Absence of local content law threatens Ghana’s 90% indigenization target in oil sector

The absence of a local content law is said to stand in the way of Ghana opening up its oil and gas sector to citizens.

“The continuous delay in passing the local content bill into law is threatening Ghana’s ability to achieve its 90percent indigenization target in the country’s oil and gas sector by 2020,” says Dr Steve Manteaw of the Integrated Social Development Centre (ISODEC).

Other inhibiting factors he says, are the absence of standardization and relevant skills, which have been the two major excuses that have been used to sideline many Ghanaians from participating in the country’s burgeoning oil and gas sector since its inception.

This situation, according to the civil society activist has caused disillusionment among many Ghanaians, especially those in the Western Region where the oil has been found.

Dr Manteaw, argues that instead of using these two pertinent issues as a stumbling block to deny Ghanaians the opportunity to be involved in the oil and gas sector, stakeholders should rather be looking at possible ways of empowering the people to overcome their deficiencies in these two areas.

“Every industry has its own standards and the oil and gas sector is no exception, and therefore it is up to the Ghana Standards Authority and operators in Ghana’s oil and gas sector to come out with standards and structure for training Ghanaians for the industry,” he says.

A briefing paper by ISODEC on local content implementation prepared in February 2012 shows that participation in the exploitation of a country’s resources can take the form of equity holding or joint- venture operations where the country lacks the technology, capital and skills to efficiently manage the exploitation of the resources; or strong local content provisions in law, which mandate value addition through processing or semi-processing of the ore; increased use of local human resources in the exploitation of the minerals or hydrocarbons; local procurement of goods and services required by the industry.

Using Tullow’s contract abrogation with City Link on the basis of low standards as an example, Dr Manteaw, who is also the Chairman for the Civil Society Platform on Oil and Gas, noted that the best thing to have been done in this situation was for Tullow to have opted for partnership between City Link and the Belgium company whose services it is using now. He queried whether City Link lacked standards when Tullow was using their services during the exploration stages.

“As long as there is no local content law in place there is nothing that holds these international oil companies back from having their way with us. You cannot hold them accountable for anything they do or refuse to do that is detrimental to our local content ambitions,” he laments.

In November 2011, the Ministry of Energy summoned service providers in Ghana’s petroleum industry to a stakeholders meeting to address the government’s efforts to increase Ghanaian content and participation. The meeting came amid reports of Ghanaians being sidelined to the benefit of other nationals in recruitment by service providers in the sector.

Some of the 26 service companies that were invited to the meeting were Seaweld Engineering Ghana Limited, Menergy International Ghana Ltd, MEA Catering Services Ltd, Transocean Offshore International Ltd, Schlumberger Technical Services Inc, Oceaneering International Services Ltd and MODEC Ghana Ltd.

A schedule of fees for local businesses seeking opportunities in the oil and gas sector, which is still under discussion at the Petroleum Commission, shows that currently a Ghanaian services company wishing to engage in the oil and gas sector has to pay a subscription fee of $50,000 ($30,000 initial fee and $20,000 renewal fee) and must have an annual turnover of $5 million plus. While a Ghanaian company wishing to participate in exploration and production has to pay $30,000.00 initial fee and $30,000.00 renewal fee.

Dr Manteaw observes that with these astronomical amounts being demanded, it risks barring Ghanaians from the sector and defeating the purpose of 90% indigenization by 2020. This he said only discourages Ghanaian companies from participating in the sector directly but rather fronting for other nationals such as the Chinese.

According to him, all these issues are rearing their ugly heads because Ghana is yet to pass the local content law to address the situation, adding that “what we currently have is just a policy framework and the quicker we passed the local content bill into law, the better.”

In February 2010, Ghana’s Ministry of Energy after a nation-wide consultation process formulated a policy framework dealing with local content issues, which set a number of key policy objectives including, maximizing the use of local expertise, goods and services, and financing in all aspects of the oil and gas industry value chain; developing local capability through education, skills and expertise development, transfer of technology, and active research and development; achieving a degree of influence or control over development initiatives for domestic stakeholders; achieving at least 90 percent local content and local participation in all petroleum activities by 2020; increasing capabilities and international competitiveness of domestic businesses and industrial sectors; and creating oil and gas and related supportive industries to sustain economic development.

In addition to the objectives listed above, the policy framework mandates that all regulatory authorities, contractors, sub-contractors and other entities involved in Ghana’s oil and gas industry should consider Ghanaian companies and operators before foreign entities in the award of contracts.

It also calls for the establishment of an “Oil and Gas Business Development and Local Content Fund” to support local capability development.

Absence of local content remains a missed opportunity which, combined with an un-ambitious fiscal regime and poor tax administration has deprived the country of its fair share of mining benefits. The development of a Local Content and Participation Policy framework for the oil sector by the government of Ghana, therefore constitutes a major step towards a reversal of Ghana’s past approach to seeking benefits from its natural resources.

The way forward

While the local content document is seen by some as overly ambitions, others are of the view that, the set objectives are realizable on condition that existing legal, institutional, and capacity constraints are expeditiously addressed.

ISODEC has consequently made some proposed recommendations to address the concerns and gaps in Ghana’s local content policy and strategy that include, the need for government to expedite action on the Local Content legislation, and to ensure that the full complement of institutions and infrastructure necessary to deliver on the objectives of the Local Content Policy are in place without further delay; the Petroleum Commission must be strengthened and given the support and autonomy to act as an effective regulator and promoter of local content in Ghana’s petroleum sector. Modalities for the transfer of responsibility and relevant data from GNPC to the Commission must be spelt out in the Local Content Legislative Instrument under transitional provisions. Details of the mandate and reporting responsibilities of the proposed Local Content Committee (LCC) must be provided in the LI; support the national oil company, GNPC, to acquire acreage and become operator in, at least, after five years in each venture. Also vest GNPC with local content implementation like in Brazil; and for a proactive Local Content implementation, provide in policy and law a zero tolerance for export of crude and gas to enhance value addition in country.

By Gilbert Boyefio

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