Ghana’s Local Content Policy: Still a Burning Issue

“The era when all positions in various [oil and gas] companies were filled by expatriates in Ghana is over,” said Dr Juliet Twumasi-Anokye, Legal Advisor at the Petroleum Commission. This strong statement sums up the kind of confidence authorities in Ghana, especially the Petroleum Commission, have about the prospects of the implementation of local content and local participation in the oil and gas industry in the country. According to the Petroleum Commission, which is currently charged with the responsibility to promote local content and local participation in petroleum activities as prescribed in the Petroleum Exploration and Production Act 1984, PNDC Law 84, “Now jobs and vacancies which we consider there are skills in abundance in Ghana that can fill these position the Commission will ensure that work permit are not granted for those positions. The Commission will ensure that Ghanaians are actually recruited for those positions where the skills are currently widely available in Ghana.” The Petroleum Commission was established by article 821 in 2011 and is currently the regulator and manager of Ghana’s petroleum resources, a role they took from the Minister of Energy who hitherto regulates the sector with the assistance of the GNPC. Local content in the oil industry in Ghana refers to the use of Ghanaian human resource, materials, goods and services for the systematic development of national capacity and capability for the enhancement of the Ghanaian economy. In other words, it is the quantum of locally produce materials, personnel, financing, goods and services rendered to the industry which can be measured in monetary terms. The policy is to give first consideration to Ghanaian independent operators in the award of oil blocks, oil field licenses, oil lifting licenses and in all projects for which contract is to be awarded in the Ghanaian oil and gas industry. An important feature of this policy stipulates that, where bids are being evaluated, and where bids are otherwise equal, the bid containing the highest level of Ghanaian content shall be selected. Such a provision sounds great for local Ghanaian operators and businesses and will in effect place Ghanaians at the forefront of the nation’s oil business in a relatively shorter period. In the case of non-Ghanaian ownership and operations, the entity must provide for the participation of a citizen of Ghana in an interest of at least five percent in the exploration and production activities under petroleum licenses. Another important feature of the policy is that a fund, Oil and Gas Business Development and Local Content Fund, is to be established to support local capability development aspects of the local content framework. The fund will be used primarily for education, training and research and development in oil and gas. Sources of the fund will include contribution from Licensed Operators, Oil and Gas Revenue, levies, grants and other support from Ghana’s Development Partners. The Ministry of Energy or the Ministry responsible for petroleum will oversee the disbursement of the fund. This is undoubtedly fitting for a developing nation like Ghana but it remains to be seen how effective the administration of this fund will be. In general, the move by government is expected to obligate operators to attach significant importance to local content and to ensure that as much benefits as possible are retained in the local economy by indigenes. Currently, provisions for legislative support for local content in Ghana, backing up the government’s vision in the oil and gas industry is primarily found in the PNDC Law 84, ordinary referred to as the E and P Law, which is the legal basis for all petroleum agreements in Ghana. However, recognizing the importance of the local content and local participation, available development and the rapid acceleration of the development of the national economy as a whole, government consider it to be crucial to enact a specific legislation to address local content and local participation issues. This Legislative Instrument (LI) was laid before parliament last year by the then Deputy Energy Minister and now Minister, Hon Emmanuel Armah-Kofi Buah, but could not be passed because parliament went on recess from October 31, 2012 to enable members prepare for the Presidential and Parliamentary polls in December. According to the Clerk of parliament, the LI has to be laid again before parliament can act on it. The LI when passed into law will be known as the Petroleum Local Content and Local Participation in Petroleum Activities Framework. This is expected to be enacted shortly. The purpose of the legislative instrument is the development of local content and local participation in all petroleum activities and it will require the submission of a Ghanaian content plan and related sub plans of licensees, contractors and sub contractors with respect to the provision of goods and services, technology transfer to Ghanaians, recruitment and training programs. The Local Content Committee established by the Commission is expected to play a crucial role in this regard. The Committee will assist the Commission in supervision, coordination, administration, monitoring, management and development of local content and local participation in the oil and gas industry. “For example, it is government’s expectation that within 10 years from the commencement of a specific project the level of local content target will reach a minimum of 90 percent for such suppliers and services identified by the Local Content Committee and approved by the Petroleum Commission as being priority to Ghana. For all other supplies and services the Commission will set appropriate target levels of local content,” Dr Twumasi-Anokye disclosed. The Commission is already making an impact in the sector, for instance, in order to enhance more effective regime, as a regulator of the sector, on May 1, 2012, the Commission took over the registration of companies providing services in the upstream petroleum sector as one of the means by which the Commission will promote local content and local participation. The Commission after having taken over the registration has now introduced a more streamlined regime based on companies classification on the basis of business turn over, the difference fee level, which recognize whether the company is a Ghanaian or foreign company, registering for the first time or renewing its registration. This enables the Commission to monitor petroleum activities and carry out the necessary inspection and audit related to the activity. Furthermore, it provides information about the local and indigenous Ghanaian companies as well as foreign companies operating in the petroleum upstream sector. “The information gathered by the Commission will assist us in developing what we call a common qualification system, which will enable the Commission develop a prequalification system that will enable all local service providers who are registered with the Commission participate in tendering and procurement exercises,” she added. For companies that are unable to take major contract, it is the Commission’s policy to encourage these companies to sub contract to Ghanaian companies or go into joint ventures to help develop capacity within Ghanaian industry. Since it is obligatory for companies working in the industry to incorporate local content in every aspect of the petroleum value chain, operators and relevant parties engaged in petroleum activities in the upstream sector must recruit Ghanaians, award contracts, and procurement, goods and services from local companies, ensure technology transfer when necessary and also build capacity. In this respect companies are required to submit to the Commission their annual local content plan which must incorporate employment and training programs that shows the employment needs of the company, and training plans for existing and new staff in succession planning. “To ensure we strictly enforced our role as the interface between government and industry, the Commission has streamlined the application process for work permit for the petroleum upstream sector. Currently, all work permit application must now be routed through the Petroleum Commission, which conduct an initial screening process to ensure applications comply with all immigration requirements and also upholds with our local content requirement. In line with government local content policy framework for the sector, the Commission is eager to promote ancillary industries for the sustenance of the economic development. In order to achieve this, operators, contractors and sub contractors are required to transact financial business with local financial institutions in Ghana and also encourage using the services of local legal firms, insuring and reinsuring with Ghanaian insurance companies in the country. By doing this we anticipate that in-country spending will increase thus contributing substantially to economic growth,” Dr Twumasi-Anokye emphasized. However, the Commission acknowledges some of the inherent limitations and challenges facing indigenous industries. “We are aware that there are financial challenges to our local industries in terms of capitalization, the human resource challenges, as well as the research and technology challenges. And these all makes it difficult for any of our indigenous companies to effectively participate in the upstream sector as we want them to do,” she pointed out. The Commission is therefore collaborating with relevant government agencies and international oil companies operating in the country to improve the capability and competitiveness of domestic businesses. So far the establishing of an Enterprise Development Centre and the refurbishment of the Tema Dry Docks are a few of the projects aimed at bridging the gap that has been identified. INDUSTRY RESPONSE TO LOCAL CONTENT According Tullow Ghana, the lead partner in the Jubilee Oil field, local content is the term given to the company’s commitment to generate in country capability to support the long-term development of the emerging sector. It represents the opportunity to maximise the use of Ghanaian goods and services, promote real and effective partnerships. It also benefits local business and communities through, local business development (goods and services), local employment (re-skilling, job development, redeployment), and sustainable local economic development. The company cited some of their success up to date as including the setting up of a local content development department, finalised procedures for maximising use of Ghanaian suppliers in procurement process, pre-tender meetings with Ghanaian suppliers to prepare them for major upcoming tenders, organising workshops with the company’s major foreign contractors to encourage local spend and local employment, and In 2010 Tullow Ghana Limited awarded 1035 contracts to Ghanaian companies totalling US$ 194 million. Tullow Ghana said its Social Enterprise Investments entails bbuilding capacity for the oil and gas industry and associated sectors, encouraging economic diversification to avoid over reliance on oil and gas, contributing to a positive operating environment and putting in place social enterprise guidelines in place for community projects – helping to align investments with business objectives. Zeal Environmental Technologies Limited (ZETL) is one of the biggest indigenous Ghanaian Oil and Gas Waste Management companies that provide services to the oil industry in Ghana. Zeal started working with Tullow in 2008. Pergah Transport Limited is a major Ghanian transport company offering corporate and social bus services, vehicle rentals as well as fleet, driver and vehicle management services. Pergah started working with Tullow Ghana Limited in 2009 and provide fleet and driver management, as well as vehicle hiring services. Consolidated Shipping Agency Limited (Conship) is a leading Ghanaian logistics company with offices in Tema, Accra and Takoradi. The company started working with Tullow in February 2010, supporting Tullow’s imports and exports for the Jubilee project. Macro Group is a Ghanaian company that offers a portfolio of services including shipping, logistics and trucking. The company started life as Macro Shipping in 2005, and has grown by recognizing further opportunities in the emerging oil and gas industry and adding additional services including Macro Logistics and Macro Trucking. For local players and indigenous businesses, government’s initiative on local content is a welcome respite. “I am very confidence about the local content and participation policy framework. But it is not just about the words, it is about the actions behind the words,” said Christopher Andoh, Managing Director of Star Africa, an indigenous company in the oil and gas industry. He said despite all the noise being made about local content, the fine words and nice legislative policies, real opportunities have to be created for indigenous businesses to participate in the sector. He called for some financial support to be extended to local businesses to participate in the industry. Mr. Andoh complained about the huge license fee being charged by the Petroleum Commission describing it as a disincentive to local players. Agreeing with him on the need for a fund to support the local industry, Mr Ernest Addea, a trained Sub Sea Engineer and an entrepreneur, emphasized the need to train more Ghanaian engineers, local staff, local management experts and local lawyers. “If we say the oil and gas should benefit Ghanaians, then Ghanaians should spearhead oil and gas development and take charge of the industry. Government needs to provide tax holidays to SME’s operating in the industry in Ghana,” he added. He further proposed collaboration and cohabitation to bridge the lack of human resource and technology gap.