Government argues banks into oil and gas funding

For the country to achieve its lofty local content goals, the financial services sector, led by the banks, would have to cast off its fear of the risks and huge capital required, and venture into funding local companies offering services in the upstream oil and gas industry, government has said.

Millison Narh of the central bank, Mona Quartey of the Finance Ministry and Theophilus Ahwereng of the Petroleum Commission, all believe the huge capital outlay required in the upstream petroleum industry should not scare off the local financial services sector.

Through recapitalization and syndication, the banks and private equity funds, among others, can come in and take on projects they can manage, without bothering about billion-dollar projects that are beyond their means, the government officials said at a workshop organized by the Petroleum Commission in Accra to allay the fears of the financial services sector.

The First Deputy BoG Governor, Millicent Narh, told capos in the banking industry that the central bank is currently undertaking a study to come up with an appropriate capital level that will incentivise large banks to participate in big ticket deals in the oil and gas sector.

Mona Quartey, Deputy Finance Minister, said: “It is possible that the financial industry can support the oil and gas industry. Let’s not balk at the numbers; let’s look at the wider value chain, and let’s make money whilst we offer service to them.”

In doing so, she added, financial institutions need to continuously enhance their capacity and capability to assess and manage risk.

“This is particularly important as these institutions become more exposed to lending to smaller downstream and midstream companies in the oil and gas value chain.”

The banks are actively engaged in the mid and downstream sectors; they issue letters of credit for the bulk of petroleum products imported into the country, and they have been exposed lately to the debts owed bulk oil importers by government.

But the Petroleum Commission believes the banks can take advantage of smaller ticket and less risky opportunities in the services bit of the upstream petroleum sector.

“The recapitalization debate is one of the options. But even at the current levels of capitalization, there is so much that we can do, and I can give you an example,” Theophilus Ahwireng, CEO of the commission told the media.

“If I win a contract to fabricate a portion of an FPSO, that costs US$5million, I mean there are banks in this country that, on their own, can finance this. But the banks want to be comfortable; they want to understand the business…naturally, if someone doesn’t understand what you are doing, he would not want to risk his capital, and that is the essence of the exercise we are doing,” he said.

The Petroleum Local Content and Local Participation Regulations, which the commission oversees, obliges upstream operators to utilise the services of Ghanaian financial institutions, but the commission says the financial institutions “are yet to break into the sector as envisaged.”

According to Theophilus Ahwireng, government wants some 20% of the value of contracts in the US$7billion Offshore Cape Three Points (OCTP) project to be retained locally, a reason the banks must up their game.

Speaking to his peers in the banking sector, MD of HFC Bank, Robert Le Hunte, said the Republic Bank of Trinidad and Tobago, which now owns 57.11 percent of the latter bank, traces its successes to its participation in that country’s oil and gas sector.

It is for the very reason of participating in Ghana’s oil and gas sector that Republic Bank took over controlling stake of HFC Bank, he said, urging his colleagues to leverage international experience to follow suit.

“HFC has just partnered with the Republic Bank of Trinidad, which is deeply into this sector, and right now we are leveraging those skills; we have individuals from HFC who are actually training in Trinidad now in the energy sector, to allow us to gear up our participation in that sector,” he told the B&FT.

Deputy Petroleum Minister, Ben Dagadu, told the meeting that the upstream sector has created approximately 7000 jobs, out of which 5,590 are Ghanaians.

He further indicated that there are about 474 companies registered with the Petroleum Commission, out of which 351 are indigenous companies, whilst 46 are joint venture companies.

“Contracts worth over US$1billion were awarded to indigenous companies from 2010 to 2015, he said, adding, however, that “financial constraints” continue to hold back local participation.