Following the discovery and the subsequent production of oil and gas in commercial quantities in Ghana in 2007 and 2010 respectively, majority of Ghanaians anticipated that the development of an oil and gas sector would be a foundation for poverty reduction and general prosperity to the citizens.
The pursuit to take full advantage of benefits in the Oil and Gas sector made it necessary for Parliament to pass the Petroleum Local Content and Local Participation Regulations, 2013 (L.I. 2204).
A vital feature of the Local Content Regulation is that it targets a minimum of 90 per cent local participation in all aspects of the oil and gas value-chain by 2020. The legislation also requires that an oil and gas company or firm must obtain 60 percent to 90 per cent of its goods and services from domestic sources within 10 years of its operation in the Ghana oil and gas industry.
Local Content refers to the quantum or percentage of locally produced materials, personnel, financing, goods and services rendered to the oil industry and which can be measured in monetary terms, while Local Participation refers to the level of Ghanaian Ownership in the oil and gas industry. To qualify as a Ghanaian/indigenous company, the company must have at least 51% of its equity owned by a Ghanaian with 80 percent executive and senior management positions and 100 percent non-management and other positions occupied by Ghanaians
In spite of the euphoria that characterized the passage of the Petroleum Local Content and Local Participation Regulations, 2013 (L.I. 2204), a section of industry players are not convinced that Ghana had done the necessary preparatory work to ensure that the capacity of local businesses and firms was duly built so as to enhance their capacity to deliver the desired quality of goods and services to the oil and gas sector.
These proponents continue to hold the view that Ghana has not made any inroads with its Local Content and Local Participation drive since the L.I 2204 came into force.
But speaking at a workshop organized recently in Accra by Pensplusbytes under its Drilling Down Oil and Gas in West Africa Project, Mr Kwadwo Asare Kyei,Local Content Manager of the Petroleum Commission indicated that some progress have been made relative to the implementation of the Local Content regulation.
Petroleum Commission has as part of its functions to ensure compliance with local content targets as set in the Regulations; as well as guarantee the utilization of Ghanaian personnel, materials, services and businesses in the industry.
Mr Kyei mentioned that 771 companies are registered to provide both direct and indirect services to the industry; these include 648 Indigenous Ghanaian Companies, 34 Foreign Companies and 89 Joint Venture Companies.
Besides, he said, almost all contracts executed had a minimum of 10 percent local participation and that between 2014 and Q3 2019 value of contracts awarded to Indigenous Ghanaian Companies (IGCs) and Joint Venture companies amount to over USD 7.3billion.
He added that over 25 goods and services have been reserved for IGCs, while there have been increased in-country fabrication for the various field developments; TEN, OCTP and DWT/CTP.
The Local Content Manager, however, acknowledged that there continue to be challenges. He opined that there are over lapping policies and regulations in other sectors thus, impeding smooth implementation – Immigration, GIPC (Section 35 of GIPC Act 865 grants automatic expat quotas).
Other challenges according to him include among others, lack of financial capacity to undertake high value contracts; Local capacities to implement the targets in L.I. 2204; Non-compliance by companies especially IGCs; Low levels of activities affecting the volume of work for upstream companies; Lack of key infrastructure to propel local content development ; Weak manufacturing/industrial base.
He emphasized the need to undertake rigorous monitoring to ensure local content obligations are fully implemented and the objective of the Regulations is achieved. He also encouraged the development and implementation of policies and guidelines to foster SME development through consolidation, merger and incubation.
He assured that, “the Commission will continue to spearhead the development of local content and local participation in petroleum activities by strategizing to maximize indigenous Ghanaian participation in the upstream petroleum sector. However the success of local content requires the joint effort of all stakeholders.”
On his part Dr Douglas Zormelo of Zormelo and Associates who is also the President of the Upstream Petroleum Service Providers Association of Ghana said though L.I 2204 is geared towards ensuring maximum participation in the industry, service providers need to bring issues to the attention of the Petroleum Commission to ensure the implementation of the law so as to create opportunities for local industries.
Dr Zormelo called on the few Ghanaian companies in the oil and gas industry to collaborate amongst themselves so that many more companies would benefit from the oil and gas industry.
A Report by the Africa Centre for Energy Policy (ACEP) titled the ‘Implementation of Ghana’s Local Content Regulations in the Upstream Sector’ argues that the requirement for foreign companies to form joint ventures with indigenous Ghanaian companies under regulation 4(6) of L.I. 2204, has granted a number of Ghanaian companies access to the technologies and operations of their international joint venture partners.
The report suggested that the country has made significant progress in both employment of Ghanaians and the supply chain aspect of the industry. However, the country could have benefitted more if there was an effective local content support and enforcement system.
It pointed out that the upstream oil and gas industry is highly technical in nature involving exploration, development and production. Being a specialist field, it may take Ghana some time to generate the pool of experts in the numbers required to make the local content impact it desires.
“The technological strength to undertake sophisticated and expensive exploration and development activities in the upstream oil and gas sector is a challenging imperative if the local ideal is to be fulfilled.”
Significant capital outlays are needed to finance exploration, development and production of oil and few finance houses and local firms if any have the financial muscle or willingness to venture into such investment opportunities.
Nevertheless, the report noted, evidence shows that the challenge to meet the local content targets and benchmarks set remains an uphill battle.
In his recent interview with the media, the Deputy Chief Executive Officer (CEO) of the Sekondi-Takoradi Chamber of Commerce and Industry (STCCI), Mr. Benjamin Nii Kpani Addy, stressed, “We are nowhere near our desire as far as local content is concerned.”
According to him, while the policy did not have enough support mechanisms, the country maintains a “backward” regulatory regime for local businesses in the sector, making it difficult to engender any meaningful participation.