This article looks at the
problems being faced by Ghana in implementing local content and local
participation as a developing country with limited capacities and also dealing
with IOCs and sub-contractors which are well established and are well connected
globally.
As a developing country
with very little experience in the oil and gas industry, one of the main obstacles
faced by the implementation of the local content policy in Ghana is the lack of
local capacity and capabilities in virtually all sectors of the oil and gas
industry. These short comings would obviously affect Ghana’s hopes of taking
advantage of the numerous employment opportunities in the industry and also
make it difficult for local businesses to be able to provide goods
and services which are competitive in terms of “price, quality and timely
availability” as stipulated in the policy framework.
One of these challenges is
the fact that local businesses servicing the oil and gas industry
require a sound capital base because of the capital intensive nature of the
industry. However, many Ghanaian companies may not be in the position to afford
this and the only way out is to source funding from banks which could affect
the quality and efficiency of goods and services provided. Another option is to
partner foreign companies to boost their financial capabilities but this will
in a way defeat the purpose of the policy itself which seeks to encourage
indigenous businesses to take up the challenge of providing goods and services
for the oil and gas industry.
Another major obstacle in
the realization of the local content policy in Ghana and many other countries
is the fact that these IOCs have well established supply chain networks. They
therefore prefer to deal with global suppliers or award major service contracts
to specialist firms such as Worley Parsons, KBR Aker Solution, Amec and Schlumberger
whose financial strength, reputation and technical capabilities can be
guaranteed (Olsen[1],
2011). Also, most IOCs are reluctant to abandon these already established ties
and deal with local companies for cost saving reasons. This makes it difficult
for local companies to compete with such reputable names (Olsen, 2011)
In some cases, some oil
companies and sub-contractors operating in Ghana’s Jubilee oil field, have
acted in contravention of their contractual and legal obligations to adhere to
the local content and local participation policy as highlighted by some recent
incidents. In October 2010, oil riggers and offshore workers petitioned the
Ghana National Petroleum Corporation (GNPC) against what it termed
discrimination in the award of contracts for oil rig operations on the Jubilee
oil field. According to the riggers, agencies like Menergy Oil, O & L
Trinity and Sea World which had been registered by the GNPC to employ artisans such
as motormen, floor men, caterers, crane drivers and badge masters for oil rigs
operating in the oilfields were rather employing foreign nationals instead of
local artisans who were equally qualified (General News Agency, 2011). This
worrying development contravenes Section 5.4 of the local content and local
participation policy which states that operators in the petroleum sub-sector should as much as possible avail opportunities for Ghanaians with requisite
qualifications and expertise to be employed in various levels of operations.
Another issue has to do with the servicing
offshore installations which require the acquisition and operation of vessels
such as supply boats, tug boats, anchor handling vessels and air-crafts by
Ghanaian owned companies, failure to do this will result in IOCs contracting
foreign companies to take up this responsibility. This lack of capacity to
provide services for offshore installations has impacted negatively on some
Ghanaian companies. In Feb 2010 for instance, Tullow Oil,
one of the operators of the jubilee oil field in Ghana abrogated its contract for
the transportation of personnel and cargo of the oil company to the offshore
jubilee platform with Ghanaian-owned Citylink Airline Company in favour of
Noordzee Helikopters Vlaanderen (NHV), a Belgian company (Ghana business news,
2010). According to Tullow oil, despite its obligation to the implementation of
the local content policy, its decision was based on its commitment to meet
offshore oil and gas standards. Also, the growing intensity of work on the
Jubilee field necessitated the company to contract a world class standard Fixed
Wing and Helicopter transport service. It therefore appears that City Link
Airlines was edged out of this contract because of its inability to rise to the
challenges posed by the oil and gas industry.
These challenges mean that
a lot still needs to be done if Ghana is to achieve its set target of 90 per
cent by the year 2020. Therefore, there is the need for a concerted effort by
all stakeholders to address these challenges in order to see to the successful
implementation of Ghana’s local content and local participation policy.
Recommendations
Based on what has been gathered so far, this study
would like to make the following recommendations;
· First and foremost, all stakeholders
must identify gaps in the industry with regards to human resources,
infrastructure materials and institutions and identify ways of closing these
gaps; this can be done by setting realistic targets that can be achieved.
· In order to deal with issues of capacity
building, there is the need to expedite action on the proposed Ghana Content
Development Act Oil and Gas Business Development and Local Content Fund which
when established will support the development of local capacity and will be
able to address some of these issues to some extent.
· With regards to the servicing of
offshore installations by local companies, Ghana could take a cue from Nigeria
which instituted the Coastal and Inland Shipping (Cabotage) Act in 2003.
Section 2 of this act among other things, seeks to impose levies on vessels
involved in Cabotage or Coastal trade if not wholly manned by Nigerians, not
built in Nigeria or if majority of the shares of the shipping company are not
owned by citizens of Nigeria.
If Ghana is able to adopt
this type of legislation, it will to some extent put some barriers to entry by
foreign shipping companies and enable local companies to flourish.
Conclusion
This study has shown how
the issue of local content and local participation in the oil and gas industry
has become a very crucial issue especially for many middle income and
developing countries as they seek to gain maximization of national
value creation through the oil and gas value chain by way of employment,
value-addition, technology transfer and the acquisition and transfer of
knowledge.
Ghana has since the
discovery of oil and gas in commercial quantities also put in place, legal and
policy frameworks to facilitate the development of Ghanaian capacity to manage
its oil and gas resources and also make maximum use of this new found wealth to
the benefit of its nationals and its developing economy as a whole. Despite
these legislative and policy frameworks that have been put in place and the
efforts by the Ghana government, the IOCs, small and medium scale enterprises
as well as other stakeholders to see to the successful implementation of this
policy, there appear to be a number of encumbrances to the achievements of
targets set by the government. Some of these obstacles include the lack of
capacity, in terms of human resource and infrastructure, to meet the challenges
in the oil and gas industry which is capital intensive, requires a great deal
of infrastructure and a highly skilled labour force.
This therefore requires
some extra effort by the government of Ghana especially, to expedite action in
bringing into force the legislation on local content and local participation
which is still going through parliamentary scrutiny and also support local businesses
through various policies and financial schemes to bring them up to the standard
required by the industry in order to ward off foreign competition. Furthermore,
efforts must be made in conjunction with other stakeholders to train more
Ghanaians in various aspects of the supply chain to enable them gain employment
in the industry.
Finally, Ghana must also
learn from countries such as Brazil, Norway, Malaysia, and Trinidad and Tobago.
These are countries that have successfully used local-content laws to create
jobs and fuel domestic economic growth. Ghana could also adopt some of these
laws to enable it accelerate the development of its local content and local
participation policy.
Nutshell
Still on the important issue of local content in the oil industry, Gilbert Azaah, in this article, captures the problems which have so far hindered the implementation of the local content policy in the Ghana oil and gas industry. This is the final installment of this article.Click here to access the first and second installments of this article by the author http://www.themixoilandwater.com/2012/07/local-content-policy-in-ghanas-oil-and.html and http://www.themixoilandwater.com/2012/09/implementation-of-local-content-in.html
Questions and comments are welcome. Read, learn, share and discuss!!!
Legal Documents
Coastal and Inland Shipping (Cabotage) Act 2003,
(Federal Republic of Nigeria)
Ghana Petroleum (Exploration and Production) Law,
(2011) (Republic of Ghana)
Local Content and Local Participation in Petroleum
Activities – Policy Framework (February 26th, 2010)
Model Petroleum Agreements of Ghana (Ghana National
Petroleum Corporation)
Books
Ariweriokuma, S., (2009) the political economy of
oil and gas in Africa: the case of Nigeria Routledge, New York, U.S.A.
Inkpen, A., C., Moffett, M., H., (2011) the Global
Oil and Gas Industry: Management, Strategy, and Finance (Penn Well
Corporation, USA)
Oxford Business Group (2010) the Report: Nigeria
2010 Oxford Press
Tracy, B., S., Tordo, S., Arfaa, N., (2011) National
Oil Companies and Value Creation (World Bank working Paper No. 218)
Newspaper Publications
Association of Ghana Industries, (2011) “AGI Launches
Second Oil and Gas Exhibition” 31 March 2011 http://www.agighana.org/News/AGI-Launches-Second-Oil-and-Gas-Exhibition.aspx (Last visited, 19/12/2011)
African Press Agency, (2010) “Russian Company Lukoil,
And Ghana’s Minister of Energy Sign Memorandum of Understanding” October 10,
2010 http://www.netnewspublisher.com/russian-company-lukoil-and-ghana%E2%80%99s-minister-of-energy-sign-memorandum-of-understanding/ (Last visited, 19/12/2011)
Business Guide, (2011) “Takoradi Gets Petroleum
Institute” May 3, 2011 http://www.businessguideghana.com/?p=3385 (Last visited, 20/12/2011)
Ghana business news, “Tullow Oil to promote local
content in Ghana operations” February 19, 2010 http://www.ghanabusinessnews.com/2010/02/19/tullow-oil-to-promote-local-content-in-ghana-operations/ (Last visited, 23/12/2011)
Ghana News Agency, (2011) “Tullow Ghana Limited
organize training seminar for local business” http://www.energymin.gov.gh/index22.php?id=0095&pgtid=3&cntid=newinfo (Last visited, 17/12/2011)
Ghana News Agency, (2011) “Tullow Oil spends $194m on
SMEs in Ghana” August 14, 2011 http://www.ghanabusinessnews.com/2011/08/14/tullow-oil-spends-194m-on-smes-in-ghana/ (Last visited, 19/12/2011)
Ghana oil watch (2011) “Ghanaian company to undertake
$300m Offshore Supply Base project in Western Region” 16 July 2011 http://www.ghanaoilwatch.org/index.php?view=article&catid=6%3Aghana-oil-a-gas-news&id=1800%3Aghanaian-company-to-undertake-300m-offshore-supply-base-project-in-western-region&format=pdf&option=com_content&Itemid=27
(Last visited, 19/12/2011)
Ghana News Agency, (2011)“Oil riggers express
displeasure over award of contracts” 30 September 201 http://ghanaweb.com/GhanaHomePage/economy/artikel.php?ID=220349 (Last visited, 22/12/2011)
IPIECA (2011) “Social and economic development” http://www.ipieca.org/topic/social-responsibility/social-and-economic-development (Last visited, 08/11/2011)
Other Journals
Wilson, E., Kuszewski, J., (2011) Shared Value,
Shared Responsibility; A new approach to managing contracting chains in the oil
and gas sector International Institute for Environment and Development
(IIED)
UNCTAD, (2007) World investment report:
Transnational corporations, extractive industries and Development United
Nations Publications
Klueh, U., H., Pastor, G., Segura, A., (2009) Policies
to improve the local impact from hydrocarbon extraction: Observations on West
Africa and possible lessons for Central Asia Energy Policy 37 pp1128–1144
Olsen W., H., (2011) Local content workshop: “Developments,
policies and challenges for Ghana” the cwc group
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