Business News of 2014-06-10

No fronting for foreigners; oil and gas companies warned

The acting Chief Executive Officer of the Ghana National Petroleum Corporation (GNPC), Mr Alex Mould, has warned of severe sanctions for local companies who front for foreign businesses in the oil and gas sector.

The GNPC boss has consequently called for the institution of measures that would discourage local companies from doing the bidding of foreign firms.

In an interaction the Graphic Business on the sidelines of the Ecobank Oil and Gas Conference in Accra, Mr Mould said, “some people believe that the only way to get contracts is to front for an oil company and this is done in collusion with foreign firms."

According to him, the local content laws have reserved a lot of opportunities for local firms in the oil and gas sector, which some foreign companies would want to exploit using local and indigenous enterprises to do their bidding.

The law also states that any Ghanaian, who is found fronting for foreign companies would be liable to specific punishment, including a term of imprisonment.

“When I meet a local company doing the bidding of a foreign company and participating in the oil and gas sector, I will be able to make them out within 15 minutes of discussions," he said.

According to him, the opportunities provided for local companies in the Local Content Bill is to encourage indigenous businesses to participate in the oil and gas sector, which should not be traded with by fronting for foreign companies under the guise of local companies.

Local Content, according to the Petroleum (Local Content and Local Participation in Petroleum Activities) Regulations, 2013 (LI 2204) is “the quantity or percentage of locally produced materials, personnel, financing, goods and services rendered in the petroleum industry value chain and which can be measured in monetary terms."

The law (L.I. 2204) is designed to reduce capital flight, unemployment, improve the technical and managerial capacity of Ghanaian SMEs and accelerate growth of the economy.

The law marks one of the first steps that the country has taken to control its natural resources from an industry usually dominated by foreign companies and their staff.

Despite this, international oil firms have broadly endorsed the bill as it fits in with many of their respective corporate social responsibility schemes.

Parliament has also hailed the bill as the country’s “best hope of effectively integrating the sector into the rest of the national economy."

But the GNPC boss said local content was about value addition, human capital development, financial investment and technological know-how.

The law provided for at least five per cent equity participation of indigenous companies in the oil and gas industry.

According to Mr Mould, the law requires Ghanaians to own at least 51 percent shares; 80 per cent senior management positions; and 100 per cent management staff in local companies.

Mr Mould cited lack of capacity as one of the major challenges that local companies faced in the industry and noted that the Petroleum Commission could put in place the requisite legal and regulatory framework, but if local companies did not step up their game to meet the necessary requirements in the industry there was nothing the Petroleum Commission could do.

Jobs in the oil gas sector

Already about 7,000 jobs have been created by the oil and gas sector since Ghana became full time petroleum exporting country in 2011, the Ministry of Energy and Petroleum has revealed.

According to Mr Edward Abambire Bawa, the Head of Communications Unit of the Ministry, Ghanaians have directly benefited from about 5,600 jobs out of the figure.

This, he said, was outside jobs provided by statutory state institutions such as the Ghana National Petroleum Commission (GNPC).

The government has also facilitated the establishment of 75 local companies to provide services in the oil and gas industry.

He said this had contributed to the "gradual increment" in the flow of investments into companies ran by local people in the sector.

Local operators upbeat

The Executive Director of the Ghana Oil and Gas Service Providers Association (GOGSPA), Mr Nuetey Adzeman, was optimistic that Ghana would achieve 60 per cent of the local content law within the next three years of its implementation in the oil and gas industry.

The Ecobank conference, which was on the theme: “Addressing the financial challenges of indigenous oil and gas companies," brought together key players in the oil and gas industry including GOGSPA.

Mr Adzeman, however, identified the lack of financing for most of his members and other businesses in the oil and gas industry as a major challenge facing the growth and development of the industry.

According to him, many banks in the country charged high interest rates ranging from 20-30 percent on loans.