Grabbing Opportunities In The Oil Sector

DIVIDED WE LOSE

- Private Enterprise Foundation Raises Alarm

By Liberty Amewode, News Editor

Ghanaian Entrepreneurs may not be able to take advantage of the emerging oil

industry if current trends observed by the Private Enterprise Foundation (PEF)

continue.

The petroleum industry requires huge amounts of money and businesses need to

combine forces to be able to raise such monies to put in their bids to get some

of the contracts to operate in the sector.

But observations by the Foundation reveal a worrying trend of the Ghanaian

businessman’s penchant for operating alone and the avoidance of mergers by them.

This, according to Dr. Osei Boeh-Ocansey, Director-General of PEF, is likely due

to mistrust among entrepreneurs.

At a workshop on “Opportunities in Ghana’s emerging Oil and Gas Industry for

local participation” at the Coconut Grove Regency Hotel, in Accra, last week, he

noted that the proposed 90 per cent local content in the industry by 2020 was

achievable, only when the country’s businessmen join forces to invest in the

industry.

The workshop brought together some businessmen, civil society and journalists to

deliberate on issues relating to the emerging oil and gas industry and promote

understanding of the Petroleum Industry Value Chain.

It was also to clarify the Policy on Local Content and Participation and to

assist members of PEF to position themselves to derive maximum benefits from the

local content provision in the Oil and Gas Industry.

Alluding to the mining sector, where much has not been seen in terms of benefits

to the local people, Dr Boeh-Ocansey cautioned that the peculiarity of the oil

and gas sector can bring a lot of strife as in some other countries, if the

situation was not managed carefully.

He said the inability of Ghanaian entrepreneurs to raise funds among themselves

to invest in the industry would result in foreigners taking over aspects of what

Ghanaians should be enjoying.

Ing. Dr. Robert Adjaye of the Ghana Institute of Engineers (GhIE) and Petroleum

Skills Development Institute (PSDI), in a presentation, noted that the high

expectations of citizenry needed attention and careful management from the

authorities, saying this was important in determining whether the country

regards the oil find as a blessing or a curse.

He called for the use of proceeds from the industry to develop infrastructure,

stimulate long-term economic activity and enhance the standard of living of

Ghanaians.

He bemoaned the lack of strict implementation of laws in the country and

cautioned against going the same way with the Local Content Bill, when it is

passed into law.

Enumerating some challenges facing local participation, Dr. Adjaye, drawing from

his experience as a former member of the Tender Review Board, mentioned poor

marketing by suppliers and shallow tenders put in by local companies.

According to him, tenders from foreign companies tend to be better prepared than

that of their local counterparts.

He said for local participation to be meaningful, local companies should put

their house in order, to take advantage of the downstream component of the oil

sector, which involves further refining and retailing.

He suggested the institution of a Local Content Fund, to which every upstream

(exploration and production) operator or contractor contributes a percentage of

contract value for the implementation of local content. “The law should make

provision for this”, he said.

Lessons From Norway’s Oil Fund Investment Losses

NII MOI CALLS FOR LOCAL CAPACITY

…To safeguard oil wealth

By J. Ato Kobbie, Managing Editor

A leading Ghanaian Economist, Dr. Nii Moi Thompson, has called for an

accelerated skills development in anticipation of the new challenges that the

country’s emerging oil producer status presents.

Speaking to The Business Analyst in the wake of recent losses suffered by Norway

in its oil fund investments, Dr. Thompson said it was important that training

and education for those in responsible positions and those needed, as far as the

country’s emerging oil economy status was concerned, to be accelerated to enable

them measure up to the tasks required of them.

In this direction, he said there was the need to encourage young men and women

in tertiary institutions, to enter the various fields where their services would

be most needed, in order for them to attain the necessary expertise and

experience to meet challenges.

Dr. Thompson said this was necessary to overcome the challenges that come up,

such as happened to Norway, an oil economy that lost hundreds of millions of

dollars because it relied on the expertise of ‘international experts’ to analyse

and advise on its oil wealth investment.

He said it was important that the country develops the local capacity to

determine not only where to invest the country’s oil wealth, but also monitor

the performance of such investments and advise appropriately.

He said Government and sector participants must collaborate to have such

training countrywide, for instance, in a northern sector-southern sector

approach to create an even field for all Ghanaians.

Norway, touted as one of the world’s best examples of best practice in oil

revenue management, for which reason many watchers of Ghana’s oil sector have

advocated for Ghana to learn from that country, is fighting to recover losses to

its oil fund.

The Norwegian Central Bank, Norges Bank, has dragged Citigroup Incorporated of

the United States of America (U.S.A.) to court, accusing it of providing “untrue

statements and non-disclosure of material information to investors,” which led

to losses of about 835 million dollars to the Norwegian sovereign wealth fund.

The sovereign fund is the fund into which Norway invests its oil wealth for

future generations and its $459 billion Government Pension Fund Global, the

world’s second-largest, after Abu Dhabi’s, is managed by the Central Bank.

Ghana’s version of the Norwegian ‘Oil Fund’ for future generations has been

christened ‘The Heritage Fund,’ in the Petroleum Revenue Management Bill, which

is before Parliament, and already, some analysts have been advocating for

investing that fund on the international bonds market.

It is not clear however, how a clearer knowledge of the depth of the impact of

the financial crisis that hit the international bond market, would influence the

debate on where and how best to invest Ghana’s ‘oil fund’ when it takes off.

First significant commercial oil production from Ghana’s Jubilee field is

scheduled to kick-start in November-December this year.

The Norwegian suit names 20 of Citigroup’s current and former executives and

directors, including: Chairman, Richard Parsons, current chief executive Vikram

Pandit, and his predecessor, Charles ‘Chuck’ Prince.

“Norges Bank lost in excess of 735 million dollars on its investments in

Citigroup common shares and in excess of 100 million dollars on its investments

in bonds and preferred shares,” stated a September 17 lawsuit, filed in a

Manhattan federal court.

The suit continued that due to the defendants’ repeated material untrue

statements and non-disclosure of material information to investors, plaintiff

purchased Citi securities at inflated prices (between January 2007 and January

2009).

The Norwegian Central bank argues further that “When the market slowly learned

the truth of Citi’s financial condition, Citi came close to insolvency, and

plaintiff lost a substantial amount of its investment.”

“Citi’s near-demise” according to the Norwegians, “had its genesis in the

company’s increasing willingness to take on risk for the sake of profit, without

regard for -- and without disclosing -- the magnitude of the downside exposure

it faced if those risks materialized.”

The fund lost 23% of its value in 2008 when global markets took a dip, posting a

record 633 billion kroner ($107.6 billion) loss in 2008 thus wiping out gains

made since the fund started investing the country’s oil revenue in 1996.

The oil fund had a 26 percent return last year.

“We believe the suit has no merit and will defend ourselves vigorously,” was the

response from Danielle Romero-Apsilos, a Citigroup spokeswoman in a statement.

‘The case (title) is Norges Bank v. Citigroup, 10-cv-07202, U.S. District Court

for the Southern District of New York (Manhattan)’.