Implementation of Local Content in Ghana’s Oil Industry

 By Gilbert Azaah

 Legal and Policy Framework

Ghana’s local content and Local Participation in Petroleum Activities policy like many others in the oil and gas industry is backed by legislation, sections 33, 34 and 35 of Ghana Petroleum (Exploration and Production) Law, 2010 talks about local content. Section 33(1) for instance which is subtitled “local content and employment” states that “A contractor or subcontractor shall ensure that opportunities are given as far as is possible for the employment of citizens who have the requisite expertise or qualifications in the various levels of the operations in accordance with the Regulations and with the terms of a petroleum agreement or petroleum subcontract”. Section 34 which is based on technology transfer also states that
“A contractor or subcontractor shall prepare and implement plans for the transfer to the Corporation of advanced technological know-how and skills related to petroleum operations while carrying out petroleum operations, but this provision shall not be interpreted to disable the contractor or subcontractor from protecting the competitive position of the contractor or subcontractor in the petroleum industry or requiring the Corporation also to take steps to protect its competitive position”.

The main document covering this policy is the Local Content and Local Participation in Petroleum Activities Policy Framework which has been approved by Ghana’s cabinet and is currently being studied by parliament. It defines Local Content and participation as “the level of use of Ghanaian local expertise, goods and services, people, businesses and financing in oil and gas activities”.

Aspirations and Targets with Respect to Local Content Realization

Some of the main policy objectives to be attained under the Local Content policy include the following;

• ·        Maximizing the benefits of the oil and gas wealth generation on a comprehensive local content platform by maximizing the use of local expertise, goods and services, job creation for people, businesses and financing in all sectors of the oil and gas industry value chain.
• ·         To develop capacities in all these sectors through education, skills and expertise development, transfer of technology and know-how.
• ·         Achieve at least 90 per cent local content and local participation in all aspects of oil and gas industry value chain within a decade.

In order for the implementation of the local content and local participation policy to be successful, it will be legislated by Regulations and other such legal instruments. A dedicated Petroleum Regulatory Agency, with the assistance of independent National Local Content Committee will oversee its full implementation. Membership of this National Local Content Committee will be drawn from stakeholders from both public and private sectors including; Ghana Government Ministries, Departments and Agencies (MDAs), Petroleum industry Operators, Non-Operators, Contractors and Subcontractors and Non-Governmental Organizations (NGOs). Additionally, an Oil and Gas Business Development and Local Content Fund will be established to support the development of local capacity. This fund will be financed through contributions from licensed operators, oil and gas revenue and levies. Proceeds will be used for education, training as well as for research and development in the oil and gas industry (Local content policy framework, 2010).

 Implementation of Local Content Policy So Far

In view of the fact that this policy framework is still under consideration by parliament, the policy is technically in force as it is enshrined in the Ghana Petroleum (Exploration and Production) Law and petroleum agreements. This therefore binds all signatories of this agreement and makes it obligatory to adhere to this policy. Since production of oil and gas begun in December, 2010, the policy has made some progress through efforts by government, the IOCs, small and medium scale enterprises and other stakeholders to either implement the policy or develop capacities to meet any future challenges as shown by the following developments.

Most of the IOCs have so far made efforts at fulfilling their legal and contractual obligations regarding local content and local participation as stipulated in the Ghana Petroleum (Exploration and Production) Law, 2010 and in the petroleum agreement. Tullow Ghana Limited, major operators in the country’s Oil industry, held a two-day training workshop for 30 business companies drawn from the Western Region of Ghana, where the Jubilee oil field is located. According to Tullow oil, this was part of its determination to implement the local content policy and was aimed at building the capacity of the business community to enable them to become part of the supply chain of the company. It was also aimed at building long-term sustainable supplier relationships to benefit from local businesses development as well as ensuring that suppliers and contractors were informed on international standards; requirements and best practices so that they would be better placed and set targets to grow their businesses and employ more Ghanaians for shared prosperity (Ghana News Agency, 2011).

Additionally, Tullow oil Ghana stated that it had so far spent US$194 million dollars on local companies and Small and Medium Enterprises (SMEs) in order to enable them improve their capacity and competitiveness. Out of this amount, 1,035 local companies are said to have benefitted from the package with US$18 million dollars spent on local enterprises that had employed over 1000 workers in the country. According to Tullow oil, this was part of its commitment towards local content development through its “promotion of Small and Medium Enterprises in Ghana and the belief in creating wealth-shared responsibility” (Ghana News Agency, 2011).

A number of IOCs are also contributing to the education and training of some Ghanaians in order to help solve the human capital deficit in the oil and gas sector. LUKOIL Overseas Holdings is one of the IOCs currently operating in Ghana’s Cape Three Points Deep Water block, has in collaboration with the Energy Ministry has awarded scholarships to deserving students to pursue oil and gas related courses in Russia. This initiative is in line with efforts aimed at ensuring that the targets set in the Local Content and Participation Policy in Ghana’s Oil and Gas industry are met (African Press Agency, 2011).

Additionally, plans are far advanced for the establishment of a petroleum institute to encourage local participation in the oil and gas industry. The Harvard Marine Petroleum Training Institute which is situated in Takoradi, near the Jubilee oil field, will offer Ghanaians the opportunity to obtain internationally certified qualifications in the petroleum industry so as to be competent to meet the challenges in both local and foreign oil companies (Business guide, 2011). This is also in line with section 5.6 of the Local Content policy which deals with “local capacity development of Ghanaians to comparable high levels as required by the industry in various fields such as drilling and support services, marine, catering and housekeeping, supplies and other support services.”

Ghanaian businesses are also poised to reap from the simmering benefits of the oil and gas industry in the country. To this end the Association of Ghana Industries (AGI) has organized a series of exhibitions in collaboration with the Energy Ministry, Ghana National Petroleum Corporation (GNPC), as well as other major industry players such as Tullow oil and Kosmos Energy among others. These exhibitions according to the AGI are aimed not only at promoting business between local companies and the IOCs operating in the country, but also to a platform to form partnerships with other foreign companies operating in various parts of the value chain in order to strengthen their capacities to efficiently do business with the IOCs. It is believed that these partnerships would improve their financial capabilities and technical expertise which the local businesses lacked (AGI, 2011).

Some indigenous companies have taken advantage of the local content policy to actively participate in the development of Ghana’s oil and gas industry. JKL Energy LTD, a Ghanaian Oil and Gas company, is in the process of finalizing negotiations with international developers from Dubai and Malaysia to undertake a US$ 300 million Ghana Offshore Supply Base (GOSB) project. When completed, this facility will serve as a supply base to the offshore facilities (Ghana oil watch, 2011). These are all efforts aimed at maximizing the participation of Ghanaian companies in the oil and gas industry.

So far, it is fair to say that all stakeholders are making efforts to see to the success of this policy considering the fact that production started about a year ago. However, like the implementation of every policy, Ghana’s local content policy has had its share of obstacles and challenges.

NUTSHELL

The author examines the framework for the implementation of Ghana’s local content and Local Participation in Petroleum Activities policy. He also looks at efforts being made by government and the IOCs to implement this policy and how Small and Medium scale Enterprises (SMEs) are taking advantage of the policy to develop local capacities in order to gain market share in the oil and gas industry. This is the second installment of this interesting read. Read, Learn, Share and Discuss!!!