting opportunities where the EPC contractor must meet localization commitments and where they have labor shortages but are willing to subcontract rather than hire labor with all the administrative costs associated.

Constraint 1: Chronic shortage of O&G certified and experienced labor




At present, electricians need to be registered and meet the certification requirements to operate in Tanzania, however for the oil and gas sector there will likely be a need to upskill to meet more stringent conditions that generally required for basic electrical works. The challenge at present is that the Tanzania LNG (TLNG) consortium has not yet published it intended standards that will be applied as the consortium consists of members with different standards environments in their home countries. An agreed uniform set of standards will need to be applied to the TLNG investments and projects. The IOCs have made it clear that they will abide by those standards that are aligned with TSB standards and which therefore may not require any further accreditation/certification.

Once the TLNG standards are published there may need to be an upskilling and certification programme to ready Tanzanian electricians to work to TLNG standards and specifications.

Regardless of the status of any artisan in terms of certification and/or level of expertise, the IOCs/EPCC have indicated they will hire independent artisans exclusively through a sophisticated labor brokers/agencies network to prevent an influx of unemployed workers to the Lindi construction site that could overwhelm local infrastructure and related services. Workers hopeful of employment who cannot provide evidence they have been referred from a recruiting agency or are domiciled locally will not be considered for hiring at the LNG construction site.

It will be critical that the recruitment organizations are prepared to screen prospective contractors using the correct specifications and standards and will have the necessary administration to scrutinize the artisans’ applications before sending the workers to the construction site. The efficiency and reliability of this ‘supply chain’ of artisans/ technicians/supervisors etc. to the project will have a direct bearing on the successful leveraging of employment opportunities and therefore underpins the assumption for local employment outlined in this industry profile.

Proposed Intervention 1: Conduct a rapid assessment of local labor brokers/agencies and establish a robust and integrated network of recruiters that can quickly and efficiently screen and recommend contactors for employment on the LNG construction site.

Electrical Works

17

Constraint 2: Limited local availability of certified goods



Electrical consumables are available locally and some manufactures produce cabling in Tanzania; however there is a perception that the Tanzanian products are of low quality and this is exacerbated by the influx of low quality Chinese products on the local market. The quality of local cabling and related electrical consumables was not verified during the study however it would be necessary to conduct a thorough audit of the quality and determine whether an investment in equipment would make a difference and whether such investment would be sustainable beyond the TLNG project. However, should a local firm be able to meet the specifications it is not inconceivable that they could become the preferred supplier of cabling and other electrical consumables during the operations phase.

The challenge at present is that the Tanzania LNG (TLNG) consortium has not yet published it intended standards that will be applied as the consortium consists of members with different standards environments in their home countries and an agreed uniform set of standards will need to be applied to the TLNG investments and projects. The IOCs have made it clear that they will abide by those standards that are aligned with TSB standards and which therefore may not requires any further accreditation/certification.

Regardless of the standards chosen, there remains the constraint of expensive goods certification. There are a number of international firms operating in Tanzania (such as SGS and Bureau Veritas Tanzania) but they are perceived to be prohibitively expensive and many local firms reported that they import certification/accreditation experts. In many instances goods that imported from manufacturers are certified via expensive pre-inspection.

While pre-inspection services are regarded as more convenient, they constrain the development of support service with strong linkages to the goods certification, such as non-destructive testing (NDT) services. It is believed that Arusha University is addressing the establishment of an NDT course and related laboratory to begin offering qualifications in NDT; however demand for these services will remain constrained if goods certifications services are not developed locally.

The scoping study should identify potential investors in the development of the center; explore business models for commercial viability, and applying the related regulatory framework for accrediting the center and enforcing adherence to the accreditation.

Proposed Intervention 2: Scope the feasibility of establishing a goods certification center that can provide affordable goods certification and accreditation services.


18

Constraint 3: Low levels of recognized accreditation risks quality and standards compliance


Compliant firms are not competitive in the Tanzanian market


In Tanzania, the low level of accreditation is driven by the reality that most clients do not demand any form of advanced accreditation. Likewise the current ‘accreditation’ implied by the registration with the Contractors’ Registration Board (CRB) does not inspire much confidence in adherence to standards, as it is not uncommon to see firms with the same class of registration behaving in ways that would not imply a similarity of level of registration. Also there is no statutory requirement, beyond CRB registration, to be accredited, for example having an ISO accreditation, and hence the current market externalizes the cost of accreditation and there concomitant implied compliance with standards. That is not to say that firms with no accreditation do not comply, but rather that reliable accreditation will be a basic requirement to compete for subcontracts.

The challenge at present is that the Tanzania LNG (TLNG) consortium has not yet published it intended standards that will be applied as the consortium consists of members with different standards environments in their home countries and an agreed uniform set of standards will need to be applied to the TLNG investments and projects. The IOCs have made it clear that they will abide by those standards that are aligned with TSB standards and which therefore may not requires any further accreditation/certification.

There is no specific interventions at this stage, however once the TLNG standards are published there may need to be an upskilling and certification programme to ready Tanzanian electricians to work to TLNG standards and specifications.

Industry:

Concrete

Concrete

3

Summary

� This activity is broken down by the following sub-activities: 1) docks/jetty; 2) LNG tank facility; 3) building/camp and site construction; 4) LNG train facility; 5) concrete batch plant installation and set-up.

� Total activity demand for the concrete industry is around USD 1.4 billion, for the 7 year LNG construction phase. With current conditions, this activity will generate ≈ USD 260 million in demand for local goods and ≈ USD 134 million in domestic value added, including a yearly average of 400 local jobs over the life of the project.1

� The concrete industry in Tanzania is well developed in areas of building works and civil works; however local firms are not prepared to produce concrete commensurate with the scale and specifications of the LNG project. While the EPC contractor will likely self-perform many of the tasks, opportunities for local capture lies local employment, supply of concrete inputs, and services provided through a joint venture (JV).

� Key constraints preventing greater local participation include: 1. Chronic shortage of certified and experienced labor 2. Low levels of recognized accreditation risks quality and standards compliance

� Efforts to raise performance of local suppliers in the concrete industry could translate to a domestic value added range between ≈ USD 134 million and USD 193 million, subject to the successful implementation of the recommended intervention(s) and the successful uptake of these interventions by the target markets/sectors/entities. Increased skills for semi-skilled workers could add another 100 average local skilled and semi-skilled jobs per year.2 In addition, these improvements could to result in an increase locally purchased goods from a range of USD 260 million to 310 million, part of which will also stimulate the local economy (for example, linking to the bulk supply of concrete inputs such as sand, aggregate, and cement).




The concrete service industry includes both pre-cast (or pre-fabricated) concrete and other concrete civil works and construction activities. Pre-cast concrete refers to the fabrication of concrete products that are used as components in larger infrastructure projects. Expenditures for these products will vary depending on the final civil designs used at the LNG facility. Where available, designs may rely on pre-cast concrete products rather than making them from scratch in an on-site batch plant. The ultimate design decision will also have implications on the division between what an EPC contractor will self-perform versus what will be subcontracted. Given the current capability of the local concrete suppliers and the immense scale of the LNG project, it is unlikely that the EPC will subcontract work directly to local firms. However, local firms could pursue joint ventures with foreign companies or they could supply concrete inputs (sand or aggregate) if they can meet stringent ISO specifications/accreditation.

Given that the value added for this industry is high, the presence of demand for these products in multiple other markets (like residential and commercial construction), and the existence of local enterprise base technical assistance should be prioritized to help deepen local market capture. If the quality of these inputs can be improved sufficiently, purchase of local goods could increase to USD 310 million, compared to a baseline estimate of some USD 260 million. Additionally, domestic value added (labor and profits) as a result of the LNG construction demand for concrete services could rise from an estimated USD 134 million anywhere up to USD 193 million.


4

Industry Demand

Demand Characteristics for Concrete

Demand for concrete is split between pre-cast/pre-fabricated concrete and ready-mix or central-mix concrete. Depending on the civil design of the LNG site, it may be cost effective for the EPC to identify concrete works that could be pre-cast and employ a dedicated subcontractor to produce multiple casting molds and transport the pre-casts to the site. The ready-mix or central-mix concrete will likely be self-performed by the EPC from an on-site batch plant, due to the scale of operations and for quality control. The batch plant contract may be outsourced by the EPC contractor; however the EPC contractor will maintain direct supervision over the batch plant and the testing of each batch before placement. The batch plant will need to be capable of producing approximately 200 – 300 m3 per day of concrete in an automated cycle with automated measuring of ingredients and mixing. This will be bigger than any plant currently available in Tanzania. In addition to the batch plant, the contractor will have to provide various pieces of equipment, including front end loaders, concrete delivery trucks and concrete pouring pumps to enable continuous pouring over a number of days in some instances to ensure foundations of uniform strength and consistency. The batch plant will also be supported by a testing station where each batch will be tested prior to delivery to the specific work are on the site.

Since this is a large scale project, ready-mix or central-mix concrete services may be separated into two bundles: 1) concrete forming and 2) concrete mixing, curing, and testing. The EPC may subcontract a local forming company but will self-perform the remaining services. For example, the LNG tank will require a highly sophisticated foundation to withstand the extreme pressure exerted by 80 000 tons of liquefied natural gas and a vibration proof foundation for the process areas over the life of the plant that withstands fracturing or weakening. In comparison, the concrete foundations for temporary housing facilities are much less technically complex. These factors limit the potential local share of total demand for goods and services. However, there will still be sizeable demand for concrete inputs (sand, aggregate, and cement) that could be sourced locally.

Work is highly mechanized and conducted by semi/skilled operators and engineering technicians. The main demand for local labor will be met by semi-skilled technicians with at least a formal training from a VETA but the Technical Institute trained technicians who have at least 2-4 years of practical onsite experience.

Industry Supply

Local Suppliers

There are an estimated of 5 large and medium sized companies active in Tanzania that provide services and products relevant to the concrete services industry. Some only supply ready-mix concrete but do not fabricate concrete products. Lafarge, a well-known international concrete producer, only provides ready-mix concrete in Tanzania to worksites and concrete product forming enterprises but does not precast any concrete products.

There is not much involvement of international firms in the ownership of local pre-casting companies although the cement manufactures with ready mix capability are mostly owned by

Concrete

5

international firms including Lafarge, Heidelberg, Holcim and, potentially Dangote Cement3 in the event they complete the installation of a cement production facility in the Mtwara/Lindi area These enterprises indicated that their current major markets are Government infrastructure projects and private sector construction projects.

There are some smaller local firms that produce both ready mix concrete and are involved in pre-casting of concrete elements. These local firms have only fairly recently been established with an average of 5 years of operation. Nevertheless, some large construction companies tend to also have in-house batch plants4 and provide services that would fall in this industry. The principal firms that have been identified are Sanent Construction, Gulf concrete, Premix and Tembo concrete.

Amongst these firms, current services and products relate mainly to common infrastructure projects such as container depots, residential and commercial construction project, and petrol stations. Mostly these firms provide on-site forming and pouring of concrete slabs and roads, drainage systems and the supply and installation of pre-cast block for pavements and walkways. More sophisticated castings are currently completed on-site sometimes with an international provider or a specialized team that can guide the formation of high quality structures.

There are only a few casting firms locally and they produce very simple items such as pavement slabs and small scale civil engineering casts such as drain cover retaining rings. There are no local concrete casting firms that have the experience for casting concrete elements and in the volumes required for the LNG facility, however a JV could afford a local firm with the opportunity to learn from the project and be better prepared for more sophisticated concrete casting when future projects are considered.

With regard to concrete placing and foundation pouring, there are numerous construction/building works firms such as Advent Construction that regularly pouring large building foundations, but nothing close to the volume and specifications required in the LNG construction site. Once again, a JV with a local firm would be the best way to provide access to such a construction project for the local firms to ‘learn by doing’ however they will have to provide evidence of compliance with global standards such as the ISO system and evidence of successful construction contracts that indicate capability in this regard.


While it is not likely for local concrete companies to achieve the quality and scale needed for LNG concrete works contracts, local firms could supply concrete inputs (cement, sand, and aggregate) to the EPC. Generally, Tanzanian concrete companies use limestone as an aggregate, which is not hard enough for LNG foundations and concrete elements. The EPC will demand aggregate that is made from granite or volcanic rock, which is available locally 3 Dangote Cement Plc (DCP) is Nigeria's largest cement manufacturer with plans to expand into 14 other African countries

with production capacity in Nigeria of about 19 million tons per year. A fully integrated quarry-to-depot producer, the Group is expected to have pan-African production capacity in excess of 30 million tons a year by 2016 with operations including factories in Senegal, South Africa, Cameroon, Gabon, Benin, Ethiopia, Tanzania, Zambia and the Republic of Congo where production plants are currently being built and/or commissioned over the next two years. Import and bagging facilities are planned for countries including Ghana, Sierra Leone, Liberia, Cote d’Ivoire and Togo. Dangote Cement is the largest company on the Nigerian Stock Exchange, having listed its shares in October 2010.

4 Mostly well equipped with own testing equipment, batch plants normally have a capacity of about 200m3 per hour, and count with the use of cranes and concrete mixers/trucks. These are not generally automated batch plants.


6

but is not widely distributed. If local companies can strengthen the backward linkages of the supply chain of granite and volcanic rock, they could produce aggregate that meets the specifications of the EPCs and could increase local purchase of good. Tanzania has installed cement production capacity of ≈ 4 million tons with a number of internationally recognized firms represented. In addition the Dangote group is intending to locate a large plant that will add 20% to the current production capacity. Many producers complain that cheap foreign cement with poor specifications is being dumped on the Tanzanian market and escaping the scrutiny of the standards authorities and customs and excise imposts. This state of affairs makes local producers, bearing the cost of accreditation and meeting standards, uncompetitive but unfairly so with significant risk in terms of concrete quality used in buildings and other construction projects. Finally, rebar and shuttering used in the forming phase are produced locally but are typically fabricated from scrap metal and of low quality. As a result, most rebar and shuttering boards will be imported.


The key demand areas translate into a series of industry sub-activities that will need to be carried out to deliver on an LNG contract. While it is unlikely that local firms have the capacity to win a large contract, they may be subcontracted by an EPC or Prime contractor for smaller related activities. These activities are outlined below with the relevant characteristics that will impact the value added for the Tanzanian economy.

1. Docks/jetty concrete works (Total sub-activity demand ≈ USD 213 million or 15% of total industry demand)

This sub-activity is related to the construction of various concrete platforms related to the LNG jetty and the MOF. This abutment walls protect the jetty/MOF wharf from erosion. Since this is a large scale project, tasks included in this sub-activity will be separated into two bundles: 1) concrete forming and 2) concrete mixing, curing, and testing. The EPC may subcontract a local forming company but will self-perform the remaining services and produce concrete from the on-site batch plant. This limits the potential local share of total demand for goods and services and labor. The potential domestic value added (labor and profits) range for the docks/jetty concrete works sub-activity is estimated to be USD 22 million to 30 million, subject to the successful implementation and uptake of the recommended interventions by target markets/ sectors/entities.

Tasks

• The following tasks will apply to each work area below: - Concrete forming and rebar placement (potential for local forming companies) - Concrete pouring and curing (likely self-performed by EPC) - Concrete testing [will be self-performed by the EPC for specifications unique to the jetty

design and significant non-destructive testing (NDT)] • Work Areas:

- Pre-cast concrete for Jetty abutment wall - Concrete installation (precast deck panels and in-situ rebar and pouring) - Foam skid platform concrete installation - Loading/service platform concrete installation

Concrete

7

- Pouring of concrete to form the MOF working surface

*Additional associated tasks are captured in separate business cases [excavation (see Site Preparation), and pavement/road access to jetty (see Roads and Landing Strips)]




• Concrete (produced in on-site batch plant) • Rebar will likely be imported due to the

high quality needed • Forming equipment (such as steel shutter

boards) will be imported as the quality of steel required is not available locally

• Most labor will fall under the EPC contract • Work is highly mechanized and conducted by

semi/skilled operators and engineering technicians

• Skilled workers – engineers and NDT technicians

• Semi-skilled workers – shuttering and concrete placing – including rebar placement and tie off.

2. LNG tank facilities concrete works (Total sub-activity demand ≈ USD 355 million or 25% of total industry demand)

LNG tanks are highly specialized elements of an LNG production facility. They are essential to the continuous production of LNG and the efficient loading of cargoes on to LNG tankers. They are subject to extreme pressures due to their size and in the Tanzania LNG project are anticipated to be in the range 150 000 to 180 000 m3 which will stand as high as a 15 story building and hold in excess of 80 000 tons of LNG. 5 The preparation of the site to handle these extremes will require careful and consistent civil engineering and foundation placing and subject to the site’s geological nature, may require piles upon which to place the foundations. The foundations must be robust enough to withstand the pressures of such weight and the ground must be prepared for zero subsidence and movement in order to ensure there are no leaks of gas. The potential domestic value added (labor and profits) range for the LNG tank facilities concrete works sub-activity is estimated to be USD 36 million and 47 million.6

Tasks

• The following tasks will apply to each work area below: - Concrete forming and rebar placement (potential for local forming companies) - Concrete pouring and curing (likely self-performed by EPC) - Concrete testing [will be self-performed by the EPC for specifications unique to the tank


- Tank foundation (concrete foundation, soil bed foundation) - Concrete dike




• Concrete (produced in on-site batch plant) • Most labor will fall under the EPC contract

5 Source: DOE Office of Fossil Energy * Based on a volume conversion of 600:1, LNG density of 456 kg per cubic meter of

LNG 6 These figures are subject to the successful implementation and uptake of the recommended interventions by target markets/

sectors/entities.


8

• Rebar will likely be imported due to the high quality needed

• Forming equipment (such as steel shutter boards) will be imported as the quality of steel required is not available locally

• Work is highly mechanized and conducted by semi/skilled operators and engineering technicians



3. Building/camp and site construction concrete works (Total sub-activity demand ≈ USD 355 million or 25% of total industry demand)

The entire LNG production facility will have numerous foundations placed to support buildings, warehouses, guardhouses, control center, construction camp etc. the foundations and related concrete works will be will be placed throughout the project from the early works until the last year before the first cargoes are loaded. The potential domestic value added (labor and profits) range for the building/camp and site construction concrete works sub-activity is estimated to be USD 36 and 57 million.7

Tasks

• The following tasks will apply to each work area below: - Concrete forming and rebar placement (potential for local forming companies) - Concrete pouring and curing (likely self-performed by EPC) - Concrete testing [will be self-performed by the EPC with significant non-destructive testing

(NDT)] • Work Areas Concrete works (Reinforced in-situ and preassembled):

- Reinforced Concrete (RC) pit and pond - RC Sewer and drain - RC concrete-lined ditch - Pre-cast components including beams and columns - Open ditch - Concrete pipe installation in ditch - Concrete pavement







• Lifting of precast concrete segments into place





4. LNG train facilities concrete works (Total sub-activity demand ≈ USD 355 million or 25% of total industry demand)


sectors/entities.

Concrete

9

LNG tanks are highly specialized elements of an LNG production facility. They are essential to the continuous production of LNG and will have to withstand corrosion and continuous vibration over the life of the plant without fracturing or weakening. Concrete for the LNG train foundation will be laid continuously from start to finish ensuring consistent concrete placing without weaknesses during pouring where disruption could create structural weaknesses deep in the foundation – hence the widespread use of non-destructive testing to monitor for intern imperfections in the concrete. The potential domestic value added (labor and profits) range for the LNG train facilities concrete works sub-activity is estimated to be USD 36 and 47 million.8

Tasks

• The following tasks will apply to each work area below: - Concrete forming and rebar placement (potential for local forming companies) - Concrete pouring and curing (likely self-performed by EPC) - Concrete testing [will be self-performed by the EPC for specifications unique to the jetty


- Structural concrete work (equipment/steel structure—excavation, grading, rebar casting, formwork, casting, coating)

- Reinforced Concrete (RC) pit and pond - RC Pipe rack - RC Sewer and drain - RC concrete-lined ditch - Pre-cast components including beams and columns - Open ditch - Concrete pipe installation in ditch - Concrete pavement












5. Concrete batch plant installation and set-up (Total sub-activity demand ≈ USD 142 million or 10% of total industry demand)

The batch plant contract may be outsourced by the EPC contractor; however the EPC contractor will maintain direct supervision over the batch plant and the testing of each batch before placement. The batch plant will need to be capable of producing


sectors/entities.


10

approximately 200 – 300 m3 per day of concrete in an automated cycle with automated measuring of ingredients and mixing. This will be bigger than any plant currently available in Tanzania. In addition to the batch plant, the contractor will have to provide various pieces of equipment, including front end loaders, concrete delivery trucks and concrete pouring pumps to enable continuous pouring over a number of days in some instances to ensure foundations of uniform strength and consistency. The batch plant will also be supported by a testing station where each batch will be tested prior to delivery to the specific work are on the site. The potential domestic value added (labor and profits) range for the concrete batch plant installation and set-up sub-activity is estimated to be USD 4 and 12 million.9

Tasks

• Installation of : - Silos for storing the concrete ingredients - Mixers - Conveyer belt - Weigh batchers - Weigh belts - Aggregate bins





• The main inputs in to the establishment of the automated batch plant will be the various components of the batch plant, most of which will be imported

• Mobile self-propelled equipment – front end loaders and concrete delivery trucks

• Work is highly mechanized and conducted by semi/skilled operators and engineering technicians



The critical analysis of the labor implications and demand for goods from the concrete works is that the overall job opportunities are quite good and there are also significant local goods supply opportunities, especially with regard to the basic inputs into the concrete production – sand, aggregate and cement – all of which as available locally; There is some debate as to whether the automated batch plant could be procured in Tanzania as there are firms that report they have such equipment that can deliver up to 100m3 per day, however the LNG construction site will need to have an automated batch plant that can deliver 200m3 to 300m3 per day and the IOCs believe that will need to be imported.

Beyond the goods demand, there are however potential jobs at a semi/skilled level. The challenge is that there is currently a shortage of skilled supervisory labor with practical experience. The important aspect of this is that supervisory technical staff are not necessarily high skilled artisans, but general technically skilled workers with transferable skills. These skills include the ability to read technical drawings/maps, supervise unskilled labor and conduct NDT procedures in order to ensure compliance with specifications and standards.


sectors/entities.

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11

Throughout the concrete works there are job opportunities; however the description is at what level. It is anticipated that due to the constrained availability of certified and experienced technician there will be a high level of imported skilled labor but a significant amount of local semiskilled labor on site. The possibility of the subcontracting of some of the batch plant concreted production service to a JV of a local firm with a global branded player, such as a Lafarge explains the relatively strong local purchases through the project and across all sub-activities but also the relatively good job prospects – early upskilling and retraining of technicians could increase the local procurement of local skilled labor.


Sub-activity Local Goods Y1 Y2 Y3 Y4 Y5 Y6 Y7

1. Docks/jetty concrete works 0 5,964,000 16,188,000 12,780,000 4,260,000 3,408,000 0

2. LNG tank facility concrete works

0 9,940,000 26,980,000 21,300,000 7,100,000 5,680,000 0

3. Building/camp and site construction concrete works

0 9,940,000 26,980,000 21,300,000 7,100,000 5,680,000 0

4. LNG train facility concrete works

0 9,940,000 26,980,000 21,300,000 7,100,000 5,680,000 0

5. Concrete batch plant installation and set-up

0 596,400 1,618,800 1,278,000 426,000 340,800 0

Total by Year 0 36,380,400 98,746,800 77,958,000 25,986,000 20,788,800 0




1. Docks/jetty concrete works

Skilled

0 6 17 14 5 4 0 7

Semi-skilled 0 32 87 69 23 18 0 33

Unskilled 0 26 69 55 18 15 0 26

Subtotal 0 64 174 137 46 37 0 65

2. LNG tank facility

concrete works

Skilled

0 11 29 23 8 6 0 11

Semi-skilled 0 53 145 114 38 30 0 54

Unskilled 0 43 116 91 30 24 0 44

Subtotal 0 107 289 229 76 61 0 109

3. Building/camp and site

construction concrete works

Skilled

0 11 29 23 8 6 0 11

Semi-skilled 0 53 145 114 38 30 0 54

Unskilled 0 43 116 91 30 24 0 44

Subtotal 0 107 289 229 76 61 0 109

4. LNG train facility

concrete works

Skilled

0 11 29 23 8 6 0 11

Semi-skilled 0 53 145 114 38 30 0 54

Unskilled 0 43 116 91 30 24 0 44

Subtotal 0 107 289 229 76 61 0 109

5. Concrete batch plant

Skilled

0 2 6 5 2 1 0 2

Semi-skilled 0 11 29 23 8 6 0 11



12

installation and set-up

Unskilled 0 9 23 18 6 5 0 9

Subtotal 0 21 58 46 15 12 0 22 Total 0 405 1,100 868 289 232 0 413


The distribution of employment by sub-activity between skill categories and origin (local vs. expatriate), suggests that the total domestic value added over the seven-year investment period is approximately USD 134 million, composed of USD 55 million in labor and USD 78 million in profit. In addition, the activity would also result in the purchase of some ≈ USD 260 million in local goods, part of which will also stimulate the local economy (for example, linking to the bulk supply of concrete inputs).

The estimated pattern over time for total value added suggests a peak in year 3 of ≈ USD 50 million. Error! Reference source not found. shows equal potential for both local subcontracting and local labor. Based on our understanding of the sector, we expect subcontracting to manifest in the form of a JV between a local and international firm. If a JV does not happen, this could significantly undermine the domestic profits portion of value added, as the potential for subcontracting will reduce dramatically.


However, local labor will retain the same robust demand independent of the subcontracting potential. Total local employment is projected to grow from an average yearly total of ≈ 400 local jobs in year 2 to over ≈ 1,100 local jobs in year 3, peaking in quarter 10 with nearly 1,200 local jobs. Under the assumptions about qualifications of the local workforce, the projections imply a relatively balanced pattern for the three skill categories, skilled, semi-skilled and unskilled, as illustrated in Figure 2 below. Early upskilling and retraining of technicians could increase the local procurement of local skilled labor.

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Concrete

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Finally, the trend for the procurement of inputs and capital equipment also shows the same overall pattern, with a peak of nearly USD 100 million for local goods in year 3. While the cement industry for a project of this size relies on heavy machinery that will likely be imported, there are significant local goods supply opportunities, especially with regard to the basic inputs into the concrete production – sand, aggregate and cement – all of which as available locally.


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Key Industry Constraints and Impacts

Many of the industry gaps that the team observed for this industry are similar to those found in the Site Preparation and Building and Camp Construction Industry Analyses (both of which are construction-related sets of activities). Where the gaps have been observed as the same we refer the reader back to these other analyses. Otherwise, below we discuss particular gaps for this industry.




competitiveness



• There is an absence of trained inspectors, certified instructors, and internationally accredited certifying centers in Tanzania


• Even well-trained and certified technicians often lack practical training and a ‘compliance driven work ethic’ resulting in inadequate supervision and overlooked poor workmanship resulting in costly reworking.

• In all the concrete works areas, the EPC contractor will likely self-perform this and may employ some unskilled labor but will be seeking skilled technical supervisors are essential for reliable compliance and certification could improve employment prospects

• Concrete placing is not a highly technical task and with the correct equipment is fairly straight forward; however placing concrete expertly with the assurance that there are no ‘hidden’ imperfections is the critical differentiator. This relates to the risk that flaws in the concrete will lead prohibitively costly reworking later – hence IOCs and EPCCs demand significant proof of accreditation and compliance with ISO standards as a bare minimum.

2. Low levels of recognized accreditation risks quality and

standards compliance


Market

Lack of accreditation will be the barrier many local firms will

encounter • National quality standards are

not enforced with ‘zero tolerance’ approach by regulatory authorities



• Compliant firms that target only the oil and gas sector face sustainability challenges if there is insufficient work to maintain viable levels of utilization


• Across all sub-activities there will strict enforcement of standards and compliance will advantage those firms with globally accepted accreditations that meet O&G standards however for firms not yet accredited, the risk of unsustainable demand for the more expensive ‘accredited’ might deter firms form taking up accreditation services.

• The most likely approach that might be acceptable for international contractors will be JVs with smaller firms

Concrete

15


Constraint 1: Chronic shortage of certified and experienced labor

Industry Impacts LNG Project Impacts



In addition to improving the local training facilities and curriculum (see Building and Camp Construction), facilitating focused workshops and new product development courses will aid in building the skills needed amongst local firms.



Compliant firms are not competitive in the Tanzanian Market

Lack of accreditation will be the barrier many local firms will encounter

While accreditation and certification is important in this industry, the barriers to achieve these are not as high as others (like metal fabricated-related products). Much of the industry gap currently relates to HSE compliance at the place of fabrication and during installation on site. Making these standards and procedures available through an enterprise center will ease the ability of these firms to access key information they need to adjust their work practices. Much of this is already underway. For example, Tanzania Portland Cement Company Limited (a subsidiary of the Heidelberg Cement Group) was last year certified by Occupational Health and Safety Advisory Services (OHSAS) for employees’ efforts to promote an injury-free workplace at Wazo Hilland is certified ISO 9001, ISO 140001 and OHSAS 18001 in Tanzania.

In addition to making available this information, concrete industry workshops, business fairs and training exchanges have proved useful in helping local firms upgrade and improve their competitiveness.

Local firms are well-placed to improve their ability to upgrade. Working with other local enterprises involved in the concrete products value chain by bidding on large scopes of works in consortiums is one approach that will aid this. Another can be the use of joint-ventures. The Government of Tanzania should also begin the process of engaging with the IOCs and EPC contractors to secure commitments to ensure that subcontracts in the ready-mix and precast concrete market are used as procurement tools set aside key areas of works against which local firms can compete and also use as market targets that will guide their upgrading plans.

Proposed Intervention 1: One approach is to work with the large ready-mix concrete suppliers in Tanzania (such as Lafarge or Heidelberg) to devote resources to establish such workshops (often times there is a business interest in doing so from the ready-mix companies as it leads to increased sales domestically). These trainings or courses can be deployed through local VETA institutions.

Proposed Intervention 2: Match an investor with a local firm that will then from a JV with a larger cement/concrete producer.


16

This suggestion was raised with Lafarge (Mbeya Cement) and received favorably, so long as the local firm could to bring its share of the capital to the table and be committed to the operation role in the contract delivery. There might then be a mechanism for enabling the local firm to acquire capital assets after the project has been delivered. Whilst only a couple of firms, and relatively small ones, specializing in concrete and related forming and casting were found in Tanzania, working with and placing concrete is carried out by most building works and civil works contractors in Tanzania and it should not be too difficult to find a suitable partner for a JV.

There are number of private equity funds being bold in making investments in east Africa, however one stands out as having made a number of recent acquisitions in the oil and gas supplier area. For example, Catalyst Principal Partners (‘Catalyst’) recently acquired significant shareholding in a supplier of PPE (ChemiCotex Industries Limited11) and an equipment hire company (EFFFCO Tanzania12 – interviewed during the supplier gap analysis). Private equity firms could be encouraged to invest in local concrete producing and works firms for a potential tie up with a large international firm to provide concrete manufacturing and placing services to the LNG construction project.

11 Tanzanian-based manufacturing conglomerate engaged in the manufacturing and marketing of fast moving consumer goods,

industrial plastics and metal products. 12 EFFFCO Tanzania is a plant hire company established in 2010 that provides heavy haulage, heavy lifting, logistics, and

civil engineering works to leading national and multinational corporates in the heavy industrial, oil & gas, mining and road construction sectors. Effco operates equipment sourced from the world's leading plant and equipment manufacturers including Caterpillar, Komatsu, Tadano, Kato, Liebherr and places particular emphasis on its environmental, and health and safety standards for all its services.

Industry:

Equipment Hire and Scaffolding


Page 1

Summary

� This activity is broken down into the following sub-activities: 1) crane rental; 2) scaffolding rental and set-up/breakdown; 3) other heavy equipment lifting rental.

� Total industry demand for equipment hire and scaffolding is around USD 240 million, for the 7 year LNG construction phase. With current conditions, this activity will generate ≈ USD 8 million in demand for local goods and USD 15 million in domestic value added (labor and profits), including a yearly average of 70 local jobs over the life of the project.1

� The capacity of the local market to provide the goods and services associated with the equipment hire industry is fairly high. Most of the local capture will be in the form of net profits derived from subcontracts to local firms.

� The scaffolding sub-activity provides the greatest potential for gains, considering there are no local scaffolding companies at present and there is market demand.

� Key constraints preventing greater local participation include: 1. Constrained access to finance limits the ability for local firms to readily purchase or

lease required equipment necessary for large contracts. 2. Shortage of qualified and experienced technicians and equipment operators. 3. Availability of equipment products is limited in the local market.

� Efforts to raise performance of local suppliers in the equipment hire and scaffolding industry could translate to a domestic value added range between ≈ USD 15 million and USD 35 million, subject to the successful implementation of the recommended intervention(s) and the successful uptake of these interventions by the target markets/sectors/entities. Increased skills for semi-skilled workers could increase the average local jobs by ≈ 50 per year.2




The LNG equipment hire industry relates largely to the supply of equipment for transporting and lifting goods and prefabricated items for erection and installation of the various elements of the LNG production facility. The industry also incorporates the supply and erection of scaffolding in a global market.

Equipment hire, specifically cranes, in Tanzania is a fairly well-developed market with a good history of performance. Still there is a shortage of certified equipment and the cost of hiring this equipment is very high. Only an estimated 5 percent of all local civil and building works firms own their own equipment. As such, demand for equipment hire is high while the actual supply of equipment from the leasing agencies is low. Most equipment available is typical of general construction and any specialized equipment is imported, leased or rented from an international company.

In the O&G sector, there is strict adherence to the stringent global standards both on terms of the certification of the equipment and the operators themselves. Investments aimed at addressing these gaps could spur development of high value local employment and contracting opportunities that are sustainable beyond the LNG construction project.


Page 2

Industry Demand

Demand Characteristics for Equipment Hire and Scaffolding

The LNG equipment hire industry relates largely to the supply of equipment for transporting and lifting goods and prefabricated items for erection and installation of the various elements of the LNG production facility. The LNG construction site is essentially a large assembly area where prefabricated steel and concrete items are assembled and installed to according to strict standards requiring very well trained and skilled equipment operators. From the outset through completion, trucks will be transporting items onto site and crane operators will be lifting these items into place so the installation technicians and artisans can follow the schematics to bolt and weld the items together.

The hiring of specialized heavy machinery to carry out the lifting and transportation of these goods is generally sub-contracted. The most typical challenges to sub-contracting to local enterprises are the availability of skilled heavy equipment operators and the availability of equipment (with documented routine maintenance logs).

Scaffolding typically erected by the contractors carrying out various aspects of a project, rather than issuing a subcontract to a scaffolding company. The building contractor will likely assemble their own scaffolding during the execution of the project. Should the contractor move off site and be replaced by the mechanical works contractors then the scaffolding erected will be disassembled and the mechanical works contractor will erect their own scaffolding.

Industry Supply

Local Suppliers

The local market for equipment hire has been limited until recently with the entrance of notable foreign firms (mainly from South Africa). Prior to this, most local firms had a limited inventory of equipment that was appropriate for residential and commercial construction. While demand has remained high given the number of large infrastructure projects in Tanzania (from residential housing to roads), most EPC contractors have mobilized their own equipment as local enterprises have not been able to keep pace with the quantity that is required. The delays and risks in working through a local equipment hiring firm to purchase, import and then rent or lease new equipment has proven to not synchronize successfully with project timelines. Locally operating foreign firms have been able to capture some of this increased demand but simultaneously have squeezed the market justification for local firms to invest and grow.

Aside from these trends, market demand for equipment hire and leasing is greater than local supply. Effectively, this has materialized into average equipment utilization rates around 80 percent from cranes to dozers and lifters. Most of this equipment is common construction, trucking and lifting heavy machinery. The constraint regarding shortage of reliable and original equipment manufacturer accredited equipment is a chronic problem in Tanzania that is compounded by the constrained access to capital by many contractors. This severely limits


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the capacity of contractors to supply equipment to the LNG project. Many civil contractors consulted locally indicated that the equipment they own and lease are unreliable, old, and very expensive to maintain. However, some more sophisticated and certified equipment has recently entered the market, as evidenced by the provision of a 350 ton crane to the Chinese firm constructing the Mtwara to Dar es Salaam pipeline by a local equipment hire company.

Local equipment/crane hiring enterprises claim that 80 percent of their market is domestic while an estimated 20 percent of their market is for regional customers (or projects). The cross border hiring of equipment occurs typically between branches of the same company represented in the two countries but needing additional equipment from a different location. This was mentioned as an example where the Tanzania firm sends equipment to its branch in Uganda to meet demand there when necessary.3

The Tanzania scaffolding supply and rental/leasing industry is non-existent with all scaffolding erected directly by various contractors conducting work on the site. For example, the building works contractor will erect their own scaffolding and, should the contractor move off site and be replaced by the mechanical works contractors, then the scaffolding erected will be disassembled and the mechanical works contractor will erect their own scaffolding. It would appear that this presents a market potential for local scaffolding rental, especially given the robust local construction industry. However, based on information from civil contracting firms and from observations on project sites around Dar es Salaam, there is currently a very limited degree compliance with structural and safety standards with regards to scaffolding structures. Even CRB ‘accredited’ local companies often use wood scaffolding instead of steel and regulations go unenforced.

With regards to labor, firms have trouble finding adequately trained managers and supervisors with practical field based expertise. For most equipment, especially cranes, the equipment hire company has the responsibility to supply an accredited operator to the site. Semi-skilled and unskilled equipment maintenance workers can be easily found locally.

Equipment maintenance is generally the responsibility of the hiring firms – with contractors responsible for the fuel and related operational consumables. The hiring firms will usually provide a full maintenance contract that includes oils for hydraulics and engine oil changes. In some instances with equipment requiring skilled operators the hiring company may supply the equipment with an operator.


Local contractors typically use a mixture of rented and owned capital equipment and heavy machinery. In Tanzania, leasing equipment is difficult, expensive, and driven by cash transactions. This often creates a cash flow issue for local firms. A number of factor influence the cost and availability of equipment for hire in Tanzania, namely:

• Cost of capital: The cost of capital is high, some firms reporting interest rates as high as 20 to 25 percent for short-term loans.

• Punitive collateral requirements: Small local firms also struggle to accumulate sufficient collateral, which can reach 120 percent or more of the value of the loan in

3 This was the explanation offered by Mantrac.


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terms of equipment and contracts, in order to qualify for some short-term business loans.

• Low Single Borrowers Limit (SBL): the SBL is set by the Bank of Tanzania, and applied by local banks and is often insufficient for equipment purchases that often involve high financing thresholds. It is therefore not surprising that the largest and most visible equipment hire firm identified is a foreign owned firm with access to capital outside of the Tanzanian capital markets.

• There are very high import tariffs on capital equipment and according to firms interviewed tariffs are currently at 25% and this rate was increased a few years ago and which has hit the mining sector hard in terms of the cost of acquiring heavy equipment.

However, despite these constraints, local contractors exhibited limited acceptance of the use of escrow type arrangements by banks where future cash flows could be used as collateral.

There is skilled labor available in Tanzania, however only a small proportion is accredited and employers are required to incur significant overheads in training or certifying equipment operators prior to employment on contracts. This situation is compounded by a dearth of on-the-job trained technicians at the supervisory level that are responsible for the enforcement of specifications and standards. There is a general lack of skilled workers available and skills based on prior experience in an oil and gas industry activity are virtually absent. There are limited certification authorities in Tanzania to test and certify equipment operators and equipment for oil and gas projects, so firms have to fly in certification agents from other countries, increasing operating costs.


The key demand areas translate into a series of industry sub-activities that will need to be carried out to deliver on an LNG contract. These activities are outlined below with the relevant characteristics that will impact the value added for the Tanzanian economy.

The scaffolding sub-activity has very limited potential for local value added as there are no identified local scaffolding companies. Crane rental and other heavy equipment sub-activities have the potential for local subcontracting. Local companies claim they have the capacity to respond to demand for equipment hire, however, firms will face issues with having enough certified equipment to reach the scale of the projects. The EPC contractor will likely bring equipment to site via barge if it is not available locally.

1. Crane Rental

(Total sub-activity demand ≈ USD 96 million or 40% of the total industry demand) Two local firms were identified (EFFCO and Fabec) that supply cranes for hire. There are issues with standards (certification of equipment) and scale of operations, as significant credit must be leverage to purchase cranes. In terms of labor, there is good potential for local capture of jobs, especially semi-skilled. EPC contractors may train up their own equipment operators or the equipment hire company may supply operators with the equipment.


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These stationary cranes are imported and constructed on site for very specific tasks. Highly skilled operators will be supplied by the crane manufacturer or supplier, as these cranes will lift incredibly heavy and valuable equipment. The potential domestic value added (labor and profits) range for the crane rental sub-activity is estimated to be between USD 5 and 12 million, subject to the successful implementation and uptake of the recommended interventions by target markets/ sectors/entities.

Tasks

• Operations • Maintenance • Logistical Management/Scheduling





• Mobile cranes: Operational Consumables -Fuel, oil, and tires

• Service consumables – air filters • Heavy lift cranes: are imported and

constructed on site. While they may be built on tracks, they are stationary

• Combination of skilled and semi-skilled with a good potential for local capture

• Supervisors and managers • Semi-skilled workers performing routine

checks and maintaining hydraulics • Unskilled manual labor – mostly on the

maintenance side –refueling, washing and tire changing

• Equipment operators – sometimes supplied with the equipment

• EPC contractors may train up their own equipment operators

2. Scaffolding Rental and Set-up/breakdown (Total sub-activity demand ≈ USD 48 million or 20% of the total industry demand) EPC contractors own steel scaffolding and self-perform the setup/breakdown. There were no specific local firms identified that rent scaffolding or specialize in the set-up/breakdown. It would appear that this presents a market potential for local scaffolding rental, especially given the robust local construction industry. However, based on information from civil contracting firms and from observations on project sites around Dar es Salaam, there is currently a very limited degree compliance with structural and safety standards with regards to scaffolding structures. Even accredited local companies often use wood scaffolding instead of steel and regulations go unenforced. This lack of compliance and enforcement, in turn, limits local demand for compliant steel scaffolding and gives little market incentive for local firms to emerge.

The potential domestic value added (labor and profits) range for the scaffolding rental and set-up/breakdown sub-activity is estimated to be between USD 3 and 9 million.4


sectors/entities.


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Tasks

• Transportation • Installation • Breakdown • Generally self-performed





• Prefabricated scaffolding units made of steel • Wooden scaffolding available locally but

this will not be used on this project

• Skilled riggers • Manual labor • Local hires for manual labor

3. Other Heavy Equipment Rental (Total sub-activity demand ≈ USD 96 million or 40% of the total industry demand) This sub-activity includes the rental of heavy equipment used at the process/train site, common area, fabrication yard/laydown area, and MOF. Large transport trucks, cargo trailers, drilling equipment (post drilling pneumatic hammers), bulldozers, excavators, dump trucks.

The potential domestic value added (labor and profits) range for the other heavy equipment lifting rental sub-activity is estimated to be between USD 6 and 14 million.5

Tasks

• Certification of equipment • Transport of equipment to site • Operation of equipment • Maintenance of equipment




• Equipment • Operating consumables such as oils • Fuel • Tires

• Highly skilled operators either supplied by the equipment supplier or trained by the IOC/EPCC.

• Skilled maintenance technicians with extensive piratical experience


Equipment hire rates have three key cost drivers- the cost of capital, the cost of maintenance and the cost of labor (operating costs such as fuel are generally picked by the contractor). In the O&G sector, there is strict adherence to the stringent global standards both on terms of the certification of the equipment and the operators themselves. In addition, record keeping is


sectors/entities.


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critical to provide evidence of the maintenance of the equipment. Where maintenance requires stripping down and reassembly, the reassembled equipment must be recertified by the original equipment manufacturer.

The analysis reveals that overall job opportunities associated with this sub-activity are moderate and the majority of these jobs will be semiskilled. There are also skilled jobs opportunities, especially with regard to experienced operators and maintenance mechanics – refer to Table 2 below. Yet, such skilled and semiskilled labor will have to be appropriately accredited and it is anticipated that the IOCs will conduct outsourced certificated operator training courses.

Refer to tables below.



Y1 Y2 Y3 Y4 Y5 Y6 Y7

1. Crane Rental 38,400 691,200 691,200 768,000 768,000 614,400 268,800

2. Scaffolding Rental and Set-up/breakdown

1,920 34,560 34,560 38,400 38,400 30,720 13,440

3. Other Heavy Equipment Lifting Rental

38,400 691,200 691,200 768,000 768,000 614,400 268,800

Total by Year 78,720 1,416,960 1,416,960 1,574,400 1,574,400 1,259,520 551,040




1. Crane Rental

Skilled

0 7 7 8 8 6 3 6 Semi-skilled 1 14 14 15 15 12 5 11


2. Scaffolding rental and Set-up/breakdown

Skilled

0 5 5 5 5 4 2 4 Semi-skilled 1 10 10 11 11 9 4 8


3. Other Heavy Equipment Lifting Rental

Skilled

0 7 7 8 8 6 3 6 Semi-skilled 1 14 14 15 15 12 5 11





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The total domestic value added over the seven-year investment period is estimated to be ≈ USD 15 million, composed of ≈ USD 12 million in labor and ≈ USD 3 million in profit.

The majority of value added will be derived from employment – refer to Figure 1 below – especially in the form of equipment operators and maintenance technicians. Associated practical training and experience will be critical in maximizing the value added. Experienced and accredited equipment operators are currently be in high demand and jobs generated should be both transferable sustainable after the construction phase is over.


Figure 2 shows that the demand for labor stretches across the entire project, as various forms of equipment are required from early works until project close out. In terms of full-time equivalents on average yearly basis, local employment peaks across in year 4 with 95 local jobs generated.

The number of jobs demanded is average relative to other industries; however a key aspect is the level of semiskilled labor that could be employed locally. There is a critical need to start upskilling experienced technicians to leverage their experience in order to enable them to be hired in supervisory roles and to develop their transferable skills. Once the LNG project moves into the operations phase, supervisory technicians can to seek employment in a wide range of construction environments throughout Tanzania.


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Finally, Figure 3 shows the extremely small local capture of goods demanded over the life of the project. This is due to the low levels of accreditation and subsequent compliance in the equipment hire and scaffolding Industry.



The constraints in the equipment and scaffolding industry relate to three critical areas that contribute to the baseline cost in the various subactivities, namely the difficulties obtaining affordable financing, the chronic shortage of experienced equipment operators and the subsequent the high cost of training equipment operators and maintenance technicians and the low level of demand for accredited equipment hire services despite the high demand for equipment.


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1. Constrained access to Finance - High cost of capital

High Cost Base Inhibits Industry Growth

Capital constraints increase supply risks

• The cost of capital is high and local firms cannot find the appropriate financial products to scale up operations.

• Collateral requirements for some short-term loans are too high for small local firms struggle to accumulate sufficient collateral to qualify for some short-term business loans.

• The Low Single Borrowers Limit (SBL) used by most local banks is insufficient for many construction contracts.

• Securing a necessary bank guarantee to a performance bond can be difficult.

• Firms remain undercapitalized, labor intensive and technically outdated.

• Firms unable to bid on large projects where they cannot raise finance for performance bonds.

• Firms cannot therefore upgrade to improve productivity and cannot get exposure to larger projects to gain knowledge and expertise and ultimately remain uncompetitive.

• Across all subactivities, the availability of certified equipment will require significant capitalization of the equipment hire industry in turn enabled by access to affordable finance will be critical, failing which the IOCs/EPCCs will avoid local suppliers where supply risk could result in significant liquidated damages.

• The dearth of scaffolding hire and installation services will likely result in significant imports of scaffolding and related skilled technicians






• Contractors cannot use experienced but uncertified operators and technicians on site and therefore have to incur significant cost to have workers certified outside of Tanzania or to bring certification agency staff to Tanzania.

• Even well trained and certified technicians often lack practical training and a ‘compliance driven work ethic’ resulting in inadequate supervision and overlooked poor workmanship resulting in costly reworking.

• Whilst most contractors in Tanzania would self-perform the installation of scaffolding, globally it is not uncommon to subcontract the supply and erecting of scaffolding to firms that specialise in the same

•



Zero tolerance for non-certified equipment will limit use of local

firms’ equipment • There are limited affordable

certification services in Tanzania to test equipment for oil and gas projects and similar complex construction works.

• The leasing market hamstrung by the heavy import duties imposed on imported equipment has a direct impact of making locally available equipment expensive and uncompetitive.

• In the oil and gas sector, equipment has to be certified regularly and be recognised as reliable to assure IOCs and EPCCs that contractors can provide a reliable service as delays have significant liquidated damages implications.

• Firms without affordable and certified equipment will not get considered for subcontracts

• The enforcement of strict accreditation and certification baselines for the supply of equipment will make it difficult local suppliers which will be exacerbated by the loss of cost competitiveness due to the high import tariffs.

• There are no specialised suppliers of scaffolding and no certified scaffolding is produced in Tanzania and contractors that erect their own scaffolding import the scaffolding elements.


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The following interventions are recommended to alleviate the aforementioned constraints and subsequently reverse the adverse impacts on sub-activities. The industry specific interventions will be addressed in the order of significance, determined by the potential positive impact on the improvement of the competitiveness of local firms and subsequent improvement in the value added that can be captured locally.

Constraint #1: Access to Finance - High cost of capital


Inhibited Sectoral Growth Working capital constraints increase supply

risks

Access to capital has been a major constraint to the expansion of the sector with regard to the growth of local firms, as large foreign firms raise capital outside of the Tanzanian capital markets and therefore have a distinct advantage both in terms of the volumes of capital available and the significantly lower cost of capital. Most of the issues facing local firms in this regard cannot be addressed through the market alone and government intervention is needed.

Alternatively, there are ‘escrow’ type options available to small businesses using future cash flows as collateral whereby the lender opens a business account for the debtor and all payments are made into the bank account at the lenders bank with a facility to deduct payment to the bank before cash becomes available to the debtor. Amongst the firms interviewed, small firms indicated they are not in favour of this approach as they lost managerial control over their businesses and cannot make strategic decisions regarding the use of capital which in turn “dampened the entrepreneurial spirit.”

Constraint #2: Chronic shortage of certified and experienced labor





The private sector would contribute to both the PTC’s start-up funding and management funding and a third-party private company could be awarded the rights to operate the center.

Proposed Intervention 1: Scope the feasibility of targeted credit guarantee, credit lines or leasing facilities.



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A PPP approach would allow for commercial viability of the center, introduce good business practices and sustainability (something often lost with publicly-operated training centers), and continue to adjust to the market needs in order to earn revenue. A steering board would be established that would provide guidance on the curricula and strategic direction to ensure relevance for the stakeholders. A third-party private company would be accountable for the day to day operations, including implementing courses, regulatory compliance, sourcing qualified trainers and mentors. For additional detail please see the camps and building industry profile recommendations.

Constraint #3: Locally available certified capital equipment is very costly

Industry Impact LNG Project Impacts



Background: The equipment hire and leasing market suffers from undersupply of key equipment and products. This is accompanies by a high demand in the market (suggests a good market for investments as evidenced by the recent acquisition of Effco by the Kenyan Private Equity) firm7.

Targeted interventions could help open this market to outside dealers, along with easing access to finance for local contractors and ease the constraint of under supply. Part of this can be accomplished through investment promotion and information dissemination of market opportunities.

7 Kenyan-based private equity firm, Catalyst Principal Partners has acquired majority stake in Tanzanian heavy equipment

rental and logistics firm, EFFCO. Although details of the deal were not disclosed, the Eastern African-focused investment company usually invests between $5 million to $20 million into deals with an average investment period of 4 to 6 years.

Proposed Intervention 3: Facilitate investment promotion activities with global equipment suppliers to show the potential market opportunities in Tanzania. Link these efforts the potential joint venture opportunities as well as financial products that can be developed locally to allow local operators to purchase/lease/obtain the equipment being sold in the market.

Industry:

Site Preparation

Site Preparation

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Summary

� This activity broken down by the following sub-activities: 1) Site surveying; 2) Site clearance and initial leveling; 3) Perimeter fencing installation; 4) Preparation of LNG tank pad and process/train area; 5) Initial site preparation for building and camps area; 6) Initial site preparation for jetty/MOF.

� Total activity demand for Site Preparation is around USD 1.5 billion, for the 7 year LNG construction phase. With current conditions, this activity will generate ≈ USD 118 million in demand for local goods and USD 76 million in domestic value added (labor and profits), including a yearly average of 460 local jobs over the life of the project.1

� Key constraints preventing greater local participation include: 1. Shortage of reliable and certified equipment that undermines ability to deliver; 2. Shortage of experienced and skilled equipment operators increasing maintenance

costs; 3. Shortage of certified and experienced technicians undermines quality control.

� Efforts to raise performance of local suppliers in the Site Preparation industry could translate to a domestic value added range between ≈ USD 76 million and USD 116 million, subject to the successful implementation of the recommended intervention(s) and the successful uptake of these interventions by the target markets/sectors/entities. Increased skills for semi-skilled workers could add another 130 average local jobs per year.2

1 For a full explanation of assumptions used to derive this estimate, please see Assumptions Annex. 2 The implementation of interventions is no guarantee of the uptake of such interventions and the potential upside for


The surveying, clearing, excavating, and filling/leveling of various locations around the LNG project site all comprise site preparation industry services. Site preparation also includes the preparation of the area for basic infrastructure, such as temporary access roads. This work always precedes the development of any infrastructure and infrastructure supports, such as concrete pads, make take place slightly ahead of the final investment decision (FID). The IOC may bring in a large international firm to conduct the site prep, who may in turn subcontract out some tasks to local firms, but the tendency is to self-perform these activities. However, the international firm will hire locals and procure equipment locally to reduce costs, when available.

Currently, 2,860 civil works firms are registered in Tanzania; however, less than forty firms would qualify as potential suppliers for the LNG project based on their business systems, registrations, workers’ certifications, track records, size, and previous preference by large international companies and government agencies. The most serious constraints relate to the availability of both reliable and certified equipment and experienced and certified technicians for supervisory and quality control roles. With regard to the equipment another issue is the availability of spare parts – equipment related issues are dealt with in the Equipment Hire Industry Profile. Addressing these constraints in the Site Preparation industry could translate to a domestic value added range from ≈ USD 76 million and USD 116 million. Additionally, if the quality of these inputs can be improved sufficiently, purchase of local goods could increase to USD 160 million, compared to a baseline estimate of some USD 118 million.


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Industry Demand

Demand Characteristics for Site Preparation

Site preparation activities are critical as they set the base for the rest of the LNG production facility; the foundations and all structures will rest on the prepared site and will have to remain stable for 20 to 30 years, enduring constant heavy use and extreme loads. There is market demand for site preparation is dependent on a number of factors—such as the topography and soil and geological formations—that can trigger significant price fluctuations due to realization or successful mitigation of unforeseen complications. These fluctuations range from as low as 3 percent of project cost up to a high of 11 percent. Efforts to reduce the risk of cost fluctuations include extensive ground testing to reduce risk in this regard and preliminary assessments of labor and equipment availability, as imports of either will increase costs significantly. For several of these LNG project locations, the contractor will be required to backfill with engineered fill that meets project specifications in order to mitigate land subsidence and potential seismic movements. An estimated 5 to 6 square kilometers will be prepared for use with site preparation services.

Based on previous LNG facility development projects, IOCs will usually engage in early works (including site preparation) slightly ahead of the final investment decision (FID). However, this tends to be driven by the investors’ risk profile. In the context of identifying areas to maximize local content, it is likely that the majority of the site preparation services will occur during the early works phase of the seven-year project development period. This means that local firms interested in capturing some of these opportunities have a shorter time span to get equipped and ready to compete for the contracts.

While the EPC contractor will not yet be on site, the IOC may bring in a large international firm to conduct the site prep. The international firm may subcontract out some tasks to local firms, but the tendency is to self-perform these activities due large in part to the ability to bring to the work the proper supervision, personnel management, equipment, and quality assurance that is often lacking in the local market. When available, the international firm will hire locals and procure equipment locally to reduce costs. The ratio of skilled to unskilled workers will increase proportionally with the degree to sophistication for the specific site.

But in addition to the local labor demand from the EPC, significant local enterprise subcontracting opportunities exist, including for:

� Permanent and temporary site clearing. � Permanent and temporary site leveling, backfill, and compaction. � Preparation of site roads, including excavation, leveling, and placement of road base

materials but likely no pavement (generally applied later after early works completed as large bulk earthmoving equipment will damage tarred surfaces).

� Erection of the perimeter fence. � Excavation of site drainage trenches and impoundment basins.

Site Preparation

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Industry Supply

Local Suppliers

Site preparation activities are already common in Tanzania and are governed by the civil contractor regulatory framework. While common, these activities are usually not separated from larger contracts such as road building of infrastructure development; rather, they are embedded into the scope of the work. Currently, 2,680 civil works firms are registered in Tanzania; of those, more than 75 percent are considered small and medium-sized enterprises (SMEs). Of these, only a handful would qualify as potential suppliers for services that fall in this industry based on capacity. For example, there are 57 Class 1 civil contractors of which 49 percent are foreign-owned and 71 percent are located in Dar es Salaam. Class 1 firms are the only civil contractors that subject to an upper price ceiling for tenders and therefore any contractor below Class 1 will be excluded from contacts in excess of TZS 5 billion (approximately USD 2.7 million at March 2015 exchange rate). Of these, we estimate only around 5 to 10 firms qualify as local (at least 50 percent Tanzanian-owned) and would be eligible to provide services based on the information gathered on firms’ abilities to manage larger contracts, perform on time, and mobilize the required equipment.

Currently, the main services provided by local firms are site clearance (such as removal of vegetation, large obstacles, and previous development), ground contouring, and ground stabilization. Many are also involved in road construction or paving and do some rudimentary site preparation beforehand. Firms interviewed identified the domestic residential and commercial construction and building sector as their main markets. This constitutes approximately 90 percent of their work. Larger contractors interviewed also supply some goods and services to larger capital projects that are often government or donor-funded, such as large roads construction. Other potential markets that these firms identified are National Housing Corporation (NHC) property development and mining property development.

Two notable firms with local offices that were consulted are Alpha Logistics Tz Limited and Caspian Construction Ltd. Both are based in Dar es Salaam (although Alpha Logistics’ operational base is Mombasa, Kenya) and both provide large-scale civil contracting services to the mining and energy sectors respectively. Furthermore, both have won contracts for power infrastructure installation and site preparation for the oil industry.


Site preparation is generally engineering and equipment-intensive, with limited use of unskilled labor but with a significant demand for skilled equipment operators. Consequently most of the skill inputs required related to engineering supervision and the operation of equipment. Various artisan and operator skills levels are available locally but the challenge is finding workers with reliable certification. Fresh Vocational Educational and Training Authority (VETA) and Tech Training College graduates have limited practical training and can take up to 6 to 12 months to train. Graduates from university are well trained academically but lack practical experience. There is a shortage of experienced and skilled equipment operators. Equipment hire companies generally incentivize operators to remain employed with them to be supplied with equipment when it is hired. Firms that hire equipment are generally responsible for consumables other than fuel and maintenance. In addition, larger firms finance equipment off


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of project balance sheets as cost of capital is prohibitive, while smaller firms struggle to raise the finance and turn to hiring. As a result demand exceeds supply and prices are high. It was estimated that only 3 to 5 percent of contractors own equipment. Goods needed for site preparation center around heavy equipment, but also includes backfill, gravel, and explosives for clearing. Many of the core goods required in this industry are imported. There may be opportunities for local companies to supply backfill and gravel, although low quality of some local materials limits local supply. There are firms that sell and lease equipment in Tanzania and most major yellow equipment vendors are represented. However, specialized equipment is not readily available, thus firms have to import certain equipment such as large capacity cranes and bulldozers, among others. There is a market to lease used equipment after projects but is very expensive due to supply shortages. Most of the equipment is imported. One example of a prominent player the South African company, Effco, which is International Organization for Standardization (ISO) hazard analysis and critical control points (HACCP) certified. Regulatory Framework

In discussions with local firms as well as in mapping out the policy environment for this industry, we identified a few policy areas that have direct effects on local enterprises operating in the site preparation industry. Two policy instruments, in particular, are designed to enable firms in this industry. First, the exemption of special building materials and the relaxation of import duties have contributed to the industry’s growth where the Tanzania Investment Center grants Certificates of Incentives under authority conferred upon it by Part III Section 17 (1-8) of the Tanzania Investment Act, 1997. Secondly, local contractors, based on the Public Procurement Act, have a 10 percent cost exception on tendering when competing with foreign firms, that is, if they are equal in quality and meet all other criteria but are less than 10 percent above competing costs, they should be selected.


The Site Preparation works industry, is characterized by civil works which lends itself to both subcontracting and employment opportunities, however the reader should be cautioned to remember that civils works are not ‘all the same’ and in certain areas of the site very tightly specified emerging fill will be required for the site preparation where geotechnical structures indicates potential subsidence or land movements etc. – especially where sensitive processing areas, LNG tanks and related areas are located. For the less sensitive areas, such as the accommodation camps, perimeter fencing and general buildings, excluding explosion proof structures, where the more general civils works sub-activities will enable more local involvement. The site perimeter fencing should offer significant local content opportunities in terms of both goods and employment, subject to the transparent application of specifications that can be met by a local service provider.

1. Site Surveying (Total sub-activity demand ≈ USD 75 million or 5% of the total industry demand) Beyond surveying the site, most work is related geotechnical engineering. The IOC will likely subcontract the work under this site activity, because it falls in the early works phase and must be done before the EPC contractor comes on site. This is a skilled/semi-skilled area of work and there will be a high demand for experienced technician. Most of the skilled workers with experience in this sub-activity are located in Dar es Salaam.

Site Preparation

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The potential domestic value added (labor and profits) for the Site Surveying Sub-activity is estimated to be about USD 6 million and is unlikely to be affected significantly by a market intervention.

Tasks

• Surveying entire site • Geotechnical engineering • Station marking • Pre-FEED feedback for high level design layout





• Surveying equipment • Geotechnical technical (core and soil

sampling equipment) • Ground radar equipment

• Combination of semi-skilled and skilled • Skilled – engineers • Land surveyors – technicians • Very few unskilled

2. Site Clearance and Initial Leveling (Total Sub-activity Demand ≈ USD 150 Million or 10% of the Total Industry Demand) Depending on the quality of the soil on the site, costs and clearance efforts may increase astronomically. This is a labor and time intensive sub-activity. It involves moving large amounts of earth and related materials around the site to provide a level or split level site depending on the outcome of the Pre-FEED. Tasks will be completed before the EPC contractor is on site. This will involve large scale equipment, on-site civil engineering supervision, and a large number of skilled equipment operators. While this sub-activity includes the use of heavy machinery, it will also be labor intensive (for tasks like manual vegetation removal) employing semi-skilled and unskilled workers. The potential domestic value added (labor and profits) range for the Site Clearance and Initial Leveling Sub-activity is estimated to be between USD 17 million and USD 25 million, subject to the successful implementation of the recommended intervention(s) and the successful uptake of these interventions by the target markets/ sectors/entities.

Tasks

• Hauling bio-waste material (vegetation removal) – often manual • Clearance/earthmoving • Blasting (if needed)





• Heavy machinery (bulldozers, graders, etc.) – Could be leased locally or civil engineering firms (subcontract to prime international contractor)

• Hand tools – could be purchased locally • Engineered fill material – normally this is

procured locally. Mixed to engineering specs by civil engineer

• This sub-activity is labor intensive and will employ mostly unskilled and semi-skilled labor

• Semi-skilled will mostly be in a supervisory technician role


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3. Perimeter Fencing Installation (Total Sub-activity Demand ≈ USD 75 Million or 5% of the Total Industry Demand) While there are fencing companies locally, interviews with IOCs indicate some concern over local suppliers’ compliance with quality specifications. For example, it is an international best practice that high hazard sites should have closed metal mesh fencing of a particular gauge at least 2 meters.3 The company that installs the fencing will look to procure it locally if certain specifications are met. The potential domestic value added (labor and profits) range for the Perimeter Fencing Installation Sub-activity is estimated to be between USD 12 million and USD 16 million, subject to the successful implementation of the recommended intervention(s) and the successful uptake of these interventions by the target markets/ sectors/entities.

Tasks

• Concrete block placing • Pole installation • Fencing installation (wire cutting, bending, and possibly welding)



Total Demand for Goods: ≈ USD 45 million Projected Demand for Local Goods: ≈ USD 4.5 million


• Fencing (spec thickness and galvanized) • Poles (spec thickness and galvanized) • Concrete • Installation tools (wire cutting and bending)

• Very little skilled labor required • Lots of unskilled and semiskilled

4. Preparation of LNG Tank Pad and Process/Train Area (Total Sub-activity Demand ≈ USD 450 Million or 30% of the Total Industry Demand) After the general site clearance, site preparation will proceed with tasks specific to the needs of each performance area. The preparation of the LNG Tank Pad and Process/Train area is of particular importance because it sets the base for the rest of the LNG production facility. The foundations and structures will rest on the prepared site and will have to remain stable for 20 to 30 years, enduring constant heavy use and extreme loads. This sub-activity will require more semi-skilled supervisory technicians who understand how to read and process engineering instructions. The potential domestic value added (labor and profits) range for the Preparation of LNG Tank Pad and Process/Train Area Sub-activity is estimated to be between USD 11 million and USD 20 million, subject to the successful implementation of the recommended intervention(s) and the successful uptake of these interventions by the target markets/ sectors/entities.

Tasks

• Earth dike • Earth reinforcement • Primary gravel layer laying • Civil works for piping • Civil works for electrical/instrument • Geotechnical engineering


3 Health and Safety Executive - HSG151 (Second edition, 2009)

Site Preparation

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Total Demand for Goods: ≈ USD 270 million Projected Demand for Local Goods: ≈ USD 40.5 million


• Engineered fill – will be sourced locally • Mostly skilled and semi-skilled labor • Demand for specialized semi-skilled

supervisors • Some unskilled labor • Civil engineering more complicated (practical

trained technicians)

5. Initial Site Preparation for Building and Camps Area (Total Sub-activity Demand ≈ USD 450 Million or 30% of the Total Industry Demand) Site preparation for the building and camps area is not as intensive relative to processing areas on the LNG site. Foundations will support facilities, some of which will be temporary, that are not applying heavy stress. While the engineering less sophisticated, the area is quite large. The potential domestic value added (labor and profits) range for the Initial Site Preparation for Building and Camps Area Sub-activity is estimated to be between USD 18 million and USD 31 million, subject to the successful implementation of the recommended intervention(s) and the successful uptake of these interventions by the target markets/ sectors/entities.

Tasks

• Final leveling • Drainage • Rock laying





• Civil works equipment • Not as large demand for engineered fill

• Large demand for unskilled and semi-skilled

6. Initial Site Prep for Jetty/MOF (Total Sub-activity Demand ≈ USD 300 Million or 20% of the Total Industry Demand) The MOF is will not be a general purpose port and will be dedicated to the handling of items required for the LNG facility both during construction and the operations phase and must handle the heavy weight of equipment offloaded from ships.4 The jetty itself will not bear heavy weights beyond that it is designed to carry, such as the loading platform and equipment and it is both sophisticated and sensitive and therefore subject to strict access and security protocols. Both must be built to last through the life of the project operations. The potential domestic value added (labor and profits) range for the Initial Site Prep for Jetty/MOF Sub-activity is estimated to be between USD 12 million

4 It is important to note that the Lindi region should not see this as an ‘additional’ port, as it will not be able to handle general

cargo and will not have the requisite support services to function as such. For example, should a local contractor want to have a few lifts delivered to install into a building these will have to come via Mtwara port that has general cargo capabilities. This constrained on the use of the MOF relates to both the minimum capital expense which will be centre on the support equipment etc. required to lift and move ‘typical’ LNG facility items and the safety/security issues related to having general cargo vessels sailing in or near the turning and berthing areas of an LNG jetty.


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and USD 19 million, subject to the successful implementation of the recommended intervention(s) and the successful uptake of these interventions by the target markets/ sectors/entities.

Tasks

• Excavation for Abutment wall • Shoreline preparation and reinforcement • Gravel laying





• Concrete and steel for the piling works • Fill materials for the quayside area

pavement • Local firms could be well be positioned to

provide inputs into the site preparation, especially where it related to the provision of engineered fill components that are not on site and need to be transported in from the surrounding areas

• There will be opportunities for semi/un-skilled labor, however the anticipation in the currently constrained labor environment will be unskilled worker stained up on site for various manual labor roles.

• Upskilling programmes could increase the employment opportunities


Site preparation is a heavy lifting exercise where powerful equipment lifts and/or moves large amounts of earth and related ground debris from one place to another for either discarding or reallocation to a different area. Included in this earth moving is the replacement of natural earth with engineered fill (backfill) where specific proportions of sand to rock to gravel are prescribed by the civil engineer to provide a more predictably stable substrate for later placing of foundations/roads etc. and for process areas, where the prepared site will also be capable of absorbing vibrations from process equipment that could interfere with sensitive monitoring equipment.

The end result is a site that has the correct gradients and/or levels upon which the various foundations and roads can be placed – the correct leveling and back filling of process areas is critical as most of the process equipment is sensitive to gradient and reverberations from the vibration triggered by rotating equipment that can upset the process flows. This is a relatively simple task but a complex operation that must be completed exactly to the civil engineers specifications as the entire life span of the facility depends on the stability of the site that is developed and reinforced during the site operation phase and subsequent foundations’ placing phase.

The site preparation starts before any other construction and often prior to FID and peaks in Year 3 as can be seen in Table 1 as without the site cleared and prepared and the foundations in place, none of the other construction activities can begin. The main purpose for site preparation prior to construction during the early works is so that the EPCC can arrive on site and begin placing of foundations as soon as the construction mobilization is executed. This means that the site preparation contractor must be able to provide evidence of capability to meet tight deadlines with equipment appropriate for the job and reliable to prevent delays. For this reason stringent specifications are laid down by the IOCs and firms will have to provide trusted and verifiable proof of an appropriate accreditation, such as ISO 9000 etc. It

Site Preparation

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is therefore also not surprising that the peak employment occurs in Year 3 when the major site preparation activities are carried out – but as Table 2 indicates, the majority of employment opportunities are in the site clearance and initial site clearance for the accommodation camp site and are predominantly in the unskilled category – however in the event that an upskilling programme is successfully implemented to retrain and certify experienced technicians for the Oil and Gas sector, the number of semi/skilled worker could be increased.


Sub-activity Goods

Y1 Y2 Y3 Y4 Y5 Y6 Y7

1. Site Surveying 12,000 372,000 480,000 216,000 120,000 0 0

2. Site Clearance 90,000 2,790,000 3,600,000 1,620,000 900,000 0 0

3. Perimeter Fencing Installation 45,000 1,395,000 1,800,000 810,000 450,000 0 0

4. Preparation of LNG Tank Pad and Process/Train Area 405,000 12,555,000 16,200,000 7,290,000 4,050,000 0 0

5. Initial Site Preparation for Building and Camps Area 270,000 8,370,000 10,800,000 4,860,000 2,700,000 0 0

6. Initial Site Preparation for Jetty/MOF 360,000 11,160,000 14,400,000 6,480,000 3,600,000 0 0

Total by Year 1,182,000 36,642,000 47,280,000 21,276,000 11,820,000 0 0


Sub-activity Labor

Y1 Y2 Y3 Y4 Y5 Y6 Y7

Total Avg.

1. Site Surveying

Skilled

0 13 17 8 4 0 0 6 Semi-skilled 1 27 34 15 9 0 0 12


2. Site Clearance

Skilled

1 32 41 19 10 0 0 15 Semi-skilled 1 32 41 19 10 0 0 15


3. Perimeter Fencing Installation

Skilled

0 14 19 8 5 0 0 7 Semi-skilled 1 43 56 25 14 0 0 20


4. Preparation of LNG Tank Pad

Skilled

0 15 19 9 5 0 0 7 Semi-skilled 1 30 39 17 10 0 0 14



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and Process/Train Area


5. Initial Site Preparation for Building and Camps Area

Skilled

1 39 50 23 13 0 0 18 Semi-skilled 1 39 50 23 13 0 0 18


6. Initial Site Preparation for Jetty/MOF

Skilled

1 26 33 15 8 0 0 12 Semi-skilled 1 26 33 15 8 0 0 12


Industry Total Avg. Local Employment 32 994 1,283 577 321 0 0 458


The distribution of employment by sub-activity between skill categories and origin (local vs. expatriate), suggests that the total domestic value added over the seven-year investment period is approximately USD 76 million, composed of USD 54 million in labor and USD 22 million in profit. In addition, the activity would also result in the purchase of some ≈ USD 118 million in local goods, part of which will also stimulate the local economy (for example, linking to bulk supply of backfill inputs and fuels for powering heavy equipment).


The estimated pattern over time for total value added suggests a peak in year 3 of ≈ USD 30 million, as shown in Figure 1. Local employment is projected to grow from an average yearly total of ≈ 30 local jobs in year 1 to ≈ 1,300 local jobs in year 3, peaking in Quarter 8 with ≈1,500 local jobs. Under the assumptions about qualifications of the local workforce, the projections imply a relatively balanced pattern for the three skill categories, skilled, semi-skilled and unskilled, as illustrated in the graph below.

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Finally, the trend for the procurement of inputs and capital equipment also shows the same overall pattern, with nearly USD 118 million in local goods purchased in year 3, peak in Quarter 8 at about USD 14 million.



Many of the industry gaps that the team observed for this industry are similar to those found in the Concrete and Building and Camp Construction Industry Analyses (both of which are construction-related sets of activities). Where the gaps have been observed as the same we refer the reader back to these other analyses. Otherwise, below we discuss particular gaps for this industry.


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competitiveness


• There is a lack of certified/accredited technicians and equipment operators who meet international standards and specifications.

• There is an absence of trained inspectors, certified instructors, and internationally accredited certifying centers in Tanzania


• Even well-trained and certified technicians and equipment operators often lack practical training and a ‘compliance driven work ethic’ resulting in inadequate supervision and increased maintenance/repairs to equipment.

• The prime contractor will likely self-perform tasks. While the contractor may employ some unskilled labor, the contractor will be seeking skilled technical supervisors and equipment operators who are essential for reliable compliance and certification.

• Currently, there is a shortage of these skilled technicians and operators.



market

Lack of accreditation is a barrier to market entry for local firms seeking LNG project contracts



• A ‘dual market’ exists where clients accept noncompliance in lieu of lower cost for services


• Across all sub-activities there will strict enforcement of standards and compliance will advantage those firms with globally accepted accreditations that meet O&G standards.

• Compliant firms that target only the oil and gas sector contracts face sustainability challenges if there is insufficient work to maintain viable levels of utilization

3. Locally available certified

capital equipment is very costly



• There are limited affordable certification services in Tanzania to test equipment for oil and gas projects and similar complex construction works.

• The leasing market is experiences excessive demand resulting in: - Limited incentive to certify

equipment when demand for uncertified equipment remains high

- High leasing/rental costs and is predominantly cash driven, generating cash flow challenges.

• In the oil and gas sector, equipment has to be certified regularly and be recognized as reliable to assure IOCs and EPCCs that contractors can provide a reliable service as delays have significant liquidated damages implications.

• Firms without certified equipment will not get considered for subcontracts

• In all but the site surveying and perimeter fencing installation, heavy earth moving equipment will be required and local contractors will have to incur significant costs in certifying equipment, especially where certification technicians must be imported from elsewhere.

• For perimeter fencing installation- light lifting and small scale excavation equipment is available but will most equipment must be certified. Many contractors make use of more affordable Chinese equipment that is perceived to be inferior and expected to struggle to achieve certification.

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In addition to improving the local training facilities and curriculum (see building and camp construction), facilitating focused workshops and new product development courses will aid in building the skills needed amongst local firms.

While this does not represent investment opportunity for the private sector outside of the LNG consortium, it can structurally impact related sectors as there is a chronic shortage of trained and certified equipment operators. These are convertible skills that can be applied beyond the life of the LNG project, for example, truck drivers could be readily absorbed into the Tanzanian economy after the construction phase is over. Dependent on growth of Mtwara/Lindi regions, there will be ongoing need for a sophisticated training facility. The training facility could be sold off to an interested private sector player after the construction phase to fulfill this demand.



Compliant firms are not competitive in the Tanzanian Market

Lack of accreditation will be the barrier many local firms will encounter

While accreditation and certification is important in this industry, the barriers to achieve these are not as high as others (such as in LNG Train and Tank installations). Much of the industry gap currently relates to equipment compliance and shortages of skilled labor.


Constraint 3: Locally available certified capital equipment is very costly




The constraint regarding shortage of reliable and original equipment manufacturer accredited equipment is a chronic problem in Tanzania that is compounded by the constrained access to

Proposed Intervention 1: It is expected that the IOCs will implement an equipment operators’ training programme and this should be pursued with the IOCs as an element of their local content and supplier development commitments.

Proposed Intervention 2: There is no specific intervention for this industry as the accreditation has been discussed in numerous industries and the possibility of establishing a privately owned accreditation/certification centre has been suggested in a separate industry study.


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capital by many contractors. Many civil contractors consulted locally indicate that the availability of reliable equipment severely curtails their ability to provide site preparation services, as the equipment they have and hire is unreliable, old, and very expensive to maintain. This will have significant impacts on the ability of local firms to acquire equipment to perform on even simple projects, such as the perimeter fencing.6


An investment in an engineering-linked discipline, such as fencing installation, will be an important way to build ground up expertise in hard skills. The manufacturing sector in Tanzania is small and suffers from weak growth due to the market power of the traders. These traders have no interest in supporting local producers because they can import goods with a higher margin. There is a growing need for high quality fencing from the mining and the O&G sector. A local manufacturer and installer of high quality fencing will also enable a local firm to increase the use of local labor.

6 It is believed that some actions have been taken to upgrade a fencing installer for supply base facilities in Mtwara.

Proposed Intervention 3: Source an investor for a fencing company in order to purchase the equipment required to manufacture fencing to implement the perimeter fencing contract. The fencing company should be prequalified for the contract so as to attract investors.

Industry:

Docks and Jetties

Docks and Jetties

3

Summary

� This activity broken down by the following sub-activities: 1) trestle Construction onshore and over water; 2) foam skid platform; 3) dolphins (breasting and mooring); 4) loadings and service platforms; 5) permanent seawater intake and superstructure; 6) navigation aids, safety equipment and tug mooring; 7) jetty topside installation; 8) marine support services; 9) MOF Installation.

� Total activity demand for docks and jetties construction is around US$1billion, for the 7 year LNG construction phase. With current conditions, this activity will generate ≈ USD 16 million in demand for local goods and USD 29 million in domestic value added, including a yearly average of 90 local jobs.1

� Most of the local capture will be in the form of labor hired for self-performed activities and/or small scopes of works for tasks that require only a low-level of technical sophistication and do not require capital intensive equipment.

� The capacity of the local market to provide the goods and services associated with the docks and jetties construction industry is quite low as evidenced by having no local firms identified with the capacity to provide required services.

� Key constraints preventing greater local participation include: 1. Insufficiently trained local workforce needed to carry out jobs (especially semi-

skilled supervisory technicians) 2. Lack of local enterprise base with which to draw on to conduct small scopes of work 3. Lack of equipment for lease or rent in local market

� The subcontracting of local goods and services is expected to provide only marginal value added, however interventions to structurally improve the skill level in the industry will have sustained impacts on both the employability of the local workforce and the ability for firms to provide certified labor and therefore win future contracts.


markets/ sectors/entities.

The construction of docks and jetties has a large market potential, however the Tanzanian market currently has limited capacity to participate in activities in this industry. Given the high level of quality and civil and marine specifications required, IOCs and EPC contractors are unlikely to sub-contract docks and jetties projects but could potentially draw on existing labor skills and some locally registered firms for smaller tasks. Since these sub-activities are not industry specific, experienced local firms could potentially expand operations into this market.

The above opportunities will require local/regional firms to prepare significant documentation, verifying both accreditation and expertise, to convince the IOCs/EPC contractors that such work can be performed given experiences in other related civil works projects or fabrication projects. While local subcontracting opportunities are limited, beyond basic civil works, potential lies in the level of semiskilled labor that could be employed locally. There is a critical need to start upskilling experienced technicians to leverage their experience to qualify them for supervisory roles and to develop their transferable skills. Addressing the current shortage of skilled supervisory labor with practical experience, could increase the local capture of these high value jobs that are sustainable beyond the life of the project. The potential domestic value added (labor and profits) range for the Docks and Jetties Industry is estimated to be USD 29 million, which could increase up to 37 million subject to the successful implementation of the recommended intervention(s) and the successful uptake of these interventions by the target markets/ sectors/entities.


4

Industry Demand

Demand Characteristics for Docks and Jetties

LNG plants are often in very isolated areas and have largely self-contained facilities, including related docking and shore based offloading facilities and an LNG loading jetty. The pioneer dock and Marine Offloading Facility (MOF) docks will be in a single contract whilst the LNG jetty contract is usually awarded to a primary contract or which self performs the work as it is high specialized with all the cryogenic and related topside work. The services for these are similar. For the MOF, a co-located personnel jetty will be established to support construction and operations. The MOF will allow roll-on, roll-off or lift-on, lift-off vessels to dock and offload preassembled modules, equipment, supplies and construction materials.

The three different docks and LNG jetty are developed at different stages and have fairly different uses. The pioneer dock is, as the name suggests, a very simple dock structure that enables the landing of the first equipment for the site preparation and early works. The MOF is designed for receiving all goods and equipment once the site is ready and will be a permanent dock for use during the construction and operations phases and is generally located a good distance away from the LNG jetty. The MOF will be constructed2 before the FID and then handed over to the EPC. The EPC will likely self-perform a majority of the tasks related to this sub-activity, to maintain quality control. There is a potential that the EPC may subcontract smaller tasks to local companies. The pioneer and the MOF are both general use docks whereas the LNG jetty will only be uses for loading LNG onto LNG tankers and will generally have all general freight transport kept well away from the approach and turning circle to avoid collisions and other complications.

The LNG jetty is often a prefabricated modularised trestle jetty located in close proximity to the LNG facility to reduce the distances that the liquefied gas must travel in the cryogenic piling systems. The jetty consists of a trestle supported main jetty with a locating a facility at the end. Perpendicular to the end of the jetty will be a series of breasting dolphins against which tanker will dock and a series of mooring dolphins which will be used to stabilize the position of the tanker at each end of the vessel. The LNG jetty will have any other function and extreme HSE will be enforced due to the explosion risk during loading. It should be remembered that the MOF and the LNG jetty are fundamentally different in that he MOF will be used to land various items including large equipment and will requires wharf services such as cranes etc. and strengthen surfaces to withstand heavy loads, whereas the LNG jetty will only carry the weight of the jetty topsides and related loading equipment but will not have to bear the weight and movements of equipment of the MOF.

Industry Supply

Local Suppliers

The current market in Tanzania for firms capable of installing docks and jetties is very

2 Typically, the MOF will be a sheet-piled structure, backfilled with rock, gravel and clean fill. The sheet piles will be brought

to site via barge. Conventional pile-drivers (impact or vibratory) mounted on a barge will be used to drive sheet piles into the seafloor. The area will then be pumped out and filled by end-tipped and compacted material, surfaced with crushed rock and topped with concrete beams to form the working surface.

Docks and Jetties

5

limited. Currently, no local firms registered in Tanzania have the technical capacity and requisite scale to be competitive for a contract to build docks and jetty associated with this project. Only two firms, Alpha Logistics and Southern Engineering Co. Ltd., registered as in Tanzania were identified that could potentially support some of the services that fall in this industry. Both Southern Engineering Co. Ltd and Alpha Logistics are divisions of Alpha Group, but registered separately as foreign firms, so they would not count towards local content. 3 These two firms provide services such as bathymetry and seismic survey works, geo technical works (ex. soil testing), piling works, dredging works, specialized marine and offshore engineering, jetty and pier building and pioneer camp installation (accommodations, dining and offices). While they are not likely to win the EPC contract, there is potential that some of the less technical work will be subcontracted.

No specialty SMEs have been identified through our screening process for this industry. There are, however, an array of local SME’s that provide some of the associated services such as cement works, light metal fabrication and assembly, and electrical services. The firms we interviewed indicated that their current major markets for the services they provide are projects that require sub-sea piping and cabling, port expansions and upgrades, site assessment for marine engineering, marine infrastructure development and port series supply base. Additionally, other potential markets include water-based property developments (i.e. marinas), roads, dredging and marine trenching.

While traditional docks and jetties construction can draw on existing labor skills and local firms in Tanzania, the unique quality of the LNG Jetty and associated facilities render local capacity and labor force skills less applicable than some other industries. Local firms (such as equipment operators, precast concrete fabricators, civil works contractors, and metal fabricators interviewed) are mostly not aware and thus not compliant with necessary standards such as chloride-resistant concrete, corrosion-resistant pilling and materials/cathodic protection systems. The skills needed to construct facilities can be transferred to other sectors fairly easily. Yet, as is, the IOCs/EPCs are relatively unlikely to contract out this service in full but can potentially draw on some local labor or small contractors for small activities. It is expected that with adequate support compliance, local capacity and labor force development can increase by year 3. Yet it will still be difficult to greatly expand local capture given the highly technical nature of the work however smaller more basic packages of engineering work may be subcontracted, such as piling work for the navigation equipment or basic civils associated with the MOF and/or pioneer dock.


Between 60-70% percent of total costs for the construction of LNG docks and jetties will be spent on the procurement of goods and services. The rest includes 20-30% percent spent on labor. A vast majority of the input goods are not produced locally. There may be companies producing these goods for other industries, however they do not translate to the highly specific needs of a LNG jetty. For example, basic steel pipes (black pipe) are produced

3 Alpha Group is a conglomerate of companies operating from Sub Saharan Africa and Gulf Countries for last 50 years.

Alpha Group has a presence in several major export oriented industries and the activities are consolidated in two divisions namely the Marine & Logistics Division and Food Division. The Marine Division of Alpha Group also provides end to end Logistics services through Alpha Logistics Services. The company has operations spread over Kenya, Tanzania, Uganda and Mozambique. The joint capabilities of Alpha Logistics and Southern Engineering Co Ltd provide marine solutions in East Africa.


6

locally, but the jetty topside piping requires certified cryogenic seamless pipes to transport LNG. It is unlikely that strengthening local suppliers will result in significant improvements sufficient to increase local purchase of goods and services. The local suppliers do not have the capacity to produce highly specific goods nor is there sufficient demand sustained outside the LNG project to incentivize them to do so. A vast majority of goods and services will be imported from goods and service providers that have a proven track record on similar work and meet quality standards. There could be employment opportunities should the preparatory training and practical experiential training on construction sites can be completed in time. In many instances this will require the upskilling of currently experienced technicians, as the work experience required is in the range of 5 to 10 years. These skill sets are also sustainable as they are transferable to construction sites in most construction works sectors. From a labor perspective, the most important area of constraint is the availability of trained, certified and experienced technical supervisory level staff – generally technicians that have graduated from a technical institute or similar. These would be semiskilled and skilled depending on the level of training and experience, but most contractors would have these positions report into technician/engineer that is employed by the main contractor. The critical differentiator is the requisite experience and so any preemptive training must include a comprehensive practical training element to ensure on site/hands-on experience.


1. Trestle Construction (onshore and over water) (Total sub-activity demand ≈ USD 150 million or 15% of total industry demand)

This sub-activity involves the placement of steel girders built in triangular arranged crossbeams/girders to support the top of a raised or suspended platform (jetty, bridge). The nature of this work and the typically modularized prefabrication and highly skilled installations precludes all but the most basic goods and services, such as supply of concrete and some unskilled labor. The potential domestic value added (labor and profits) total for the trestle construction sub-activity is estimated to be between USD 3 to 4 million, subject to the successful implementation of the recommended intervention(s) and the successful uptake of these interventions by the target markets/ sectors/entities. There is little chance of significant improvements, because the EPC is likely to self –perform tasks. Local supplier improvements could result in increase in the purchase of local goods, up to an estimated USD 1 to 2 million, part of which will also stimulate the local economy (for example, linking to increase in demand for concrete inputs).

Tasks

• Piling- to imbed concrete/steel columns in the seabed onto which the trestles are bolted or welded

• Offloading, lifting, placing, welding, bolting etc. of the prefabricated steel trestles which will require lift equipment

• Trucking – may need specific type of truck and may subcontract however trucks will have to be certified and firms probably have to have an ISO accreditation

• Certified Heavy lifting (cranes, etc.) • Diving – outsourced to global firm specializing in industrial diving services - highly specialized • Welding – where specific specialized welders might be required otherwise generally self-

performed by contracted workers via a labor broker. • Cathodic protection of the trestles to reduce rate of rust or oxidization, depending on the metal

being used

Docks and Jetties

7

• Finishing bridges – road surface that is supported by the erected trestles – usually consists of precast concrete sections lifted into place by a crane

*Additional associated tasks are captured in separate business cases [pre-cast concrete (see Concrete Works), guard rails and pipe racks (see Metal Fabrication)]


Total Demand for Goods: ≈ 90 USD million Projected Demand for Local Goods: ≈ USD 1 million


• Steel - Likely prefabricated abroad due the

high quality and quantity needed. - EPC will purchase a package of steel

from the international supplier. - Even the smallest bolts must be hot-dip

galvanized to avoid corrosion and local production does not exist on a large scale.

• Concrete will be produced on on-site batch plant

• Heavy equipment will be imported by the EPC

• Generally, most of the services will be self-performed by the EPC, who sources worker through a labor broker responsible for screening and certification verification.

• Labor will consist of mostly skilled and semi-skilled work that is imported.

• Opportunities for local labor are limited because it is likely the steel will be prefabricated abroad and barged in for installation

• Processes are largely mechanized, further limiting demand for semi-skilled and unskilled labor.

• Local labor may be demanded if some of the concrete is installed from onsite precast laydown area

2. Foam Skid Platform (Total sub-activity demand ≈ USD 50 million or 5% of total industry demand) This sub-activity includes the construction of the area where the fire protection, such as high speed/high volume foam equipment, is placed for rapid deployment during emergencies. This sub-activity sees limited potential for the procurement of local goods and services, because the project involves highly specific activities that subject to stringent safety requirements. However, there are civil works, foundation, and road surfacing which will likely provide unskilled and semiskilled labor opportunities. The potential domestic value added (labor and profits) range for the foam skid platform sub-activity is estimated to be between USD 4 to 6 million, subject to the successful implementation of the recommended intervention(s) and the successful uptake of these interventions by the target markets/ sectors/entities. Additionally, local supplier improvements could result in increase in the purchase of local goods, for an estimated USD 2 to 3 million total local goods purchased, part of which will also stimulate the local economy (for example, linking to increased demand for concrete and tar inputs).

Tasks

• Apron housing construction • Placing of foundation for platform • Construction of hanger and staff equipment quarters • These tasks will be self-performed by the EPC, however the contractor may draw on local labor

for unskilled and some semi-skilled work *Additional associated tasks are captured in separate business cases [pre-cast concrete installation (see Concrete Works)]





8

• A vast majority of the goods will be imported

• Concrete – it is likely that the concrete will be produced in the on-site batch plant, however there may be a small potential for concrete production (see Concrete Works)


• Mostly semi-skilled and unskilled labor likely to be local

3. Dolphins (breasting and mooring) (Total sub-activity demand ≈ USD 150 million or 15% of total industry demand) This sub-activity covers the construction of the breasting and mooring dolphins that the LNG tankers moor while loading LNG at the loading station. These are essential concrete blocks or stations mounted on steel trestles with walkways between them. Breasting dolphins are strengthened to take the bumping of the tankers as the tankers actual directly connect to them, whilst the mooring dolphins are only for mooring cables during loadings. This sub-activity will be essentially prefabricated and delivered modularized with very limited installation beyond supervised placement of the modules and fastening of the same. There are not expected to be extensive goods/service or employment opportunities in this sub-activity. The potential domestic value added (labor and profits) range for the Dolphins Sub-activity is estimated to be USD 3 to 4 million, subject to the successful implementation of the recommended intervention(s) and the successful uptake of these interventions by the target markets/ sectors/entities.

Tasks

• Piling

• Finishing

• Fender installation

• Quick release hook installation

• Cathodic protection

• Installation will be highly mechanized with an emphasis on heavy lifts and piling – all self-performed by the EPC




• Nothing will be produced locally and most steel and concrete elements will be

• Because it is highly mechanized with most skilled and semiskilled expat workers and

Docks and Jetties

9

prefabricated. • Some concrete could come from the

concrete batch plant (see Concrete Works) • Heavy equipment will be imported by the

EPC

limited job opportunities for local semi/un-skilled workers.

4. Loading and Service Platforms (Total sub-activity demand ≈ USD 150 million or 15% of total industry demand) This involves the installation of the prefabricated loading arms and superstructure that transfer LNG from the shore facility on board the tanker. This is a highly sophisticated and self-performed sub-activity using highly skilled artisans with many years of experience. It will involve engineers and specialist welders due to the welding of cryogenic materials; consequently there will be few supplier or employment opportunities. The potential domestic value added (labor and profits) range for the Loading and Service Platforms Sub-activity is estimated to be USD 3 to 4 million, subject to the successful implementation of the recommended intervention(s) and the successful uptake of these interventions by the target markets/ sectors/entities.

Tasks

• Lifting of prefabricated equipment onto the jetty loading platform

• Attachment of equipment to the loading platform

• Electrical connections

• Install Fire protection systems

• All tasks required will relate to installation equipment but due to the specialized nature of the work, the prime contractor will likely self-perform with own equipment

*Additional associated tasks are captured in separate business cases [Steel plates, supports, rails, platform, grating, joints, bearings, and ladders (see Metal Fabrication); pre-cast concrete installation (see Concrete Works)]




• The loading equipment and superstructure will be delivered prefabricated

• This sub-activity will largely be carried out by highly skilled artisans supervised by equally high skilled supervisory technicians

• The sub-activity will be largely self-performed which opens up employment opportunities for local labor however this will largely be limited to semi and skilled workers who are certified and have the requisite experience

5. Permanent Seawater Intake and Superstructure (Total sub-activity demand ≈ USD 50 million or 5% of total industry demand) Unit used for desalination – seawater intake to feeds desalination plant where the desalination plant will largely be prefabricated and delivered for self-performed placing onto a prepared foundation and connection consequently there will be few supplier or employment opportunities. Given the Permanent Seawater Intake and Superstructure Sub-activity characteristics, there is little potential to increase domestic value added (labor and profits) beyond the baseline of ≈ USD 1 million.

Tasks


10

• Installation of intake stilling tubes • Pump installation • Heavy equipment will be imported by the EPC



Average Demand for Local Labor: ≈ 15 jobs Average Demand for Local Labor: ≈ 5 jobs

• None apart from some adhoc consumables such as cabling and basic plumbing supplies may be purchased locally

• Predominance of skilled and semi-skilled workers needed for this activity

• Very few jobs will go to local workers

6. Navigation Aids, Safety Equipment and Tug Mooring

(Total sub-activity demand ≈ USD 150 million or 15% of total industry demand) This sub-activity includes the flashing markers or radio beacons used to direct ships into channel and 2-3 permanently dedicated tug boats for ships used in construction. There is evidence that a Kenyan based company with an office in Tanzania might be equipped and experienced to complete some of the less complex piling required for the navigation beacons. This poses both outsourcing and employment opportunities and should be proactively pursued. The potential domestic value added (labor and profits) range for the Navigation Aids, Safety Equipment and Tug Mooring Sub-activity is estimated to be USD 6 million - 8 million, subject to the successful implementation of the recommended intervention(s) and the successful uptake of these interventions by the target markets/ sectors/entities.

Tasks

• Leading light/range markers (piling, anchoring, mooring buoy tugs, life tugs) • Lifting, positioning and installation of loading equipment (80 ton marine loading arm, gangway

tower, fire water tower, berthing aids) • Tug boat services for docking of ships and barges delivering equipment and construction

materials to the site • It has been indicated by IOCs that the less sophisticated piling for navigation equip could be

installed by a local piling company if available, up to standards in terms of equipment and experienced in this activity

*Additional associated tasks are captured in separate business cases [Channel markets (piling, welding, finishing, anchoring) (see Metal Fabrication)]




• This sub-activity requires highly specific marine navigation goods that cannot be found locally

• Heavy machinery will be imported by the EPC

• Skilled and semi-skilled jobs

• Extremely limited local unskilled labor

7. Jetty Topside Installation (Total sub-activity demand ≈ USD 150 million or 15% of total industry demand) This includes the construction of pipe systems to carry LNG from the LNG storage tanks to the LNG loading arms. While there are local firms that produce piping, these products are at best low grade black pile and there are no firms that have the technical capacity to construct the highly sophisticated cryogenic piping/pumping systems related to this sub-

Docks and Jetties

11

activity; consequently there will be few supplier or employment opportunities. The potential domestic value added (labor and profits) range for the Jetty Topside Installation Sub-activity is estimated to be USD 3 million - 4 million, subject to the successful implementation of the recommended intervention(s) and the successful uptake of these interventions by the target markets/ sectors/entities.

Tasks

• Instrumentation connections • Stainless steel, Carbon steel and Glass Reinforced Epoxy (GRE) piping installation piping

installation • Cryogenic welding • Pipe testing (pressure and pneumatic) • Pipe insulation installation • Painting/coating and joint finishing • A vast majority of these tasks will be self-performed because of failure risks

*Additional associated tasks are captured in separate business cases [electrical and mechanical hookups (see Electrical Works)]




• Stainless steel, carbon steel, and GRE piping will be imported as there are no local facilities for producing these pipes

• Extremely limited local labor used because of the pipe failure risks involved

• While there are certified welders available locally, this sub-activity deals mostly with cryogenic welding of highly sophisticated steel

• A few finishing jobs may go to local workers

8. Marine Support Services (Total sub-activity demand ≈ USD 100 million or 10% of total industry demand) This sub-activity includes marine support services rather than the actual docking of the ships for the MOF during construction. There are some opportunities for local firms in the areas of dredging and salvaging but they are limited in value. The marine services may have significant potential post construction, but will have minimal local capture during the construction phase. Tanzania has port services with Tanzanians conducting port operations and therefore stands to reason that there should be person with related skills that could be retrained for the LNG role where there are skills and works ethic gaps. The potential domestic value added (labor and profits) range for the Marine Support Services Sub-activity is estimated to be USD 3 million - 4 million, subject to the successful implementation of the recommended intervention(s) and the successful uptake of these interventions by the target markets/ sectors/entities.

Tasks

• Dredging – may be subcontracted locally to marine services firm • Salvaging items that fall off the ships – may be subcontracted locally to marine services firm • Equipment operation for lifting of equipment and vessels – will be conducted by the EPC





12


• Staff operating the port

• Opportunities exist to train up staff for long term roles that would be sustainable through the operating phase.

9. Marine Offloading Facility (MOF) (Total sub-activity demand ≈ USD 50 million or 5% of total industry demand) Typically, the MOF will be a sheet-piled structure, backfilled with rock, gravel and clean fill. The sheet piles will be brought to site via barge. Conventional pile-drivers (impact or vibratory) mounted on a barge will be used to drive sheet piles into the seafloor. The area will then be pumped out and filled by end-tipped and compacted material, surfaced with crushed rock and topped with concrete beams to form the working surface. The goods and services that might be outsourced in the sub-activity relate to the provision of earthmoving equipment (see Equipment Hire) and supply of fill materials and concrete (Site preparation and concrete works). It is likely the prime contractor will self-perform these operations however there may be local employment opportunities for semi/un-skilled labor. Given the MOF Sub-activity characteristics, there is little potential to increase domestic value added (labor and profits) beyond the baseline of ≈ USD 2 million. However, local supplier improvements could result in increase in the purchase of local goods, up to an estimated additional USD 1.5 million, part of which will also stimulate the local economy (linking to the purchase of site lighting for example).

Tasks

• Construction of breakwater • Sheet piling to create wharf side • Dredging to achieve dock depth and approach channel – may be subcontracted locally to a

marine services firm • Pouring of fill materials to create portside freight maneuvering area • Equipment operation for earthmoving and placing of crushed fill materials • Salvage services- may be subcontracted locally



Average Demand for Local Labor: ≈ 10 jobs Average Demand for Local Labor: ≈ 5 jobs

• Equipment will be imported by the prime contractor

• Staff operating the port • Opportunities exist to train up staff for long

term roles that would be sustainable through the operating phase.


The critical analysis of the labor implications and demand for goods from the Docks and Jetties is that the overall job opportunities are limited in terms of number; however there is the potential for high value jobs at a semi/skilled level. The challenge is that there is currently a shortage of skilled supervisory labor with practical experience. The important aspect of this is that supervisory technical staff are not necessarily high skilled artisans, but general technically skilled workers with transferable skills. These skills include the ability to read technical drawings, supervise artisans in order to ensure compliance with specifications and standards. Where highly skilled artisans need to be supervised, then such supervisory staff will often have experience in the artisan skill from a practical perspective in order to be able to ascertain whether the artisan is in fact complying with the specifications – such as specialized welders. Efforts to increase local capture of labor should focus on this segment,

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13

considering these positions are of relatively high value, are easily transferable, and sustainable beyond this project.



Y1 Y2 Y3 Y4 Y5 Y6 Y7

1. Trestle Construction (onshore and over water)

0 99,000 207,000 252,000 234,000 108,000 0

2. Foam skid platform 0 220,000 460,000 560,000 520,000 240,000 0

3. Dolphins (breasting and mooring)

0 99,000 207,000 252,000 234,000 108,000 0

4. Loadings and service platforms 0 99,000 207,000 252,000 234,000 108,000 0

5. Permanent seawater intake and superstructure

0 33,000 69,000 84,000 78,000 36,000 0

6. Navigation aids, safety equipment and tug mooring

0 396,000 828,000 1,008,000 936,000 432,000 0

7. Jetty topside installation 0 99,000 207,000 252,000 234,000 108,000 0

8. Marine support services 0 330,000 690,000 840,000 780,000 360,000 0

9. MOF Installation 0 330,000 690,000 840,000 780,000 360,000 0

Average Total by Year 0 1,705,000 3,565,000 4,340,000 4,030,000 1,860,000 0



Y1 Y2 Y3 Y4 Y5 Y6 Y7

Total Avg.

1. Trestle Construction (onshore and over water)

Skilled

0 3 6 7 7 3 0 4

Semi-skilled 0 3 6 7 7 3 0 4

Unskilled 0 3 6 7 7 3 0 4

Subtotal 0 9 18 22 21 9 0 11

2. Foam skid platform

Skilled

0 2 4 5 5 2 0 3

Semi-skilled 0 4 8 10 9 4 0 5

Unskilled 0 2 4 5 5 2 0 3

Subtotal 0 8 17 20 19 9 0 10

3. Dolphins (breasting and mooring)

Skilled

0 3 6 7 7 3 0 4

Semi-skilled 0 3 6 7 7 3 0 4

Unskilled 0 3 6 7 7 3 0 4

Subtotal 0 9 18 22 21 9 0 11

4. Loadings and service platforms

Skilled

0 3 6 7 7 3 0 4

Semi-skilled 0 3 6 7 7 3 0 4



14

Unskilled 0 3 6 7 7 3 0 4

Subtotal 0 9 18 22 21 9 0 11

5. Permanent seawater intake and superstructure

Skilled

0 1 2 2 2 1 0 1

Semi-skilled 0 1 2 2 2 1 0 1

Unskilled 0 1 2 2 2 1 0 1

Subtotal 0 3 6 7 7 3 0 4

6. Navigation aids, safety equipment and tug mooring

Skilled

0 5 10 12 11 5 0 6

Semi-skilled 0 5 10 12 11 5 0 6

Unskilled 0 5 10 12 11 5 0 6

Subtotal 0 14 29 35 33 15 0 18

7. Jetty topside installation

Skilled

0 3 6 7 7 3 0 4

Semi-skilled 0 3 6 7 7 3 0 4

Unskilled 0 3 6 7 7 3 0 4

Subtotal 0 9 18 22 21 9 0 11

8. Marine support services

Skilled

0 2 4 5 5 2 0 3

Semi-skilled 0 2 4 5 5 2 0 3

Unskilled 0 2 4 5 5 2 0 3

Subtotal 0 6 12 15 14 6 0 8

9. MOF Installation

Skilled

0 1 3 3 3 1 0 2

Semi-skilled 0 2 5 6 5 2 0 3

Unskilled 0 1 2 2 2 1 0 1

Subtotal 0 4 9 11 10 5 0 6



The distribution of employment by sub-activity between skill categories and origin (local vs. expatriate), suggests that the total domestic value added over the seven-year investment period could be approximately USD 30 million, or roughly 3 percent of the total activity level of USD 1 billion estimated. In addition, the activity would also result in the purchase of some USD 16 million in local goods, part of which will also stimulate the local economy (linking to the increase demand for concrete and tar inputs and manufacturing of ad hoc plumbing materials and personal protection equipment). Figure 1 shows the estimated domestic value added by the industry by year. The domestic value added then builds up and reaches its maximum in years 4 and 5, and then drops off in years 6 and 7.

Wages outstrip domestic profits indicating that there are greater opportunities for employment than outsourcing subcontracts which once again points to the need to have the workforce prepared for rapid mobilization once the various contracts arrive and start hiring local labor. The emphasis should however be on transferable and therefore sustainable skills such as lower level artisan and technicians for supervisory and project management roles. Local salaries and wages at their peak could amount to approximately USD 7 million, with the greatest impact in the Lind/Mtwara regions. In addition, the local share of net profits reaches ≈ USD 1 million in the peak years.

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Figure 2 shows the projected local employment by skill category. Given assumptions about the composition of the labor force by skill level, and the split between expatriate and local labor, the overall pattern follows the value added development over time. In terms of full-time equivalents on a yearly basis, local employment peaks in years 4 at about 180 local jobs. While the number of jobs demanded is low relative compared to other industries, the key aspect is the level of semiskilled labor that could be employed locally. There is a critical need to start upskilling experienced technicians to leverage their experience with the upskilling to enable them to be hired in supervisory roles and to develop their transferable skills. Once the LNG project moves into the operations phase supervisory technicians would be able to seek employment in a wide range of construction environments thus raising the overall level of skill in the construction sector but also reducing the distorted wage inflation impacts that contractors complained about that the current shortage of skilled technicians triggers when the construction sectors show growth.


16


Finally, Figure 3 shows the extremely small local capture of goods demanded over the life of the project. This is due to the highly technical nature of the inputs for the docks and jetty construction. While there is a significant amount of civil works (such as concrete services) that are associated with docks and jetty construction, the inputs for these activities are captured in separate industry profiles. Figure 3: Projected Goods Purchased (Imported vs Local)

0

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Local goods

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Industry Constraint Industry Impacts LNG Project Impacts

1. Chronic shortage of certified equipment operators and

technicians

Poor compliance and inefficiency reduced productivity and

competiveness

Accreditation and certification5 to global standards will be the

benchmark for contracts/employment

• Existing skills relevant for the docks and jetties industry in Tanzania are very limited however general technical skills in supervisory roles are readily transferable across the construction works sectors

• The local labor pool lacks the certification and compliance requirements and certifications services are prohibitively expensive

• There is a lack of relevant academic and practical training available locally

• High levels of specifications required make it unlikely that IOCs and EPCs will subcontract projects to local firms.

• Local workers do not have a means of accessing affordable certification services and industry players indicates that the available multinational certification services are beyond the budgets of most firms or individual artisans or professionals

• Labor contracting/ employment poses the greatest opportunity in the Docks and Jetties industry. The chronic shortage of skilled and experienced technicians to play a supervisory role is currently a constraint that could be overcome in the long terms with the experience gained on the LNG construction site.

• The key constraint to local labor being employed is the lack of certified and experienced labor available.

• Many technicians graduating from the VETA and TIs are woefully undertrained in the practical application of their skills on site which is critical consideration to being hire from a supervisory role on the LNG construction site.

2. Constrained Access to Capital Goods

Firms rely on outdated equipment which undermines competitiveness

and reliability

Certification of equipment will be the benchmark for allowing

vehicles onto site

• Large equipment such as ships, cranes, and excavators are available to be leased in Tanzania but are very expensive

• Highly specialized equipment like dredgers and navigation aids are only available for leasing in the regional/international market

• Basic equipment such as tipper trucks and related civils equipment is available but is expensive, subject to import duties raising the capital outlay required by as much as 25%

• Local companies are not able to acquire more complex, heavy marine-related equipment necessary to fulfill a large-scale dock and jetty construction project

• Lack of access to capital and capital equipment is a double blow that constrains firms from bidding for larger construction works and therefore gives a significant advantage to foreign firms that can access global capital equipment markets where more competition makes for more efficient choices when purchasing such equipment.

• Providing equipment based services such as cranes or tipper truck hire could be a potential area of local demand capture due to the civils and placement components of many tasks

• IOCs will require stringent certification of equipment – for example in Qatar, only cranes two years old or newer were considered for use on the site which raises the issue of access to finance to purchase new equipment.

5 The international standards vary according to the nature of the work. So, international building standards might refer to US

or European standards for electrical installation but US standards for metals fabrication. Currently, it is believed there are ongoing discussions between the Tanzania LNG (TLNG) consortium members as to which standards to agree on and the TBS is also believed to be standardizing on ISO standards which the IOCs have confirmed would be compatible with most standards they may adopt. However the IOCs have indicated that the finalization of the standards matter will be captured in the Host Government Agreement (HGA) that will be signed between the TLNG consortium and the Government of Tanzania.


18


Two critical constraints that have been discussed with contractors in the focus groups and in firm interviews in the Docks and Jetties industry:

1) Shortage of trained technicians with comprehensive practical experience 2) Shortage of certified capital equipment resulting in unreliable and expensive

equipment hiring services.

These two constraints are important in the Docks and Jetties industry as the opportunities relate to the civil engineering type of works areas where both the supply of capital equipment (with or without operators) and experienced technicians for supervisory and project management roles may be sought by the EPCC or prime contractors. In the value added section before, the domestic payroll outstrips the domestic profits suggesting that the opportunities for subcontracting may be limited whilst employment opportunities may be more widespread.





Background

It is important to note that all the interviewed contractors complained about the lack of trained and experienced supervisory technicians as even well trained and certified technicians often lack practical training and a ‘compliance driven work ethic’ resulting in inadequate supervision and overlooked poor workmanship resulting in costly reworking. Across all the areas of the docks and jetties the purchase of local goods is limited whilst the employment opportunities relate specifically to the unskilled and semiskilled levels. The key aspect that stands out is the level of semiskilled labor that could be employed locally and the critical need to start upskilling experienced technicians to leverage their experience with the upskilling to enable them to be hired in supervisory roles and to develop their transferable skills. Once the LNG project moves into the operations phase supervisory technicians would be able to seek employment in a wide range of construction environments thus raising the overall level of skill in the construction sector but also reducing the distorted wage inflation impacts that contractors complained about that the current shortage of skilled technicians triggers when the construction sectors show growth.

The transformational impact of this intervention would be to raise the overall level of skill in the civil works sector and increase the competitiveness of the local civil works industry for future contracting in the oil and gas sector. Improving the competiveness of technical sectors such as the various engineering sectors will have a critical impact in deepening the industrialization of the Tanzanian economy as more industrial investments come on stream with the anticipated expansion of the oil and gas sector and the proposed downstream utilization of gas to expand the industrial base. Strong backward linkages in this regard will be essential for future projects to increase the level of local content over time.

Docks and Jetties

19

The PTC could be established in partnership with the private sector whereby the private sector contributes to both the PTC’s start-up funding and management funding. There is some debate as to whether this should be a PPP or purely private sector initiative as larger investors are not in favor of a PPP where conflicting interests could derail the implementation. Local firms seemed receptive to the idea and a more thorough assessment of the concept would need to be conducted. The concept for the PPP would be to have the government ring fence some of its skills levy as it capital contribution to the PTC and its subsequent shareholding in the PPP and the private sector would invests as shareholders in the PPP.

A steering board would be established that would provide guidance on the curricula strategic direction that would ensure relevance for the stakeholders whilst an ExCo would be accountable for the day to day operations, including implementing courses, regulatory compliance, sourcing qualified trainers and mentors.

Many contractors complained that students leaving the VETAs and TIs lack basic practical skills as the VETAs and TIs generally have limited equipment and student are not exposed to on the job training. Students would be drawn from the VETAs and Technical Institutes (TIs) and would primarily receive practical training on equipment relevant to the broader contactors’ works areas including: inter alia, mechanical engineering, civil engineering and general building courses. Alternatively, contractors could send potential employees on refresher courses or upskilling courses and if shareholders receive a discount on the course fees etc.

The emphasis would be on practical training to develop or strengthen skills and mentoring to build a

positive work ethic. The PTC would provide an opportunity for students to visit and/or work on ‘real’ projects at the contractors that are associated with the PTC – this would address the current chronic shortage of skilled and practically trained technicians for supervisory and project management roles. Contractors in turn could send representatives to provide ‘special’

Proposed Intervention 1: Establishing a practical training center (PTC) that could have a workshop where skills are practiced and assessed to bridge the “practical training” gap between the VETCs and employment


20

lectures on work ethic, risk management, HSE implementation etc. The advantage to the contractors is that the shared cost of the PTC will reduce the risk of equipment damage and accidents on site where for example equipment operators are now trained on equipment that is relevant. Contractors could also donate retired equipment to the PTC where appropriate. For example, when a bulldozer operator arrives at a contractor from the PTC the contractor has faith in the operators having been trained to operate the bulldozer whilst actually having operated the relevant equipment either on site at the PTC or in a works area and therefore has practical knowledge of such elements as basic maintenance and monitoring of critical aspects such as fluid levels etc. and a respect for the limitations of the equipment that reduces unnecessary damage and wear and tear.

Finally, as the PTC becomes a more established and recognized center of excellence, it would be able to implement a fee for service to ‘non shareholders’ to become the recognized certification agency for the various sectors and skillsets. The PTC would then also maintain a database of certified artisans that could then be accessed by shareholders for free or by ‘nonmembers’ for a fee to source labor with the knowledge that upon finding the relevant skilled artisan or operator, that the person is certified by a trustworthy PTC. The more efficient sourcing of certified labor also reduces the tracing costs when preparing to execute a project.

In the final analysis, contactors have faith in the students exiting the PTC, student have faith in the certification as increasing their employability, the government has comfort that its skills levy is being well spent as it is represented on the board and the private sector achieves an overall increase in the skills level and a greater number of artisan that reduce the risk of labor inflation and makes retaining artisans earlier as there is less ‘labor churn’ due to all contractors chasing a few certified artisans and poaching from each other on a project by project basis.

Constraint 2: Constrained Access to Capital Goods


Firms rely on outdated equipment which undermines competitiveness and reliability

Certification of equipment will be the benchmark for allowing vehicles onto site

Background:

As few as 5-10 % of local contractors own engineering works equipment which puts upward pressure on equipment hire rates as demand outstrips supply. It also however also disincentivises local hiring firms to maintain their equipment to the highest standards as the local contractors often do not require certified equipment.

Proposed Intervention 2: Establish an equipment hire firm locally and/or improving the access to certified capital goods for local engineering works contractors.

There will be a significant role for the market to modulate supply and demand to prevent stranded assets, however with the current demand for equipment, the dominance of a few firms is simply entrenched thorough the current market failure. A ‘dual market’ exists for contactors that have to comply with global standards and those that don’t. Essentially the

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21

‘non-compliant market’ has externalized the cost of the compliance and therefore effectively discounts it to the client, whereas the ‘compliant market’ has internalized the cost of compliance however clients demand the compliance and therefore accept that as a cost of service and within reason are prepared to pay the premium. The policy issue is that the non-compliant market does not represent effective competition and market differentiation as the non-compliance has material and safety impacts in terms of failures, inefficiency and loss of competiveness and therefore a ‘zero tolerance’ enforcement of basic global standards is critical to closing the gap and therefore the removing incentive to discount compliance in the ‘non-compliant market’ and level the playing fields.

In term of access to certified capital equipment, there have been investments by private equity investors in the equipment hire sector as a growth sector with good returns. The driver for demand is however the enforcements of standards and associated regulations. With the regulatory environment more effectively enforced there would be a stimulated demand for good quality and in many instances certified capital equipment and attracting investors should be viable. The challenge is that the market for capital equipment hire and supply in the Tanzanian market is large, however the market for certified capital equipment is very small and the size of the market is influenced by the enforcement of the regulatory framework relating the use of safe and reliable equipment in the various engineering sectors in Tanzania.

A compounding issue is that and various policy instruments are currently used to limit exposure of the Tanzania’s banking system to credit ‘bubbles’ and subsequent bad debt shocks to the system which in turn limit the access to capital. However, where firms can provide evidence of the strength of their business model, efforts should be made to reduce the hurdles for local investors’’ access to capital such as lower the SBL or the development of a credit guarantee instrument to reduce risk. In addition more complex private equity and related capital funding options needs to be pursued and supported by the financial regulatory authorities.

It is therefore recommended that as part of the local content and supplier development programme, institutional reform and strengthening be recognized as a critical enabler of local content in order to level the playing field for investors and local firms and provide sustainable demand for certified capital equipment. Funding should be provided to the Tanzanian regulatory authorities to build capacity, strengthen the regulatory framework and provide practical technical support to bolster enforcement.

Recent discussions with the IOCs indicate that their expectation will be that there will likely be a number of prime contractors for different elements such as the MOF, the airport upgrade etc. however there may well be multiple small contracts where goods and services suppliers will be contracted in an ad hoc manner that provides relatively small contracts in the region of a couple of million dollars over short periods of time but which for the local firm may present a significant opportunity to gain experience on a large project and to have evidence of expertise for future contracts during the LNG construction project or future construction projects in oil and gas or other sectors.

On the market side, it is recommended that potential funders such as private equity investors be exposed to market opportunities for supplying certified and reliable equipment with an emphasis on the prequalification for equipment supply to the oil and gas sector to mitigate risk. The efforts to obtain clarity on prequalification will likely be advanced through early


22

facilitation of meetings between funders and the IOCs/EPCC to determine the criteria that might be necessary in this regard. The fact that the IOCs are expecting multiple small support contracts provides and incentive to harness this expectations but to make sure that funders are fully apprised of the IOC expectations and prescripts in order to determine the underlying risk associated with the potential investments. It is not recommended that this is done via large scale events such as conferences etc. but more targeted facilitation with firms where a measure of due diligence has been done with regard basics business and regulatory requirements have been assessed. It is also recommended that potential investors are first introduced to the IOCs and related contractors before facilitating business meeting with local suppliers. Due to the role of government in leveraging local content policies, another recommendation is that foreign business are alerted of visits from foreign government where a trade mission component would lend itself to inviting commercial players to meet the government, the IOCs and potential local partners during the same trip.

Industry:

Roads and Landing Strips


Page 1

Summary

� We have divided the industry into the following sub-activities: 1) site access/maintenance roads; 2) local road connections and improvements; 3) port access road upgrades; 4) jetty access roads; 5) landing strips; 6) Marine Offloading Facility (MOF) access road and onshore parking/storage area; 7) camp and building parking areas; and 8) laydown facilities and areas paving.

� Total demand for the roads and landing strips industry is around USD 400 million, for the 7 year LNG construction phase. With current conditions, this activity will generate ≈ USD 72 million in demand for local goods and USD 60 million in domestic value added (local labor and profits), including a yearly average of 200 local jobs over the life of the project.1

� There are an estimated 30 local firms that operate in this industry in Tanzania, of which most are small to medium-sized contractors.

� Key constraints preventing greater local participation include: 1. Chronic shortage of certified and experienced labor; 2. Low levels of recognized accreditation risks quality and standards compliance; 3. Locally available certified capital equipment is very costly.

� Efforts to raise performance of local suppliers in this industry could translate to a domestic value added range between ≈ USD 60 million and USD 95 million over seven years, subject to the effective implementation and uptake of the recommended interventions by the target markets/sectors/entities. Increased skills for semi-skilled workers could add another 65 average local jobs per year.2


markets/ sectors/entities. 2 Implementation of interventions does not guarantee their sustained uptake. Consequently, the potential upside for increasing

value added and jobs from any element of the LNG construction project is wholly dependent on the successful uptake by target market actors, which cannot be measured at this stage.

The roads and landing strips industry encompasses contract services for the construction of roads and landing strips, curbs and parking lots, and other paving needs. The industry is characterized as being reliant on low-skilled labor, expensive capital machinery, strong project management and few, but critical, inputs. Roads and landing strips exhibit many of the characteristics of the site preparation and concrete works, in terms of activities and labor required.

Road construction activities and associated service firms are well established in Tanzania, however most local firms do not have the scale to manage a single contract of this size. Thus facilitating joint ventures (JVs) with foreign or regional firms could be instrumental in overcoming the capacity gap. Only a few large foreign companies are active in the Tanzanian market, yet these companies reportedly win the overwhelming majority of large projects.

This industry provides local job opportunities for unskilled workers, as the associated activities require significant amounts of manual labor. Many of the goods (such as gravel and backfill) can be sourced locally and firms have easy access to these consumables from local distributors. Finally, this industry offers tremendous opportunity for backward linkages into several other markets, including domestic road and paving services, regional transportation infrastructure construction services, and maintenance and repair work.


Page 2

Industry Demand

Demand Characteristics for Roads and Landing Strips

The roads and landing strips industry encompasses contract services for the construction of roads and landing strips, curbs and parking lots, and other paving needs. The industry is characterized as being reliant on low-skilled labor, expensive capital machinery, the need for strong project management and few, but critical, inputs.

In similar projects such as the Papua New Guinea liquefied natural gas (PNG LNG) project, both the local airport and the roads from the airport to the construction site were substantially upgraded, the former to allow Antonov heavy lift transport aircraft to land and the latter to withstand the heavy traffic of construction machinery and trucks. Depending on the final site selection and design for the LNG plant in Tanzania, similar civil works could be required. These could include: upgrade, extension, and expansion of the Lindi airstrip runway, installation of runway lighting and landing assistance signaling systems, and upgrade of the main regional roads in and around Mtwara and Lindi. As the proposed Lindi site will have adequate port access once the MOF is completed, it is unlikely that large items of equipment will be flown in.

Based on other LNG and large-scale oil production projects, it is very likely that engineering, procurement, and construction (EPC) contractors will conduct the design phase of projects themselves and subcontract all other work to local or international contractors. Project specifications, which will depend on site selection, may require different levels of sophistication for engineering and construction than typical flat land road/concrete pad constructions projects in Tanzania. The ultimate design specifications will remain an important consideration in determining the opportunities for local suppliers. There is a risk that the standards used in the design will not match those used by companies in Tanzania.3

In terms of goods, roads and landing strips construction requires the correct gradients and/or levels to ensure proper drainage. This is a relatively complex operation that must be completed exactly to the civil engineers’ specifications as the entire life span of the road or landing strip depends on the stability of the substrate. The principal equipment used includes bulldozers, graders, tipper trucks, and soil and asphalt compacting machines. Goods required include: asphalt (a mixture of dark bituminous pitch with sand or gravel, used for surfacing roads, flooring, roofing, etc.), engineered back fill, concrete, and paint.

This particular industry offers tremendous opportunity for backward linkages into several other markets, including domestic road and paving services, regional transportation infrastructure construction services, and maintenance and repair work. As such, proper industry upgrading could result in not only expanded local market capture in oil and gas, but also expanded market capture in other end markets that promise long-term commercial viability.

3 Tanzania’s road works standards have originated from British, American, and South African Standards. These standards

were deemed too burdensome for most of Tanzania’s typically low-trafficked regional, feeder, and district roads. Local road designers complained said standards were onerous and not applicable to the functionality of these roads. In some cases, operators are referring to the Southern African Development Community (SADC) Low Volume Sealed Roads and Labor Road Works Technical Manual to design the low cost roads with labor intensive considerations.


Page 3

Industry Supply

Local Suppliers

Road construction activities and associated service firms are already prevalent in Tanzania. There are an estimated 30 local firms that operate in Tanzania and the industry is composed of a few large contractors and numerous small and medium-sized enterprises (SMEs). More than 50 percent of the smaller firms do not own their own heavy construction equipment.4

Most local firms are not large enough to manage a single contract for large infrastructure projects. Facilitating JVs with foreign or regional firms could be instrumental in overcoming the capacity gap. Only a few large foreign companies are active in the Tanzanian market, yet these companies reportedly win the overwhelming majority of large projects.5

Current services provided in Tanzania include land surveying, bulk earthmoving, and civil works relating to drainage. Current activities include paved and unpaved road works, drainage works, and small building works (offices and staff accommodations). Firms interviewed indicated that, in the absence of an active privately-funded market for road construction beyond residential paving, their current major markets are government or donor funded projects related to infrastructure works, including runways. A reliable breakdown of these market segments is not available, which underscores the poor state of accounting and record keeping among local firms. All confirmed that 100 percent of their services are delivered only to the Tanzanian market.

Road building typically starts before any other construction and often prior to Final Investment Decision (FID), which means that the roads or landing strips contractor must provide evidence of their ability to meet tight deadlines with equipment that is appropriate for the job and reliable to prevent delays. For this reason, stringent specifications are established by international oil companies (IOCs) that require firms to provide verifiable proof of an appropriate accreditation, such as ISO 9000.

Discussions with EPC contractors revealed that compliance with global industry quality standards, the low level of trained workforce, and the lack of equipment appear to be the major constraints to growth and expansion to meet potential demand from the Tanzania LNG project based on similar projects globally.


While firms relevant to the roads and landing strips industry are prevalent in Tanzania, their existing skills sophistication is low. It is difficult for firms in the industry to find competent engineers, technicians, and supervisors that have proper project management, client relationship management, and finance skills.

While formal training is available in the industry, practical training is scarce and most firms rely on in-house, on the job training to prepare graduates for the field. This takes time and is costly. Most university and technical institute training focuses on theoretical skills development, and lacks practical training that would provide engineers with valuable skills to

4 The Tanzanian SME Development Policy defines SMEs (page 3) as follows: Small enterprises have 5-49 Employees with 5-

200 million TShs Capital investments in machinery and a Medium enterprise has 50-99 employees with 200-800 with million TShs Capital investments in machinery.

5 Registered as such with the CRB.


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make them ready for the labor market. Furthermore, there is need for more coordinated in-service training. The key challenge facing training universities and technical institutes is the dearth of practical training facilities with shortages ranging from laboratories to equipment used in the field, such as surveying and soil testing equipment.

In terms of local goods, firms have easy access to consumables from distributors. Nevertheless, prices vary drastically because of demand spikes due to implementation of large projects. In such scenarios, it is not uncommon to see prices for goods increase drastically given supply-side constraints. Some traders exploit this market dynamic by charging a very high “import” price to move supplies from one part of Tanzania to another.6

Tanzania has sufficient cement production capacity and all major producers are also suppliers of concrete. Asphalt is available locally but is produced from imported bitumen, as Tanzania does not have oil refining capacity that would produce bitumen as a byproduct. This risks creating a market distortion as a demand spike might well result in increased bitumen prices pushing the typical 20 percent proportion of asphalt of road cost to as much as 30 percent. Further engineering assessments are required to determine if the quality of locally produced asphalt is suitable for the weight bearing runways and roads anticipated to be used by heavy lift aircraft and heavy load trucks on roads from the airstrip to the site.

Access to specialized plant equipment is available in the Tanzanian market as there are firms that sell and lease necessary equipment, which they often import (e.g. high-capacity cranes, specialist dozers, etc.). There is also a market to purchase extra plant equipment used after projects but it is very expensive due to undersupply. Only about three to five percent of contractors own their equipment.


The key demand areas translate into a series of industry sub-activities that will need to be carried out to deliver on an LNG contract. Road building is essentially about preparing a flattened area, compacting it and placing a pavement on the upper layer. The extent of the transport stresses will determine the depth and extent of compaction and the various layers that are combined to give a substrate that can withstand wear from different loads. The pavement surfacing can be sophisticated from an engineering perspective with different components being integrated to provide different outcomes such as increased durability, less tire noise, and increased traction and usually depends on the proportions of the various elements such as, inter alia, the amount of gravel, the type of bitumen, and the camber of the road. While it is unlikely that local firms have the capacity to win a large contract, they may be subcontracted by an EPC or other prime contractor for smaller related activities. These activities are outlined below with the relevant characteristics that will impact the value added for the Tanzanian economy.

1. Site Access and Maintenance Roads (Total sub-activity demand ≈ USD 40 million, or 10% of total industry demand) Site access roads will largely be used to obtain access to the site from main roads (which will be tarred) as well as for accessing the perimeter of the site for maintenance purposes

6 In this instance, the concept is not necessarily an actual import but rather relates to the ‘import’ from one area of Tanzania to

another that may require a multimodal transport solution including marine barging and rail. One contractor consulted indicated that it would be more cost-effective to develop a new quarry and barge aggregate from one area on the coast to another rather than pay the price asked by an aggregate trader with a source near the intended project site.


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(may be untarred). The site access and maintenance roads will be built before the construction phase starts during the early works. The potential domestic value added (labor and profits) range for the site access and maintenance roads sub-activity is estimated to be between USD 5 and 8 million, subject to the successful implementation and uptake of the recommended interventions by target markets/ sectors/entities.

Tasks

• Rock/gravel placement and earth reinforcement • Installation of forms/guides • Pouring, paving, setting • Final layer setting • Painting, marking • Installation of safety barriers (where needed) *Additional associated tasks are captured in separate business cases (see site preparation)




• Aggregate • Engineered backfill • Concrete • Bitumen • Paint

• Skilled and semi-skilled labor for artisan and supervisory and equipment operator roles

• Significant opportunities for unskilled labor due to the civil engineering aspects of this sub-activity

2. Local Road Connections and Improvements (Total sub-activity demand ≈ USD 60 Million or 15% of the total industry demand) Local road and connections will facilitate the supply of material from nearby Mtwara and also from Dar es Salaam. The connecting roads from the main Dar es Salaam road to the site will have to be upgraded to handle increased traffic flow and heavy vehicles transporting equipment and supplies. The local road connections and improvements will be built before the construction phase starts during the early works. The potential domestic value added (labor and profits) range for the local road connections and improvements sub-activity is estimated to be between USD 16 and 24 million.7

Tasks





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3. Port Access Road Upgrades (Total sub-activity demand ≈ USD 60 million or 15% of total industry demand) The road to the Mtwara port will be upgraded to assist with early access for imported items for us on the site during early works of during the site preparation phase. Road upgrade for access to the port will be completed before the construction phase starts during the early works. The potential domestic value added (labor and profits) range for the port access road upgrades sub-activity is estimated to be between USD 8 and 12 million.8

Tasks

• Rock/gravel placement and earth reinforcement • Installation of forms/guides • Pouring, paving, setting • Final layer setting • Painting, marking

Installation of safety barriers (where needed) *Additional associated tasks are captured in separate business cases (see site preparation)







4. Jetty Access Roads (Total sub-activity demand ≈ USD 40 million or 10% of total industry demand) During the construction of the LNG jetty, there will be a need to bring heaving lifting equipment for positioning the trestles and related elements of the jetty into place. Once the jetty has been constructed, there will be a need to enable maintenance and fire response vehicles to the jetty. The jetty access road will be built during the construction phase starts after site mobilization and FID.




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The potential domestic value added (labor and profits) range for the jetty access roads sub-activity is estimated to be between USD 5 and 7 million.9

Tasks








5. Landing Strip (Total sub-activity demand ≈ USD 80 million or 20% of total industry demand) The landing strip will be built or upgraded before the construction phase starts during the early works and will likely be the major route for fly-in fly-out (fifo) contactors during the course of the construction phase. In addition, the landing strip will require significant amounts of concrete in the substrate to withstand the weight stress during takeoff and landing, making landing strip construction very costly relative to a standard road. The potential domestic value added (labor and profits) range for the landing strip sub-activity is estimated to be between USD 10 and 16 million.10

Tasks





• Aggregate • Engineered backfill

• Skilled and semi-skilled labor for artisan and supervisory and equipment operators


markets/ sectors/entities. 10 These figures are subject to the successful implementation and uptake of the recommended interventions by the target



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• Concrete • Bitumen • Paint


6. MOF Access Road and Onshore Parking/Storage Area (Total sub-activity demand ≈ USD 60 million or 15% of total industry demand) The MOF access road and onshore parking storage areas will be reinforced to deal with heavy loads as most of the heavy lift equipment will be imported via the MOF and transported to site using specialized transport and will need high quality roads and related storage and parking areas. The MOF access roads and parking/storage areas will be built before the construction phase starts during the early works. The potential domestic value added (labor and profits) range for the MOF access road and onshore parking/storage area sub-activity is estimated to be between USD 7 and 11 million.11

Tasks








7. Camp and Building Parking Areas (Total sub-activity demand ≈ USD 20 million or 5% of total industry demand) The camp and building areas roads will be built before the construction phase starts during the early works and will be the least sophisticated in its technical complexity. As such, much of this could likely be subcontracted to local firms so long as they meet the primary contracting company’s accreditation standards. The potential domestic value added (labor and profits) range for the camp and building parking areas sub-activity is estimated to be between USD 5 and 8 million.12

Tasks

• Rock/gravel placement and earth reinforcement • Installation of forms/guides • Pouring, paving, setting


markets/ sectors/entities. 12 These figures are subject to the successful implementation and uptake of the recommended interventions by the target



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• Final layer setting • Painting, marking • Installation of safety barriers (where needed) *Additional associated tasks are captured in separate business cases (see site preparation)







8. Laydown Facilities and Areas Paving (Total sub-activity demand ≈ USD 40 million or 10% of total industry demand) Laydown facilities are off site staging areas where trucks and lifting equipment wait for goods and equipment manufactured in workshops and warehouses. These facilities will be connected to the site via access roads that will have to be designed to withstand heavy traffic. The laydown facilities will be built before the construction phase starts during the early works. The potential domestic value added (labor and profits) range for the laydown facilities and areas paving sub-activity is estimated to be between USD 5 and 8 million.13

Tasks











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Road building typically starts before any other construction and often prior to FID. This includes during the early works stage. Without the roads built and a landing strip prepared, many of the other construction activities cannot begin. Depending on the state of the local landing strip, upgrading may be implemented as part of early works so that fifo contractors and the EPCCs can arrive on site and begin receiving construction goods and equipment as soon possible. Based on our modeling, peak employment occurs in Year 3 when the major road building and landing strip upgrade activities are carried out. As Table 2 indicates, the majority of employment opportunities in the road building/landing strip upgrade industry are predominantly unskilled. However, if an upskilling program is successfully implemented to retrain and certify experienced technicians for the oil and gas sector, the number of semi-skilled and skilled workers could be increased.

Many of the goods required for the roads and landing strip will need to be sourced locally. Considering the volumes required, it may be practical to develop aggregate and sand quarries that are dedicated to the LNG construction. There are numerous firms involved in these activities in Tanzania. While roads and landing strip construction will likely conducted by EPCs themselves, the supply of the inputs should be subcontracted to local suppliers.



Y1 Y2 Y3 Y4 Y5 Y6 Y7

1. Site access/ maintenance roads

80,000 1,440,000 1,440,000 1,600,000 1,600,000 1,280,000 560,000

2. Local road connections and improvements

120,000 2,160,000 2,160,000 2,400,000 2,400,000 1,920,000 840,000

3. Port access roads 120,000 2,160,000 2,160,000 2,400,000 2,400,000 1,920,000 840,000

4. Jetty access roads 80,000 1,440,000 1,440,000 1,600,000 1,600,000 1,280,000 560,000

5. Landing strip 80,000 1,440,000 1,440,000 1,600,000 1,600,000 1,280,000 560,000

6. MOF access road and onshore parking/ storage area

120,000 2,160,000 2,160,000 2,400,000 2,400,000 1,920,000 840,000

7. Camp and building parking areas

40,000 720,000 720,000 800,000 800,000 640,000 280,000

8. Laydown facilities and areas paving

80,000 1,440,000 1,440,000 1,600,000 1,600,000 1,280,000 560,000

Total by Year 720,000 12,960,000 12,960,000 14,400,000 14,400,000 11,520,000 5,040,000


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1. Site access/ maintenance roads

Skilled

0 7 7 8 8 6 3 5

Semi-skilled 0 7 7 8 8 6 3 5

Unskilled 1 10 10 11 11 9 4 8

Subtotal 1 24 24 26 26 21 9 19

2. Local road connections and improvements

Skilled

1 18 18 20 20 16 7 14

Semi-skilled 1 12 12 13 13 11 5 9

Unskilled 1 18 18 20 20 16 7 14

Subtotal 3 48 48 53 53 42 19 38

3. Port access roads upgrades

Skilled

1 10 10 11 11 9 4 8

Semi-skilled 1 10 10 11 11 9 4 8

Unskilled 1 15 15 17 17 14 6 12

Subtotal 2 36 36 39 39 32 14 28

4. Jetty access roads

Skilled

0 7 7 8 8 6 3 5

Semi-skilled 0 7 7 8 8 6 3 5

Unskilled 1 10 10 11 11 9 4 8

Subtotal 1 24 24 26 26 21 9 19

5. Landing Strip

Skilled

1 14 14 15 15 12 5 11

Semi-skilled 1 14 14 15 15 12 5 11

Unskilled 1 20 20 23 23 18 8 16

Subtotal 3 47 47 53 53 42 18 38

6. MOF access road and onshore parking/storage area

Skilled

1 10 10 11 11 9 4 8

Semi-skilled 1 10 10 11 11 9 4 8

Unskilled 1 15 15 17 17 14 6 12

Subtotal 2 36 36 39 39 32 14 28

7. Camp and building parking areas

Skilled

0 6 6 7 7 5 2 5

Semi-skilled 0 4 4 4 4 4 2 3

Unskilled 0 6 6 7 7 5 2 5

Subtotal 1 16 16 18 18 14 6 13

8. Laydown facilities and areas paving

Skilled

1 7 7 8 8 6 3 5

Semi-skilled 1 7 7 8 8 6 3 5

Unskilled 1 10 10 11 11 9 4 8

Subtotal 2 24 24 26 26 21 9 19



The total domestic value added over the seven-year investment period is estimated to be ≈ USD 60 million, composed of ≈ USD 47 million in labor and ≈ USD 13 million in profit. In addition, the activity would also result in the purchase of some ≈ USD 72 million in local



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goods, part of which will also stimulate the local economy (e.g. linking to domestic road and paving services, regional transportation infrastructure construction services, and maintenance and repair work).

Figure 1 reflects the high potential for local jobs over local subcontracting. The major value added comes from the provision of the services to construct the roads and landing strip, which is expected to be delivered by international firms that meet the stringent accreditation criteria of IOCs and EPCCs. If local firms can upgrade to meet the accreditation criteria, there is a potential for a greater proportion of value added to be captured by local firms that can provide higher quality, locally sourced goods.


As seen in Figure 2, jobs are expected to be largely unskilled. Employment opportunities will be fundamentally dependent on preemptive training and accreditation prior to the site mobilization. This is particularly important because most employment opportunities will present themselves during early works, which will reduce the “readiness” lead time further. In the event that a large scale training center is established, then many jobs will migrate to semi-skilled laborers.


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The limited procurement of local goods by value results from the low value of the inputs in to the roads and landing strip industry. Identifying and developing local quarries for the bulk material will be critical for local firms to be ready to supply the sand, aggregate and other similar inputs to the construction firms. The biggest part (above 60 percent) of material costs of road construction works are composed of aggregates for unbound base layers (mostly crushed dolomite), aggregates from mountain rocks (mostly crushed granite), and bitumen for manufacturing asphalt concrete. Bitumen, as an imported and oil price-indexed raw material, has the biggest impact on total costs of road construction. Bitumen will remain imports due to Tanzania’s lack of bitumen production facilities.


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Key Industry Constraints and Impacts Many of the gaps observed for this industry are similar to those found in the concrete and site preparation industry analyses (both of which consist of construction-related sub-activities). Where the same gaps have been observed, we refer the reader back to these other analyses. Otherwise, below we discuss particular gaps for this industry.




competitiveness

Chronic shortage of experienced supervisory

technicians • There is a lack of

certified/accredited technicians and equipment operators who meet international standards and specifications.



• Even well-trained and certified technicians and equipment operators often lack practical training and a “compliance-driven work ethic” resulting in inadequate supervision and increased maintenance/repairs to equipment.

• In most roads and landing strip works areas, the prime contractor will conduct the majority of work and may employ some unskilled labor. But they will also be seeking skilled technical supervisors and equipment operators who are essential for reliable compliance. Certification could improve employment prospects.



Market

Lack of accreditation will be the barrier many local firms

will encounter • National quality standards are

not enforced with a “zero tolerance” approach by regulatory authorities.

• Compliant firms do not have the means to pass on the cost of compliance except where EPCCs are willing to accept the cost of compliance as a cost of doing business.

• A “dual market” exists where clients accept non-compliance in lieu of lower costs for services.

• Compliant firms that target only the oil and gas sector face sustainability challenges if there is insufficient work to maintain viable levels of utilization.

• Where utilization is low, firms have to incur costs to maintain accreditation in terms of standards and maintain certification of equipment and labor force.

• Across all sub-activities there will be strict enforcement of standards and compliance will advantage those firms with globally accepted accreditations that meet oil and gas industry standards.

• The most likely approach that will be acceptable for international contractors will be establishing JVs with smaller firms. Junior partner in such JVs, however, would need to obtain an accreditation that augments that of the prime contractors’.




• There are limited affordable certification services in Tanzania to test equipment for oil and gas projects and similar complex construction works.

• The leasing market is weak: - There are limited incentives to

certify equipment when demand for uncertified equipment remains high

- Leasing and renting equipment is predominantly cash-driven, generating cash flow challenges.

• In the oil and gas sector, equipment has to be certified regularly and be recognized as reliable to assure IOCs and EPCs that contractors can provide a reliable service as delays have significant liquidated damages implications.

• Firms without certified equipment will not be considered for subcontracts

• In all sub-activities, heavy equipment will be required and local contractors will have to incur significant costs in certifying equipment, especially where certification technicians must be imported from elsewhere.


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In addition to improving the local training facilities and curriculum (see building and camp construction sub-activity), facilitating focused workshops and new product development courses will aid in building the skills needed among local firms.

It is expected that IOCs will implement an equipment operators’ training program and this should be pursued with the IOCs as an element of their local content and supplier development commitments.15 As this is expected to be located “on site”, it should be an essential part of the local economic development plan of the Lindi or Mtwara regions and should be a high priority matter for agreement between the IOCs and Regional Commissioners. While this does not represent an “investment” opportunity for the private sector outside of the LNG consortium, it does represent a structural impact to many sectors, as there is a chronic shortage of trained and certified equipment operators (especially truck drivers) who will be readily absorbed in to the Tanzanian economy after the construction phase is over.

In the event that the Mtwara and Lindi regions grow as a result of the gas economy, there will be ongoing need for a sophisticated training facility and such a service could be an important intervention in the long term. Also the training facility established by IOCs in intervention one could be concessioned to an interested private sector actor interested in investing in training facilities and related services. In the PNG LNG project, a construction training center was established in Port Moresby and, upon completion of the project in 2014, was donated to the PNG Government to become part of Port Moresby Technical College.



Compliant firms are not competitive in the

Tanzanian Market

Lack of accreditation will be the barrier many

local firms will encounter

While accreditation and certification is important in this industry, the barriers to achieve them are not as high as others (such as in LNG Train and Tank installations). Much of the industry gap currently relates to equipment compliance and shortages of skilled labor.

The possibility of establishing a privately owned accreditation and certification center has been suggested in a separate industry study to address this crosscutting constraint. For more information please see the electrical works industry profile recommendations.

15 During the LNG project in Papua New Guinea, ExxonMobil implemented an equipment operator and vector control training

program that trained thousands of workers in various elements of health and safety and equipment operation courses.


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Constraint 3: Locally available certified capital equipment is very costly



Limitations on what is sourced and hired locally

The constraint regarding shortage of reliable, accredited equipment is a chronic problem that is compounded by the constrained access to capital by many contractors. This severely limits the capacity of contractors to supply equipment to the LNG project. Many civil contractors consulted locally indicate that the equipment they own and lease is unreliable, old, and expensive to maintain. This will have a significant impact on the ability of local firms to acquire equipment to provide their services on even simple projects such as road clearance, foundation laying, and rough gravel laying.

Recommendation to Address Constraint A greater understanding of the capital and asset equipment leasing market in Tanzania is needed. There may be opportunities to establish specialized commercial financing options with local banks, such as leasing windows or credit guarantees and credit lines, which can increase local suppliers’ access to finance. Simultaneously, international heavy equipment manufacturers should be engaged to assess the possibility of providing financing and training to local suppliers if complemented with development technical assistance.

Industry:

Catering Services

Catering

1

Industry Summary

� Total demand for catering services over the seven-year LNG construction period has been estimated at roughly USD 200 million, most of which will be spent in years 3 through 6 of the LNG construction phase. 1 This translates to average demand of 750 jobs (expat and local) per year over the life of the project; including 650 that are likely to be local.

� Some 1,100 catering companies, both domestic and foreign-owned, are currently registered and operating in Tanzania. Leading competitors in providing catering services for large international firms (oil, gas, and mining) include Tanzanian-owned AKO and SBS as well as foreign-owned ATS and Sodexo.

� Catering typically employs large numbers of unskilled or semi-skilled workers. No matter who is providing the services, local employment impact will be significant because both local and foreign firms tap into the same labor pool.

� Most catering companies serve local markets, targeting a wide range of clients: mines, hotels and safari lodges, schools, government institutions, or military installations. A few larger local firms operate regionally, often under government contracts for army bases, universities, and other public institutions.

� Typical arrangements for catering services for the LNG camp are a single contract to a selected provider registered in Tanzania. Alternatives, such as importing prepared food from abroad, or contracting with several local suppliers, appear uncompetitive.

� A key constraint for larger companies is the access to high quality local food input. In addition to this constraint, smaller companies face challenges with respect to compliance with global HSE requirements and access to capital to upgrade their operations.

� Roughly 50 percent of goods consumed are estimated to be sourced locally, for a cumulative total of about USD 50 – 70 million. The upper limit of this range could be possible if the quality of key inputs, like meat, poultry and fish, can be raised to meet international quality standards.2

� If local companies are able to strengthen their value chains and scale up operations, such actions could increase the domestic value added range from USD 60 - 80 million and the number of locally held jobs to a yearly average ranging from 650 - 900 per year.

1 For a full explanation of assumptions used to derive this estimate, please see Assumptions Annex 2 Assumptions Annex

The catering needs of the construction of the LNG facilities represent a major opportunity for local companies and local employment. Sub-activities in this industry (procurement of meal ingredients, meal preparation, and meal serving & clean up) are likely to be bundled into one contract held by a full service catering firm. Mining, tourism, and related activities have fostered the emergence of a well-developed catering industry in Tanzania. Leading companies in the local catering sector have demonstrated financial and technical competence to deliver services to large international corporate clients, but will need to ramp up their activity to meet demand from the LNG camp. They have established supply chains, provide in-house training programs, and tend to be compliant with HSE standards.

Opportunities exist for enhancing the local economic impact of catering services by strengthening backward linkages with respect to key inputs, like meat, poultry, and fish, which are currently mostly imported to meet “high end” demand. If the quality of these inputs can be improved sufficiently, purchase of local goods could increase to USD 70 million, compared to a baseline estimate of some USD 50 million. Additionally, domestic value added (labor and profits) as a result of the LNG construction demand for catering services could rise from an estimated USD 60 million anywhere up to USD 80 million.


2

Industry Demand

Based on the assumption that the liquefied natural gas (LNG) project will require around 40,000 meals each day for a workforce of around 13,000 at the peak, we estimate that the local catering industry is currently able to provide around 13,000 meals each day (30 percent of demand) while also meeting stringent compliance requirements demanded by clients such as multinational mining firms. Experienced firms will need to scale up operations quickly to meet demand in order to secure a contract. The accommodation model selected by the IOCs, how many people are chosen to live in the camp versus the surrounding communities, will have a critical impact on the catering demand levels and could vary by - 30%.

Demand Characteristics for LNG Catering

The principal determinant of the demand for catering services is the number of construction workers on-site. Catering service contracts usually require different packages: a “full package” for workforce that stays onsite, which would typically include all three meals and other personal services such as laundry; and one meal per day for workforce that stays offsite or community based. Catering services are typically outsourced in a single contract to either an international or a local firm. The contract can be for the entire duration of the LNG plant construction, or may be renewed periodically. The cost of the former is around USD 16 to 21 per day, while the latter is approximately USD 6 per meal. Animal protein (meat, poultry and fish) may account for roughly half the cost of a typical meal and the remaining half will be a combination of starch and fresh produce.

Industry Supply

Local Suppliers

Some 1,100 catering companies are registered in Tanzania, providing food services to a range of clients. Larger clients include mining operations, hotels/safari lodges, universities and schools, government institutions, and military installations. The companies also serve smaller events such as weddings or funerals. Core activities involve purchasing foodstuffs and preparing cooked foods. A few companies in the catering sector also provide site cleaning, seated serving, camp erection, and facilities and property management.

SMEs (with fewer than 20 employees) account for 90 percent of the firms in the catering sector. Twenty firms fall in the medium to large category, with 200 or more employees. Most firms focus on local markets. Five firms are serious competitors nationally.3 These firms are relatively cost efficient and operate in accordance with internationally recognized health, sanitation, and safety certifications. They dominate the more lucrative and demanding corporate clients’ segment and they are starting to compete for the volume-driven government clients’ segment. Only a handful of firms have experience in serving the extractives sector.

3 The major catering firms are: AKO, Sodexo, ATS, SBS Logistics Ltd, and NICE Catering.

Catering

3

Figure 1: Location of catering service operations

Most Tanzanian catering firms are located in Dar es Salaam, but some are present in other the economic centers, including Mwanza, Shinyanga, Arusha, Morogoro, Dodoma, Mbeya, Iringa, and Mtwara. Error! Reference source not found. shows the spatial distribution of the catering industry. The geographic distribution has mainly been driven by the presence of large military installations and bases that require large-scale catering services. Most of the firms that focus on the army base market seem to show little interest in expanding beyond their regional sphere of influence or diversifying their clientele.


Between 45–65 percent of total operating costs for a catering firm are spent on the procurement of goods, primarily consumables. The rest typically includes 10–30 percent spent on labor and 10–30 percent on other overhead such as facility cost, equipment, transport, etc.4

Some of the inputs for the catering industry are available in surrounding communities, although local suppliers often struggle to meet international food health and safety standards. Transport requirements act as a barrier in access to input markets or may result in higher prices. For example, since food production in the South-East region is inadequate, approximately 90 percent of goods for use in the Mtwara region are purchased in Dar es Salaam. Transport constraints undermine the competitiveness of Tanzanian products compared to foreign foodstuffs that would be directly imported to Mtwara. Today, food prices are estimated to be 10 to 20 percent higher in Mtwara than in Dar es Salaam.

Animal protein (meat, poultry and fish) may account for roughly half the cost of a typical meal; the chart illustrates the composition of a typical meal. 5 For these inputs, local suppliers often cannot meet oil and gas companies’ health and hygiene requirements. For example, poor abattoir and processing services preclude verification of disease control and local storage conditions for fresh meat. Therefore, significant quantities of these goods have to be imported.6 If local production of red meat, poultry,

4 DAI analysis of catering value chain for CNL, 2012. 5 According to the Australian Mining journal, at a Bechtel LNG construction site on the Australian mainland where the peak was 11,000 workers of varying skills where accommodated, 327 000 meals are served at the camp each month. This level of catering required inputs such as 55 000 kg (55 tons) of meat where consumed each month, 300 000 eggs and 90 000 kg of fruit and vegetables. 6 According to 2012 trade statistics, more than 700 tons of red meat were imported as processed frozen cuts, worth more than US$2 million.


4

Relevant National Quality Standards: �� TFDA �� TBS

Relevant International Quality Standards: �� ISO 9001 �� ISO 14001 �� ISO 22000

and fish would meet quality standards, this could help increase the purchasing of local goods from USD 50 million baseline to anywhere up to USD 80 million over the entire LNG construction period. Regulatory Framework

In order to compete successfully for LNG catering contracts, local companies must demonstrate compliance with national and international quality standards and the ability to handle the volume at an acceptable price. Examples of national and international quality standards relevant to the food industry appear in Figure 2. Most food quality and safety assurance systems rely on Hazard Analysis and Critical Control Points (HACCP), Occupational Health and Safety Assessment System (OHSAS 18001), Safe Quality Food (SQF 2000), or similar systems to manage the health and safety aspect of food quality.7

In discussions with representatives of the sector, all firms acknowledged the difficulty of meeting HSE standards. Firms lack staff trained in both national and international standards and may struggle to purchase HSE-compliant equipment. This non-compliance also is caused in part by rigidities in the current business environment and opaque government procurement policies. The Confederation of Tanzanian Industries (CTI) commissioned a study on the food safety regime in Tanzania, which showed that up to 11 government regulatory authorities and more than 20 pieces of legislation deal specifically with food safety. Much of the problem lies with the overlapping responsibilities of regulatory enforcement, which undermines the competitive performance of Tanzanian firms in the catering sector by causing delays, multiple licensing and testing of products, and an overall high cost of compliance. 8


The key demand areas translate into a series of industry sub-activities that will need to be carried out to deliver on an LNG catering contract. It common that a firm will be able to fulfill the however sub-contracting potential exists across all sub-activities. These activities are outlined below with the relevant characteristics that will impact the value added for the Tanzanian economy.

1. Procurement of Meal Ingredients (Total Sub-activity Demand ≈ USD 120 million or 60% of Total Industry Demand)

Included within this sub-activity are the functions that go into the identification, purchase, and supplier management conducted by the catering firm.9 There is a high potential for the purchase of local goods, especially with fresh produce. This sub-activity is administrative in nature, is not labor intensive and does not present substantial opportunities for local labor. . The potential domestic value added (labor and profits) range for the piping works sub-activity is estimated to be between USD 23 and 26 million, subject to the successful implementation and uptake of the recommended interventions by target markets/ sectors/entities. In addition, these improvements are likely to result in an increase in the purchase of local goods, up to an added USD 64 million in local goods, part of which will also stimulate the local economy. 7 For small and less developed food businesses FAO/WHO guidelines may be used as reference. Details can be found at ftp://ftp.fao.org/docrep/fao/009/a0799e/a0799e00.pdf 8 Enterprise Map of Tanzania, 2012. IGC Center, page 62. 9 When pricing a contract, catering firms may include the purchase of meal ingredients within the cost of meal preparation.

Catering

5

Tasks

• Executing orders • Quality control for suppliers and internal to the catering company • Store keeping • Accounting




• Fresh produce and meat- can be found in surrounding communities from wholesalers, butcheries, local markets, or directly from farmers.

• Quality levels in produce are driven by demand and typically local farmers are able to comply with the articulated standards.

• For fresh meat, there is a lack of local inputs that comply with health and hygiene requirements.

• There are minimal meat processing services that have verified storage conditions and disease control and there is a general lack of ago-processing services.

• Significant quantities of meat and most processed agricultural goods will be imported, while most produce will be purchased locally.

• Beverages will be in large part purchased locally, but some specialty beverages will be imported.

• A limited number of skilled semi-skilled workers.

• Virtually no unskilled labor is needed, because qualified staff must have health and safety certifications.

• Semi-skilled workers may be hired from the local populations.

• At the peak of demand, there may be a shortage of semi-skilled workers.

2. Meal Preparation (Total Sub-activity Demand ≈ USD 60 million or 30% of the Total Industry Demand)

Depending on the contract, the IOCs may purchase kitchen equipment and the catering company will staff and manage the kitchen. Whether the IOC or the catering company purchases meal preparation equipment and accessories, it is likely that most items will be imported. Catering companies may choose to purchase cheap imports locally but they will sacrifice quality and may damage the perception of firm reliability. There is a potential for local workers in a small number of unskilled positions (such as janitors or dishwashers). Low-skilled labor is relatively easy to find, but it is difficult to find more specialized skills, business managers, and personnel supervisors. Meal preparation will require mid-skilled supervision and personnel management capacity among managers to ensure adherence to workplace safety and sanitation from workers (this will be site specific). In the market, there is a chronic shortage of trained chefs, so it is likely that expats will fill these positions. The potential domestic value added (labor and profits) range for the meal preparation sub-activity is estimated to be USD 28 and 40 million.10

Tasks

• Washing equipment and mopping floors


sectors/entities.


6

• Meal Prep • Cooking • Kitchen Management



Average Demand for Labor: ≈450 Average Demand for Local Labor: ≈ 350 jobs

• High quality industrial equipment (such as gas-fired and ventilated stoves or commercial-grade refrigeration units) is not produced locally, so it is likely that almost all will be imported.

• Some less specialized preparation tools and cookware (such as pots and pans) could be purchased locally, however they lack quality and will likely be imported.

• Unskilled local jobs will be related to the cleaning and waste management.

• Firms will rely heavily on semi-skilled preparation cooks, but will also employ small amount of skilled workers (such has chefs, quality control supervisors, and management)

• Some basic meal prep jobs could go to semi-skilled workers and may draw on the local labor pool.

• Majority will be semiskilled or skilled. All will have to be food prep professionals.

3. Meal Serving & Clean-up (Total Sub-activity Demand ≈ USD 20 million or 10% of the Total Industry Demand)

Meal serving and cleanup will be included in the overall catering contract and it is unlikely that any services will be subcontracted. In terms of goods purchased, depending on the contract, there are different models of implementation. The IOC may purchase industrial equipment and canteen furniture, while the catering company is responsible for staffing and management. In this case, the capital investment may be minimal, subject to the final decision of the IOCs. In any case, high quality industrial equipment (such as commercial grade dishwashers) is not produced locally, so it is likely that most capital intensive equipment will be imported. The potential domestic value added (labor and profits) range for the meal serving and clean-up sub-activity is estimated to be between USD 11 and 15 million.11

Tasks

• Cleaning and waste removal • Hygiene and quality control • Food service for canteen • Waiting tables in executive dining room




• High quality industrial washing equipment will likely be imported

• Items such as utensils, plates, and cups for serving can be found locally, but the investment will be minimal in terms of the share of total demand.

• Services will fall under the catering contract

• Meal serving and cleaning relies heavily on low skill labor which can be found locally. There may be basic induction training for unskilled workers conducted by the catering firm. It may be difficult to find local workers to fill a few more specialized managerial and business administration positions.


sectors/entities.

Catering

7


The critical analysis of the labor implications and demand for goods from the catering, according to Table 2, is that the overall job opportunities are more significant here than in any other industry which is aligned with the expectations of all of the stakeholders consulted on both the demand and supply side; catering firms consulted indicated that the most labor intensive elements of catering are the meal preparation and the meal service/clean-up and they also are the least skilled. Kitchens generally use highly skilled chefs and managers to oversee and directly supervise large numbers of semiskilled food preparation ‘technicians’. The challenge is that there is currently a shortage of skilled supervisory labor with practical experience and all catering firms consulted indicate that most of the skilled staff were imported – especially chefs. Meal service and clean-up workers on the other hand are essential all unskilled.

It can be seen in Table 1 for example that significant value is added for the 5 years of construction when the full workforce is on site requiring daily meal supply. The balance of profits to payroll implies equal subcontracting to employment opportunities, however the single most significant issue is that despite the general acceptance that catering will be the industry most ‘ready’ for the LNG construction demand, the IOCs are still indicating that the primary contract will likely be given to a large international firm that can prove its competence to produce the volumes of meals required. Whilst local firms can prove expertise for producing up to 10 - 13 thousand meals per day this is across multiple sites and the most is understood to be in the region of a couple of thousand meals on one site – a situation that the IOCs believe will result in the primary contract being given to a large multinational catering firm with verifiable experience in the mega scale meal operation on a single site.



Y1 Y2 Y3 Y4 Y5 Y6 Y7

1. Procurement of Meal Ingredients 0 0 4,536,000 17,172,000 19,440,000 19,440,000 4,212,000

2. Meal Preparation 0 0 756,000 2,862,000 3,240,000 3,240,000 702,000

3. Meal Service & Clean-up 0 0 392,000 1,484,000 1,680,000 1,680,000 364,000

Total by Sub-activity 0 0 5,684,000 21,518,000 24,360,000 24,360,000 5,278,000


8




1. Procurement of Meal Ingredients

Skilled

0 0 14 53 60 60 13 29

Semi-skilled 0 0 5 18 20 20 4 10

Unskilled 0 0 2 9 10 10 2 5

Subtotal 0 0 21 80 90 90 20 43

2. Meal Preparation

Skilled

0 0 45 171 194 194 42 92

Semi-skilled 0 0 68 256 290 290 63 138

Unskilled 0 0 68 256 290 290 63 138

Subtotal 0 0 181 684 774 774 168 369

3. Meal Service & Clean-up

Skilled

0 0 6 24 27 27 6 13

Semi-skilled 0 0 26 97 109 109 24 52

Unskilled 0 0 89 338 383 383 83 182

Subtotal 0 0 121 459 519 519 113 247

Industry Total 0 0 323 1,222 1,384 1,384 300 659


The distribution of employment by sub-activity between skill categories and origin (local vs. expatriate), suggests that the total domestic value added over the seven-year investment period is approximately USD 60 million. In addition, given current conditions, the activity would also result in the purchase of some USD 50 million in local goods, part of which will also stimulate the local economy. Figure 1 shows the estimated domestic value added by the catering industry by year. The first two years of the project will have little catering activity, since most of the FEED and related engineering design work will being completed outside of Tanzania. The domestic value added then builds up and reaches its maximum in years 5 and 6, and then drops off in year 7.


Catering

9


Figure 2 shows the projected local employment by skill category. Given assumptions about the composition of the labor force by skill level, and the split between expatriate and local labor, the overall pattern follows the value added development over time. In terms of full-time equivalents on a yearly basis, local employment in the peak years (5 and 6) reaches a level of almost 1,400. Figure 2: Average Number of Local Jobs Demanded by Skill Level

Local salaries and wages at their peak could amount to approximately USD 10 million, with the greatest impact in the Lind/Mtwara regions. In addition, the local share of net profits reaches its peak of nearly USD 10 million in the high demand years. However, employment is expected to fall to one-tenth or less once the facilities reach the operations phase.13

The main potential for local industry growth is the area of import substitution and

13 There is the untested option that a large global firms wins the LNG construction project contract simply because of the vast

number of meals and the need for comfort from the IOCs that the contract is awarded to a firm that has verifiable credentials in delivering such volumes, however a local firm with proven track record for a few thousand meals a day could easily be considered for the operations contract, subject to full compliance with necessary standards and accreditations.


10

strengthening the supply chain for food inputs, as illustrated in Figure 3. Under assumptions guided by the information supplied the local procurement of goods (mostly consumables) accounts for a relatively small portion of the total expenditures on goods and services. As noted above, the main obstacle to increasing the use of local inputs is poor quality. A public program to improve inputs such as animal proteins (meat, poultry and fish) can lead to a significant increase in the economic impact of the LNG facility construction. The analysis suggests that the gains could be up to USD 20 million in additional local goods purchased, however it should be remembered that the implementation of interventions is no guarantee of the uptake of such interventions and the potential upside for increasing both value added and jobs from any element of the LNG construction project is wholly dependent on the success of the interventions which cannot be measured at this stage. The relatively slow start of demand for catering services—projected to be zero in years 1 and 2—offers an opportunity to strengthen the domestic value chains linked to catering prior to year 3. Figure 3: Projected Goods Purchased (Imported vs Local)


The catering sector offers opportunities value for both investors and government. These impacts, however, are temporary, as they are limited to the LNG construction phase. Even so, the potential of this sector is constrained by a number of factors:


1. Access to certified goods Increased operating costs and

loss of competiveness Weak supply chains limit access

to LNG project contracts • There are insufficient quantities

of high quality food inputs (fresh and processed) to meet demand for food that complies with stringent food safety standards as the local supply chains are weak and food safety standards enforcement is weak.

• Lack of local agro-processing results in fresh produce being brought to market without any certification of its storage and compliance with the most basic

• Even basic agro-processing is not carried out on a large scale, for example despite one of the largest livestock herds in east Africa, Tanzania only process about 2-3% of its meat at the abattoirs with adjoining processing facilities to immediately cut and freeze portions for efficient and reliable transport to end-users.

• An estimated 75 percent of goods are currently imported to

• The risk associated with having a large scale food poisoning or other catering service related disruption and the knock on impacts construction delays and related costs dictates very stringent enforcement of compliance with food standards

• Ability to demonstrate that a caterer has access to reliable sources/supplies of certified foodstuffs that comply with stringent international standards

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11

hygiene standards. More than 95% of red meat is stored and sold at room temperature without any cold storage to prevent degradation.

• Tanzania’s catering sector has been flooded with poor quality cooking equipment that increases maintenance and replacement costs

ensure high quality to meat global food preparation standards, increasing operating costs.

• Quality cooking appliances and accessories must be imported at a high price, with long delays at customs, and. This slows operations and increases operating costs.

will be critical to winning any contract for catering services.

2. Compliance and Product Standardization

Compliance in an uncompliant market renders firms

uncompetitive

Promises of preparedness will not be a substitute for evidence of the

same • The majority of local

producers, particularly in poultry and meats, lack of proper disease prevention services and processing capabilities and have improper transport and handling procedures14

• Limited capacity to comply with oil and gas industry standards for the preparation, packaging, and distribution of meals.

• There is a lack of affordable and local accredited local hygiene and health certification services.

• Firms struggle with high costs to maintain required standards

• Firms that do not meet compliance standards cannot compete successfully for oil and gas catering contracts.

• Accreditation cost are normally passed through to the client where the client demands such compliance, however where clients do not entertain such cost these cost are difficult to pass through and catering firms are rendered uncompetitive which explains the very small market for top quality certified catering services in Tanzania

• The risk associated with having a large scale food poisoning or other catering service related disruption and the knock on impacts construction delays and related costs dictates very stringent enforcement of compliance with food standards

• If there is any doubt in the ability of a caterer to implement enforce and maintain internationally recognized food safety standards that could jeopardize the construction site workforce, they will not be considered for the catering contract. Ability to demonstrate this through current contracts and operations records will be vital in securing a catering contract

3. Workforce and Skills Imported qualified personnel makes firms uncompetitive

Current skills constraints -increased skills imports are likely

• Firms find it difficult to find workers with specialized skills, business managers, and personnel supervisors

• Precise knowledge of specific health and sanitation standards is limited

• There is no VETA-managed food services curriculum that specifically includes instruction on health, safety, and sanitation requirements that must be met to supply to IOCs and EPCs

• Firms do not have sufficient trained workers on staff that would be required to service large contracts

• Firms will not compete successfully for contracts without staff that have a precise understanding of how to implement proper health, sanitation, and safety procedures.

• With the peak demand for catering staff from the LNG project, the current labor shortages are expected to be exacerbated, thus limiting the ability of increasing the level of local employment from any catering contract

• Firms that cannot demonstrate they have access to a reliable and compliant workforce will not be considered for a catering contract. Intention to train up staff upon winning a contract will not be sufficient.15

14 At the SME catering focus group meeting, no catering firms representatives were aware of the need to salmonella testing of

poultry or whether such testing was being carried out on the poultry from their suppliers, whilst large caterers such as AKO interviewed had comprehensive policies in place to address all the food safety compliance matters as their clients (mostly mining sector clients) demanded such rigour. This dual market creates a false impression of what is possible in Tanzania and it will be essential for caters that are capable can demonstrate their ability to deliver on a large catering contract.

15 The G4S debacle during the London Olympics is still fresh in investors’ minds. G4S had won the contract in the assumption they would have a sufficient trained workforce to enforce security during the Olympics. Upon nearing the deadline to be ready it became apparent that G4S was woefully under prepared and then the army had to be enlisted to provide elements of


12


The following interventions are recommended to alleviate the aforementioned constraints and subsequently reverse the adverse impacts on sub-activities. Full descriptions of the cross-cutting interventions can be found in the Summary Note, while this section explains how the recommendations can be applied to the Catering industry. The industry specific interventions will be addressed in the order of significance, determined by the potential positive impact on the improvement of the competitiveness of local firms and subsequent improvement in the value added that can be captured locally.

Industry Specific Recommendations

Constraint 1: Access to Certified Local Goods

Background

Two critical constraints in the Catering Industry that were identified in contractor focus groups and firm interviews relate to the limited access to good quality food preparation inputs and the shortage of trained senior skilled professional (chefs, kitchen managers etc.) with comprehensive practical experience. These two constraints are especially important as the opportunities relate to the food preparation where clients are involved in tightly scheduled operations and where catering related disruptions (food poisoning, supply disruptions etc.) can result in significant material damages. The low wages in the catering sector for semi/un-skilled labor lends itself to its labor intensive aspects and further presents opportunities for local employment.

The development of agricultural backward linkages are important from a developmental perspective as identified by the World Bank in Uganda, and are also aligned with the Integrated Industrial Development Strategy (2011) however to fully harness the potential for agro-processing it will also be important to have a vibrant and competitive engineering sector to install agro-processing capacity and further reduce reliance imported gods and services to build and operate such plants. Many agro-processing plants can be imported as modular units but at great expense and the strengthening of the industrial manufacturing sectors such as engineering works could reduce the cost of installing agro-processing capacity, further improving the competitiveness of the agricultural sector over time. The largest developed economies of the United States and European Union all support their agricultural sectors with subsidies and other pricing instruments which improves their competiveness and disadvantages agricultural sectors in developing countries such as Tanzania therefore it would be a bold and defendable step to develop the support sectors that can improve the competiveness of the agricultural sector to compete with imports in the first instance and in experts to other markets in the second.

the security protocols during the Olympics. This type of unmet promise in such preemptive bidding will weigh heavily on the IOCs and EPCCs when evaluating catering bids.

Industry Impacts LNG Project impacts

Increased operating costs and loss of competiveness

Weak supply chains limit access to LNG project contracts

Catering

13

It is important to note that all contractors noted the lack of good quality food preparation inputs, specifically with regard to protein where both red meat and poultry are currently imported by ‘high end’ catering establishments such as caterers to mines and hotels. HACCP process monitoring requires a ‘cradle to grave’ approach where extensive auditing of suppliers is conducted and regularly updated to ensure the entire food handling chain is intact and free from contamination. For example, in Dar es Salaam a local catering company has a number of cold chain storage units that are linked to a diesel generator to maintain the temperatures during power outages to ensure they can control the cold chain in-house and prevent contamination. The challenge is, while caterers may be in a position to establish costly in house supply chain strengthening measures, there is still a lack of quality inputs from the relevant agricultural value chains, namely the red meat and poultry.

Most catering companies indicated that the red meat and poultry supply chains as structurally flawed due to the lack of basic agro-processing in most centers and especially in the Mtwara Lindi region. The poultry supply chain is unreliable from the farm onwards with limited disease control and size specification going unmet. In the focus groups where smaller caterers were sharing their experiences, all firms were unaware of any salmonella testing and a number did not express concern for the need to conduct testing.

The APZ will process meat and poultry for local, regional and international demand – first poultry will be addressed and then red meat in terms of the value chain and related supply chain constraints and possible interventions. Any intervention to establish agroprocessing capacity for either poultry or red meat APZ in the Mtwara SEZ would require the parallel establishment of secure supply chains with the requisite food safety protocols to ensure adherence to globally accepted standards. This is critical, because the agroprocessing would likely have to use imported inputs in lieu of local goods which would defeat the objective of the establishment of the APZ to process local goods.

Poultry: Tanzania does have a large-scale commercial chicken industry centered around Dar es Salaam, though the industry itself is underdeveloped. Only a few companies, such as NAPOCO (Usa River), Mkuza Chicken (Kibaha), Ruvu JKT (Bagamoyo) and Euro Poultry (Mkuranga), Kenchick, Interchick and Twiga Feeds, have established large-scale poultry production units geared towards the urban market.16 Despite this, only 2% of the estimated 35 million chicken in Tanzania are commercially reared in large scale relatively modern facilities and the remainder consists of household and village production.

Key Weaknesses of the Poultry Value Chain

1. Production and Related Inputs

The poultry value chain in Tanzania is beset by a myriad of challenges that would limit access to the supply chain from a large operation such as the supply to the LNG construction site catering operation. From a global food health and safety standards prospective, there are

16 www.pass.ac.tz/poultry.pdf

Proposed Intervention 1: Establishment of an agro-processing zone (APZ) in the special economic zone (SEZ) in Mtwara where both red meat and poultry agro-processing could be conducted


14

according to the FAO17 classifications, no Sector 1 poultry activities in Tanzania18. The majority of the large scale commercial farmers fall in to Sector 2, while most of the smaller commercial and village farmers fall in to the 3rd and 4th Sectors. The most important shortcoming is the biosecurity downgrade from Sector 1 to Sector 2, and below Sector 2, no firm would come close to meeting the food safety requirements of the LNG caterers.

Both commercial and traditional systems are constrained by diseases, poor quality feeds, inadequate technical support services, low genetic potential of the local breed and weak farmer organizations. In addition, there is inadequate regulatory framework in hatcheries and breeding farms. Regardless of the increase in production trends, the performance of the livestock industry is still low. This is mainly due to low growth rates, high mortality rates, low reproductive rates and poor quality of the product. Modest improvement of these production coefficients coupled with adding value through processing could significantly increase output and income from the livestock industry.19

In the absence of the establishment of a Sector 1 type chicken production facility, this already excludes all current commercial farmers in Tanzania from supplying chicken to the LNG construction project caterers – regardless of the accreditation of the agroprocessing plant.

2. Processing and Technical Capacity

Although farm outputs from large commercial farms in Tanzania are processed and/or packed at the farm itself, none is meant for export but rather for domestic consumption only and the majority of the processing capacity is in the northern half of Tanzania and the largest localized around Dar es Salaam. It may be simpler to upgrade the current facilities to Sector 1 status with appropriate accreditations, however as these facilities are located in and around Dar es Salaam means it may be more viable to establish a large scale chicken processing plant in Dar es Salaam and supply processed chicken to the south via a strictly controlled cold chain due to the improved infrastructure that has significantly reduced the cost of transport to Mtwara/Lindi.

Conclusion

In the final analysis, Tanzania could easily accommodate 100 to 200 million poultry birds20, as there is space for poultry and feed production enough in the country. There is potential for expansion of the poultry industry through better chicken rearing & other husbandry practices and potential to improve the chicken breed by having established quality hatcheries. The imported chicken meat from Brazil for tourist hotels and mines is sustained by the demand for good quality chicken meat that passes the most stringent food health and safety compliance tests throughout the supply chain. This demand could potentially be met by high quality local production; however the entire supply chain will have to improve. Consequently

17 The Food and Agriculture Organization of the United Nations (FAO)

18 Sector 1: Industrial integrated system with high level of biosecurity and birds/products marketed commercially (e.g. farms that are part of an integrated broiler production enterprise with clearly de-fined and implemented standard operating procedures for biosecurity). Sector 2: Commercial poultry production system with moderate to high biosecurity and birds/products usually marketed commer-cially (e.g. farms with birds kept indoors continuously; strictly preventing contact with other poultry or wildlife).

19 http://www.fao-ectad-nairobi.org/spip.php?article247

20 www.pass.ac.tz/poultry.pdf

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15

the establishment of an agroprocessing zone in Mtwara could be used as a window of opportunity to improve the standard of hatcheries, poultry production places and in an increase in volume and number of poultry slaughterhouses. The increasing demand of poultry meat and eggs in the eastern and southern African countries are also potential markets once better poultry practices are adopted and improved hatcheries and chicken meat processing facilities are established and operational.

Red Meat: The red meat value chain suffers similar constraints to the poultry value chain, except that establishing an agroprocessing element to the supply chain in the south may be more difficult as an abattoir requires a significantly larger investment than a poultry slaughter house. There is the potential for establishing a modern abattoir in the Mtwara/Lindi regions, however analysis indicated that there is no market signal to justify such an investment beyond the peak demand for the LNG construction phase. During the operations phase will likely need catering for about 300- 500 people on an on-going basis for about 30 years, however, this still may not be enough demand to justify the investment.21

Commercial ranchers rear, market, and have their beef slaughtered and processed (chilled and cut) for the small market segment of “premium” consumers (hotels, supermarkets, and mining). These customers demand compliance with standards and are willing to pay a higher price. The premium sector of the market accounts for less than 2 percent of the overall meat market, and supply shortages are supplemented with imports of premium meat cuts amounting to about 700 tons in 2012. The very limited processing of red meat has two major outcomes that are likely to limit the readiness of the local catering industry. Firstly, beyond the three or four current market leaders, few other firms will have the ability to establish in house cold chains etc. to ensure adherence to acceptable food handling standards. Secondly, due to the limited production capacity, a significant amount of premium meat is imported, further weakening the value chain and excluding local producers from supplying meat to meet the LNG construction demand.

Key Weaknesses of the Red Meat Value Chain

1. Production and Related Inputs

Weak breeds are dominant in livestock production, with slow fattening rates being a persistent problem that limits commercial livestock farming and triggers imports of premium meat cuts. The weak breeds are exacerbated by multiple farming approaches, with only a small and dedicated livestock commercial farming sector that accounts for less than 10 percent of all meat produced in Tanzania. Herd management also has a significant impact on productivity, with weak breeds requiring more time to fatten, random feeding (where livestock are left to feed with little or no additional feed support), and reproductive methods that are left to random selection by the herd with little or no managed reproduction. Transport also poses a serious challenge, because poor transport methods cause weight loss due to lack of feed and water, resulting in up to 15 percent weight loss and in some instances death of livestock.

21 The permanent operations camp structures are expected to house around 300 permanent workers. Permanent accommoda-

tion requirements will ultimately depend on whether the LNG facility is operated by a home-based workforce or by a fly in-fly out rotational workforce. The latter will require an accommodation camp to house the rotation teams for the duration of their monthly stay onsite. Whether home based or fly-in-fly-out (FiFo) rotational workface during operations, there will re-main a need for a catering component and related mess hall/canteen as workers will work 12 hours shifts and need to receive at least two but often three meals a day on site.


16

2. Processing and Technical Capacity

Tanzania has insufficient slaughtering capacity with very few abattoirs and numerous slaughter slabs being used as rudimentary slaughtering facilities, which have inadequate hygiene and environmental controls, particularly in rural areas. A number of interviewees under promise of anonymity indicated that inspectors are more interested in collecting the revenue for issuing certificates than enforcing standards. Due to severely limited access to finance, transport and processing capital equipment (such as cold storage), and sophisticated meat processing (such as sausage making) are uncommon at most butchers.

It should be noted that good manufacturing and related food hygiene practices are well covered in the policy and regulatory frameworks, however, enforcement and compliance are limited in practice, severely undermining the availability of certifiably compliant quality meat for industrial-scale catering. Large caterers currently have their own cold storage and have established their own in-house cold chain for ensuring that meat is delivered according to good manufacturing practices and client certification of compliance.

Conclusion

The above analysis points to severe constraints in the red meat value chain, where only the largest caterers have the balance sheet and scale of operations to establish end-to-end supply chain management that will ensure compliance at all stages with good manufacturing practices and related food hygiene compliance. It is expected that only large vertically integrated caterers that have their own or have access to well-managed supply chains are ready to meet the LNG construction project demand for red meat in the short (one-year) to medium (three-year) term. Similar projects with 10,000 peak workers on site served approximately 327,000 meals a month, consuming 55 tons of meat a month. Against this benchmark, the current imports of about 700 tons of meat would need to double to meet the current demand and possible LNG construction catering demand, if locally produced and certified meat is unavailable.

Constraint 2: Compliance and Product Standardization


Compliance in an uncompliant market renders firms uncompetitive

Promises of preparedness will not be a substitute for evidence of the same

Background

IOCs have indicated that there are three main factors influencing the choice of catering firms:

1. Evidence of compliance with global health and safety standards and related accreditations and application of such controls as HACCP,

2. Evidence of access to reliable and compliant supplies of food preparation inputs and related catering supplies

3. Evidence of similar operational capacity to that required (i.e. capability to produce approximately 33,000 meals per day with each sitting of approximately 10,000 meals per shift)

Proposed Intervention 2: Establishment of food safety accreditation services in Tanzania to make compliance more competitive

Catering

17

It would not appear to make sense to establish such services in Tanzania simply to meet the demand of two or three firms locally in relation to accreditation for on large projects. It is anticipated that there will be numerous oil and gas upstream and downstream projects in the next few decades and the demonstration of ability to deliver on such catering contracts will drive demand for accreditation services and recertification services.

This intervention would require the funding of an intensive upgrade of the TBS and TFDA and related agencies to develop a streamlined and efficient standards infrastructure that would make accreditation and certification more cost effective and reduce red tape and eliminate corruption that is claimed to be rampant in the poor enforcement of food safety standards. It is believed that TBS for example is moving to ISO standards and it would be probably be a good intervention to support TBS in converting/adapting its current standards to the new ISO format which would then make compliance easier for market players.

Constraint 3: Workforce and Skills

A previous study in Tanzania22 that looked at the current availability of TVET and technical education and training (TET) training for the oil and gas sector determined that overall, even though the VETA curriculum broadly meets international industry standards, VETA training is mainly theoretical and testing is focused on theory rather than practice. This observation was echoed repeatedly by various focus groups, including catering. One particular weakness is that there is no VETA-managed food services curriculum that specifically includes instruc-tion on health, safety, and sanitation requirements that must be met to supply to IOCs and EPCs. In addition, according to one interviewee, the weak coordination between training in-stitutions results in the fully equipped kitchen at the University of Dar es Salaam being un-derutilized for hands-on training purposes.

While the concept of a commercialized teaching kitchen at a hotel school or similar hospitality training institution is not new, this model is a novelty in Tanzania and provides a marketing opportunity in terms of catering for weddings, events, etc.

22 Pathway to vocational employment in the emerging Tanzanian gas sector.


Imported qualified personnel makes firms uncompetitive

Current skills constraints -increased skills imports are likely

Proposed Intervention 3: To assess the viability of a PPP to revamp/recapitalize the training kitchen at Dar es Salaam to fully operational status for catering industry skilled and semi-skilled professionals.

Industry:

Service Industry

Service Industry

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Summary

� This industry is broken down into the following sub-industries1: 1) security services; 2) cleaning services; 3) temporary labor brokering services; and 4) landscaping services

� Under current conditions, these sub-industries are likely to generate the following total domestic value added (labor and profits) over the seven year LNG construction phase:2 - Security Services ≈ USD 10 million - Temporary Labor Brokering Services ≈ USD 10 million - Cleaning Services ≈ USD 23 million - Landscaping Services ≈ USD 8 million

� Key constraints preventing greater local participation include: - Limitations to low skilled employee base due to structural education system failings - Small firms lack good management systems to enforce quality management and

workplace safety (i.e. health, safety, and environmental [HSE] policies) � These services will employ local labor almost exclusively, of which approximately 80

percent is unskilled labor. From a local economic development perspective, the high rates of employment will have significant impacts, but represent little value added proposition given the relatively low sophistication of the services.

� Given the high potential for local employment and subcontracting, there is a limit to the extent to which local capture can be improved. However, interventions to upskill the workforce and build the capacity of local suppliers could increase the potential for local capture.

1 The sub-industries within this industry have been chosen based on two key criteria: 1) the high potential for local

employment; and 2) the existence of capable firms currently operating in Tanzania. Also, representatives from collaborating IOCs have indicated that that they are inclined to seek and subcontract these services to local suppliers in Tanzania.

2 For a full explanation of assumptions used to derive this estimate, please see Assumptions Annex.

International oil companies (IOCs) and engineering, procurement, and construction contractors (EPCCs) will require services like security, landscaping, cleaning, and temporary labor recruitment during both the construction and operational phases of the LNG facility. While such services represent a relatively small market share compared to industries like building construction or metal fabrication, most, if not all will be provided entirely by local workers and subcontractors. The jobs for these services created as a result of the oil and gas investments should also result in indirect and induced value added impacts given the strong backward linkages into the local market.

While the service industry represents a prime opportunity to enlist large numbers of Tanzanian suppliers and low-skilled laborers, many IOCs and EPCCs have already tapped deep into this market, leaving little room for a significant increase in local capture over existing levels. Consequently, investments to strengthen service providers in this industry or increase their numbers in anticipation of future oil and gas projects will have limited, short-term economic impacts that will soon reach a point of diminishing marginal returns.

Investments aimed at strengthening these service industries in preparation for future oil and gas investments are associated with lower costs of intervention and quicker economic benefit by creating low skilled jobs. These services are also easy to procure locally given they build on existing skills and enterprises that exist in the local economy.


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Industry Analysis

Many industries like docks and jetty construction have large total project costs (measured by total industry demand during LNG construction) but relatively low potential for the procurement of local goods and services. Conversely, there are several service industries that represent a relatively small proportion of total industry demand but have high potential for local capture, including:

� Security services � Temporary labor brokering services � Cleaning services � Landscaping services

In other large-scale oil and gas up/mid-stream investment projects, these industries often have high levels of local subcontracting due to the significant proportion of low-skilled labor required to provide services. Unlike the other industries studied, the service industry cannot be usefully disaggregated into sub-activities. Instead, they are best understood by analyzing a selection of sub-industries and drawing insights representative of the industry more broadly. Figures for domestic value added (in terms of labor and profits) of sub-industries are not expressed as percentages as they are not cumulatively representative of the industry as a whole.

In Tanzania, local companies already provide support services to local and foreign companies. Information gathered from industry specialists indicates that local firms have the capacity, with some support, to supply these services for the LNG project independently. This is especially true for services such as labor brokering, cleaning, and landscaping that do not consist of highly technical activities or applicable strict industry standards. Some service industries, however, have strict standards to uphold, which raises the barrier to entry in those markets. Security and passenger services, for example, have rigorous applicable standards for training workers (firearms training and driver safety training, respectively). In these cases, there may be new opportunities for foreign companies to enter into joint ventures with local companies to improve the capacity and scale of services provided to the LNG project.

Firms interviewed identified two primary cross-cutting constraints in the service industry: 1) low workforce capacity and 2) the lack of good management systems to assure quality and workplace safety. Several firms highlighted difficulties with low work ethic and sometimes associated alcohol abuse among their unskilled labor force, resulting in poor quality of services and trust issues. Local suppliers will need to provide evidence of internal controls, personnel checks, and quality systems to ensure that customer satisfaction is met and feedback translates to improvements.

The following sub-activities are a representative group to draw forth insights on the set of services as a whole.

1. Security Services (Total sub-industry demand ≈ USD 10 million)

Industry Demand Security services refer to the provision of on-site security and personnel security for the LNG site and surrounding area. Some of the services will include the provision of security for oil

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and gas personnel in transport from the point of arrival/departure to point of meeting or stay. The provision of offshore security for supply boats and offshore rigs or the protection of goods imported is not factored into this industry. Such security services are typically provided by a reputable local firm or a joint-venture with an international firm (i.e. G4S). 3

As seen in the average distribution of local labor demanded in Table 1, the security services industry relies heavily on unskilled labor. These unskilled workers will still require applicable security training. A small number of skilled and semi-skilled positions are required for supervisory roles.

Table 1: Average Demand for Local Labor per Year for Security Services


Skilled

0 7 14 14 14 14 11 11

Semi-skilled 0 7 14 14 14 14 11 11

Unskilled 0 126 252 252 252 252 201 191

Subtotal 0 140 280 280 280 280 224 212

Industry Supply

Local Suppliers A closer look at these four services in the Tanzanian market today shows that all are currently readily supplied and available. Security, temporary manpower agency services, landscaping and cleaning all show strong Tanzanian ownership as they provide large volumes of services to existing mining companies, hotels and resorts, commercial buildings, housing units and international construction firms completing projects in Tanzania. While these services and firms exist and although they largely rely on a low-skilled labor base, there are still deficient workforce skill areas that must be addressed. Professionalism, punctuality, consistency and safe operating practices are largely absent and often poorly supervised in the supplier market.

Managing expectations for local workers related to new job creation in these services must also be acknowledged and treated carefully. Already in Tanzania, there is a high level of expectation that the gas investments in Mtwara and Lindi area will result in full-time employment for an inordinate number of Tanzanians. This resonates particularly with the low skilled workers that constitute the workforce in these services. Already many are migrating to the Mtwara and Lindi area in hopes of employment. It will be important to manage these expectations by simultaneously promoting indirect jobs linked to each service –i.e. need to hire drivers that drop security guards at the site for a shift.

Supply Chain Characteristics Firms in the security industry struggle to find labor that can be trained and whilst there have been moderate gains in productivity; there remains a seriously weak work ethic that undermines productivity and raises the cost of doing business in the security industry. In many instances it is tangible direct operational aspects such as increased levels of supervision required, but in some instances it is less direct such as loss of business due to bad service that results in reduced employment and incomes over the longer term. Despite these constraints, the major source of value added will be from employment.

3 It should be noted that the industry brief is not recommending or promoting G4S, however it is an international firm already

operating Tanzania, as are others and therefor simply serves as an example to illustrate the point.


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According to firms canvassed, the majority of the goods required to equip a security service are imported despite being available from local middlemen. Consequently it is expected that firms will avoid the unnecessary ‘cost’ of local procurement and source equipment and PPE from international sources where it cannot be procured competitively in Tanzania and where possible Certificates of Incentives will be used to circumvent import duties for goods directly related to the provision of the security services for the LNG development project. Goods are not expected to be a major cost driver in the security industry as the payroll is expected to be more critical so whilst basic equipment will be essential for the security services the more important elements will be training and related human resource development and improving productivity and cultivating a better work ethic.

The potential domestic value added (labor and profits) for the security services sub-industry is approximately USD 10 million. Since market capture is expected to be quite high, it is unlikely that significant improvements can be made in terms of total value added. However, developments could be made in upskilling the workforce and increasing the capacity of local suppliers.

Tasks

• Security at staff entry/exits points • Arrival and departure protocol services • Accompanied site and perimeter tours • Recordkeeping and logbooks for visitation, entry and exit • Vehicle security checks • Personal belongings safeguards (probably zero firearm on site policy except for security

personal) • Emergency response and organization (health or otherwise)


Total Demand for Goods: ≈ USD 425,000 Projected Demand for Local Goods: ≈ USD 300,000


• Personal protection devices • Uniforms including footwear, gloves, and

helmets • Security equipment – i.e. scanning units

• Semiskilled for supervisory roles and drivers and protocol officers

• Unskilled for duty roles

2. Temporary Labor Brokering Services (Total sub-industry demand ≈ USD 10 million)

Industry Demand The large supply of local labor will be managed through local temporary employment agencies (TEAs). These firms will work with the IOCs, EPCCs, and large prime contractors to recruit and place local laborers. TEAs will be responsible for ensuring that hiring practices comport with local labor laws. TEAs will also assist with the setting and management of salaries, the onboarding and demobilization of contract workers, and the management of labor disputes should they arise.

Regardless of the accreditation status of any artisan in terms of certification and level of expertise, the IOCs and EPCCs have indicated they will hire independent artisans exclusively through a sophisticated labor broker’s network to prevent an influx of unemployed workers to the future construction site that could overwhelm local infrastructure and related services.

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Workers hopeful of employment who cannot provide evidence they have been referred from a recruiting agency or are domiciled locally will not be considered for hiring at the LNG construction site – this message needs to be preemptively and clearly delivered and will likely be effectively communicated if local labor brokers are included in the implementation of the communication strategy from the start.

Demand Characteristics for Temporary Employment Agencies TEA services will be provided locally given the importance of understanding local labor laws, proficiency of local languages and dialects, and the ability to manage some of the workforce risks on behalf of the IOCs and EPCCs. These services will be procured early on in the development process as continue to be provided throughout the operational life of the LNG facility.

Table 2: Average Demand for Local Labor per Year for Temporary Labor Brokering Services


Skilled

0 21 43 43 43 43 34 32

Semi-skilled 0 21 43 43 43 43 34 32

Unskilled 0 11 21 21 21 21 17 16

Subtotal 0 53 107 107 107 107 86 81

Industry Supply

Local Suppliers Local TEAs already exist in the Tanzanian market. They provide labor broker services for large institutional consumers including mining companies, construction companies and other industrial and manufacturing firms. While this experience exists there is still a lack of clear understanding of both the oil and gas industry and the workforce needs through the life of the project from construction through operations. This has resulted to date with a mismatch of recruitment efforts with business needs.

Moving forward, it will be critical that the TEAs are prepared to screen prospective contract workers using the correct specifications and standards required by the IOCs, EPCCs, and large prime contracts. They will also have to possess the necessary processes and controls to scrutinize the workers’ applications before sending the workers to the construction site. This includes ensuring that workers are sourced in a bribery and corruption free manner – there must be zero tolerance as it is allegedly common in Tanzania to pay bribes for preferential treatment in the recruitment process.

Supply Chain Characteristics A scan across a series of similar business services including insurance, legal etc. pointed to an increasing difficulty in finding qualified staff as the level of technical proficiency required increased. Sourcing un/semi-skilled labor such as filing clerks, customer advisory staff and general office staff was not regarded as a challenge; however there is an increasing shortage of technically trained personnel such as service specific practitioners such as lawyers, HR specialists, and supply chain specialists among others. the overall low levels of education in the Tanzanian labor market also increased the level of effort to upskill staff to meet increased levels of technical proficiency and increased the training overhead for small businesses and smaller business tended to underinvest in training, resulting in poor service levels.


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The goods component of such business services is very small with the largest being office equipment supplies, most of which is available in country albeit from wholesalers or middlemen who provided little if any value added for their services. This is not unexpected as such business services are normally labor intensive and a focus on training will be critical to ensure efficient and reliable services that will meet the exacting demands of the oil and gas companies and their contractors. Delays in processing qualifications verification or procurement of work visa etc. will cause delays that could have significant knock-on impacts where critical tasks are postponed due to delayed supply of labor.

The potential domestic value added (labor and profits) range for the TEA sub-industry is approximately USD 10 million. Since market capture is expected to be quite high, it is unlikely that significant improvements can be made in terms of total value added. However, capacity building of TEAs could have significant indirect effects on the rate of local employment in other LNG related industries.

Tasks

• Sourcing local workers • Processing workers’ applications • Verification of skills status • Arranging for health checks for hired and employed workers – including drugs, alcohol,

communicable diseases • Approval of registration for referral to site




• Stationary • Computer systems and databases • General communications systems

• Skilled labor in form of legally qualified and HR qualified practitioners

• Semiskilled supervisory, and • Unskilled for manual task such as office

cleaning, drivers etc.

3. Cleaning Services (Total sub-industry demand ≈ USD 23 million)

Industry Demand Cleaning services will be required for both living and operational areas including offices, control room, staff canteen, common assembly areas as well as housing units. Depending on the operations phase arrangements there may be an operations staff camp that will require cleaning services on a larger scale. Cleaning services will be required throughout the operational life of the LNG facility in addition to any remotely located offices or temporary housing.

Demand Characteristics for Cleaning Services IOCs will require cleaning services on a consistent basis both during the construction and operational phases of the LNG investment cycle in Tanzania. Early on, cleaning firms will provide the services to the worker camps that will be located on or near the site of development. Cleaners will need to know how to properly sanitize areas including kitchens and bathrooms, follow proper sanitation rules to ensure the spread of communicable illnesses is eliminated. Therefore, the proper use and handling of vaporous and/or corrosive cleaning

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chemicals must be done carefully to eliminate the risk to both the cleaning staff as well as workers. Workers must also be trustworthy given, during duty, they have access to personal belongings and proprietary and confidential information. Strict supervision will be required.

Table 3: Average Demand for Local Labor per Year for Cleaning Services


Skilled

0 16 31 31 31 31 25 24

Semi-skilled 0 16 31 31 31 31 25 24

Unskilled 0 283 566 566 566 566 453 429

Subtotal 0 315 629 629 629 629 503 476

Industry Supply

Local Suppliers Local cleaning services with a history of reliable services already exist in the Tanzanian market. Most are located or have a head office and in the Dar es Salaam area given the higher level of commercial needs including amongst larger hotels and resorts. In more remote locations, cleaning staff members are part of hotel or resort staff rather than employees to local firms. An overwhelming percent of cleaning workers are women.

Supply Chain Characteristics Sourcing cleaning staff is not generally a problem, however sourcing productive cleaning staff is an issue and excessive supervision is required to meet even the most basic levels of services – there was mention of very low salaries that may be a trigger for the poor work ethic as domestic workers are notoriously poorly paid in Tanzania. Whilst the skills set for cleaning personnel is not regarded as highly technical, the efficiency of cleaning staff is critical to an efficient and reliable service where the turnaround time for a given task is critical where utilization of staff is key to profitability.

Firms indicated that whilst most cleaning supplies are available locally, they tend to be very expensive, especially for branded makes that are regarded as better products. In many instances large firms import their own equipment and consumables, whilst smaller firms rely heavily on the more costly locally available supplies. Some firms did indicate that importing consumables for own use had created opportunities for importing in bulk and becoming local suppliers on an agency basis, however despite this opportunity, the major value added is expected to be in terms of jobs.

The potential domestic value added (labor and profits) range for the security services sub-industry is approximately USD 23 million. Since market capture is expected to be quite high, it is unlikely that significant improvements can be made in terms of total value added. However, developments could be made in upskilling the workforce and increasing the capacity of local suppliers.

Tasks

• General dry cleaning – vacuuming, dusting, etc. • General wet cleaning – mopping floors or cleaning windows. • Sanitization cleaning – or bathrooms and kitchen areas • Laundry services (depending on scope of contract)


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• Uniforms • Footwear • Related equipment –e.g. vacuum cleaners

and mops. • Related consumables – e.g. cleaning liquids • PPE

• Semiskilled for supervisory roles • Unskilled for duty roles

4. Landscaping Services

(Total sub-industry demand ≈ USD 8 million)

Industry Demand

Demand Characteristics for Landscaping Services Landscaping services will be required across the entire site and will be required to maintain a large area in a clear condition with good visibility and easy access to infrastructure and processing plant. While these services are not complex they do require strict supervision to maintain the services levels and ensure that the site remains orderly and vegetation invasion is managed constantly. Furthermore, there must be proper safety safeguards employed to protect against risks including wildlife and machine operations.

Table 4: Average Demand for Local Labor per Year for Landscaping Services


Skilled

0 5 10 10 10 10 8 8

Semi-skilled 0 5 10 10 10 10 8 8

Unskilled 0 94 189 189 189 189 151 143

Subtotal 0 105 210 210 210 210 168 159

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Industry Supply

Local Suppliers Tanzanian SMEs that focus on landscaping and grounds maintenance work exist in the market with most based in Dar es Salaam. They currently provide services to large hotels and resorts, office parts, residential housing communities, individual residences, and institutional consumers (e.g. airport). Current capacity constraints amongst these mostly relates to proper business management, personnel management and supervision, and personal safety protocols for workers on site. Few of the local firms had readily available HSE policies and plans to safeguard their employees. Professionalism at the work site as well as building trust amongst workers is also often times missing in the local market.

Supply Chain Characteristics Sourcing gardening staff is not generally a problem, however sourcing productive gardening staff is an issue and excessive supervision is required to meet even the most basic levels of services and a poor work ethic, especially with regard to sobriety and timeliness were cited as key obstacles to providing reliable gardening and landscaping services. The gardening skills set is not regarded as highly technical however the use of dangerous equipment means that significant HSE training is required to avoid injury incidents and PPE can be costly. The efficiency of gardening staff is critical to an efficient and reliable service where the turnaround time for a given task is critical where utilization of staff is key to profitability however staff that rush and put themselves and others in danger have to be carefully supervised with a zero tolerance of unsafe work practices.

Firms indicated that whilst most gardening supplies are available locally, they tend to be very expensive – especially for motorized equipment and the market is swamped with poor quality but affordable Asian products – the situation is exacerbated by the availability of fake products that do not withstand even the mildest of operating environments and require unduly short replacement cycles, thus increasing the cost of service. Some firms did indicate that training of staff was critical to longevity of equipment and the satisfaction of clients where attention to details and a good work ethic avoided unnecessary redeployment of labor to fix poor workmanship the first time round.

The potential domestic value added (labor and profits) range for the landscaping services sub-industry is approximately USD 8 million. Since market capture is expected to be quite high, it is unlikely that significant improvements can be made in terms of total value added. However, developments could be made in upskilling the workforce and increasing the capacity of local suppliers.

Tasks

• Grass cutting • Brush clearing and maintenance • Vermin control • Vector control • Gardens maintenance • Drainage maintenance





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• Lawnmowers and related equipment (e.g. trimmers, bush cutters, etc.)

• Equipment related consumables such as fuel4

• Semiskilled for supervisory roles • Unskilled for duty roles

Domestic Value Added and Employment The majority of the value added will be from profits generated from services where large number of unskilled workers will be employed. Wages in the support services tend to be low and as such the payroll may be less material in the bigger picture, bur for many workers, this will be their main source of income and therefore the job creation aspects of these services will be a visible and demonstrable measure of the commitment to create jobs – although it should be reminded that in certain industries, such as the security, cleaning and labor broking businesses, the peak demand during the construction phase will likely taper off to a more steady state but at much lower levels as the access to the site and demand for skilled/semiskilled labor declines to more streamlined proportions going into the operations phase. Gardening and cleaning on the other hand may remain fairly constant both during and after the construction phase depending on the operations policy of the IOCs – a fly in fly out rotational operations team will require more intensive support services than a community based team.



1. Limitations to low skilled employee base due to structural education system failings

High cost and high staff turnover IOCs and EPCCs have little confidence in local suppliers’

capacity

• Many prospective employees have only nine years of formal schooling

• Additional training of most basic elements to get unskilled labor- such as language and workplace professionalism- to the most basic level of skills before upskilling to semi-skilled can occur

• Proper supervision is costly and requires higher supervisor-to-worker ratios

• Staff turnover is often high given workers often violate key workplace behavior protocol

• Oil and gas sector show eagerness to source these services locally. However, limitations on trust, professionalism and fair-dealing business practices often results in changes in firm sourcing and difficulty in undisrupted contracting

2. Local firms often lack good management systems to enforce quality and HSE management

Increased risk profile of hiring local firms

IOCs/EPCCs default to large firms (with local registered and

local operations) • Lack of quality control and good

record keeping and absence of sufficient HSE policies and worker training results in poor service delivery and increased incidence of workplace safety violations.

• Contracting companies are skeptical on the quality of the services that can be procured locally and reticent to be associated with firms that may expose them to worker safety risks. Reduced local procurements may result.

• Oil and gas sector tend to defaults to recognized service providers to reduce risks and the cost of doing business with less qualified local firms.

4 It may be that only electrical appliances (mains operated or rechargeable) will be allowed in to the process areas to reduce

explosion risk

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Constraint 1: Limited skills base


High cost and high staff turnover IOCs and EPCCs have little confidence in local

suppliers’ capacity

Given the existing constraints on the primary education system, most hired low skilled workers still require additional training to prepare them for these service jobs. Many firms fail to have the available funds to invest in such training. As a result, opportunities are lost for local contracting.


Constraint 2: Small firms lack good management systems to enforce quality management and workplace safety (i.e. HSE policies)


Poor service delivery and safety infractions limit the reliability of local service providers

IOCs/EPCCs default to large firms (with local registered and local operations)

To reduce risk and expedite delivery, IOCs and EPCCs will often source identifiable local firms that have visibility and these are often local subsidiaries of large global firms – especially for such services as security. These international firms may enter into joint-venture agreements with local firms and thereby ensure greater quality standards in line with IOC and EPCC expectations. Where local firms with greater capacity do exist they may be contracted directly. However, additional intervention support can result in more likely local value added and local sourcing. Recommendation to Address Constraint

Proposed Intervention 1: Make available targeted trainings to new employees on the handling of materials, equipment, how to behave at the workplace, understanding the hazards and risks associated with an LNG site and what to do to report a safety infraction so it can be addressed.

Proposed Intervention 2: Develop firm-level training courses on how to develop and implement quality assurance and control policies, HSE and worker safety policies and monitoring plans (i.e. reporting on number of days without a workplace incident).

Documents

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