Regulation Of The Petroleum Industry
; A Tale From The North Sea-Norway
Author: Ishmael Setsoafia Amegah, MSc. Oil and Gas Management, Cert. Managing Safely, IOSH (UK).
The Norwegian oil and gas industry is considered one of the most successful globally, largely due to the prudent management of the resource, revenue and the robust health, safety and environmental regulatory regime it has in place. The country first found oil in the 1960’s in the vicious North Sea and has increasingly improved in the use of best technologies to harness the resource to reduce the socio-economic and environmental impacts that normally characterise exploration of oil and gas globally. The Norwegian HSE regulation for the offshore industry is considered by many as the best module for its effectiveness and holistic approach to addressing occupational health, safety and environment issues. This definition of the Norwegian Model may be broadened by identifying four principal features which are central to its continuing success: a unified trade union movement with a much higher degree of organization than in most industrialised nations, a long tradition of collective bargaining, tripartite regulation of disputes through co-operation of state, trade unions and employers and consultation by the government of trade unions and employers on economic policy.
To be able to appreciate the regulatory regime in offshore exploration and production of oil and gas in Norway, one needs to understand the significance and role of oil and gas in the Norwegian economy. Norway is indeed one of the few nations in the world that can budget with huge surplus through the government petroleum fund (GPF). The oil and gas sector contributes about 40% to GDP which represents 45.6% of the central government revenue. The sector in 2009 employed about 47,000 people and is the single largest contributor to the Norwegian export sector (www.ssb.no). It is no secret that the oil and gas sector has become the nerve centre and the engine of growth for the people of Norway. Consequently, the sector has several key stakeholders including multi sectorial groupings, employers’ federations and trade unions and the media. The petroleum industry is to an extent considered to be controversial irrespective of the geographic location due to the economic power it industry possesses. This “economic power” in most cases overwhelms both operators and regulators to the point that little or no attention is paid to health, safety and environmental issues. It would take a proactive regulatory regime and a robust HSE management system to safeguard the lives of the people who operate in the industry, the environment as well as the huge investments made in the production rigs and other equipment.
Developing a Local Content Scheme
Lately, local content has become very topical, and most countries are enacting laws to make it mandatory for all stakeholders of specified industries especially in the extractive industry. When it comes to local content, Norway is one of the leading nations in terms of policy. We shall soon see how they managed to achieve this feat. But before then, we need to understand what Local Content is. There is no universal accepted definition of the concept as it has been used and interpreted differently by various sectors and groups relative to their need and understanding. But in practical terms, it could be defined as development and use of competitive local skills and competences throughout the value chain process of a particular industry.One industry expert defines it as “the proportion of inputs in natural resources projects that are procured from the domestic market as opposed to those sourced externally. Often confused with the simple procurement of goods and services, the concept includes the capital goods, engineering processes, human capital, project finance and support services necessary throughout the value chain and the life of the project”. It is therefore, erroneous to oversimplify the concept to mean hiring (employing) of local human resource by Multinational Oil Companies. Employing local human resource is just one of the many phases of a local content scheme. Why the need for “local content policy” or scheme in the first place? Well, as explicitly quoted in an Accenture report, “Today, the rules of the game have changed: Developing local economies, stimulating industrial development, increasing local capability, building a skilled workforce and creating a competitive supplier base—also referred to as local content —are minimum requirements for doing business with host countries and national oil companies”. In a simple language, that is the only way a resource endowed nation can develop and make the resource a blessing rather than a curse to its populace. When foreign operators started entering the Norwegian industry in the late 1970s, they were strongly encouraged to form research and development (R&D) partnerships and joint development programmes with Norwegian companies and institutions, thus engaging in local content growth. In fact, as far back as the 1960’s, the following statement was attributed to Jens Evensen, a legal luminary who led the work on petroleum legislation in Norway; “We understand that you are interested in exploring for oil in the North Sea. We hold the rights to this and we do not intend to grant any licenses before we know what we are doing. We are quite simply giving you a challenge: Educate us!.”
The above assertion may be interpreted differently depending on the lens of the one interrogating it. However, one thing remains very clear and that is the deliberate effort of the state to be actively involved in the process with the intention of increasing local participation and dominance. As of 2007, local content to serve the petroleum industry in Norway was very high. In terms of investment for the exploration and development of new fields, the local content is generally between 50%-60% (measured by value added) and maintenance and operations stands at about 80%.
After 10 years of operations, government recommended a new administrative system to manage the oil and gas activities after studying what pertains in other international jurisdictions. In 1972, the Norwegian Parliament gave the approval for a new administrative structure which separated the functions and responsibilities into: • Policy Making which is now under the remit of the Ministry of Petroleum and Energy • Technical Control and Resource Management being managed by The Norwegian Petroleum Directorate • Commercial Participation which is being handled by the state oil company, Statoil Beyond this administrative arrangement were also deliberate and concrete steps of the state to facilitate a favourable environment that promoted participation of local players. To begin with, the government aimed to award contracts to Norwegian bidders when they proved to be competitive in terms of price, quality, delivery time and service. The rationale behind this was to promote the establishment of local industry and this was achieved through cooperation with international oil companies. Furthermore, in the negotiated concessionary system, before oil companies are granted exclusive rights to Norway’s oil and gas, they were expected to demonstrate how they intend to enhance the local content beyond the rhetoric. Another significant move of the government of Norway was to encourage foreign operators entering the Norwegian industry in the late 1970s, to form research and development (R&D) partnerships and joint development programmes with indigenous companies and institutions, thus engaging in local content growth. It is however, worth noting government’s recognition for an industrial policy that looked beyond Norway’s petroleum industry. The government decided to develop a domestic industrial competence that will contribute to national welfare even after the oil and gas resources can no longer induce growth into the national economy or are entirely depleted. In doing so, the focus was on where Norway already had relevant industrial competence. Two of such areas were the shipping or maritime and mining industries where they built synergy through knowledge sharing and technology exchange. With commitment and discipline from both government and other stakeholders, Norwegian companies became competitive not only locally but also internationally. Thus, it is not sufficient for local industrial competence development that is domestically based. It must also prove competitive on the international market. This way the competencies and expertise could be exported to other oil and gas producing countries.
Health, Safety and Environment Regulation
The focus of the Norwegian HSE regulation regime has evolved over the past 50 years since the Scandinavian nation started production in the North Sea. From the ‘purely science based approach (technical failures) to a more Psycho-social approach (human errors). According to Perrow and Reason, renowned risk management experts, disasters are complex and socio-technical events and based on their research, organisational disaster was no longer looked at as purely technological failure but rather a combination of technological innovations and their effects on systems and human component. Ever since, the paradigm and theories of accident process were expanded to include organisational processes and psycho-social domains. To move with the new trend across the globe, the focus moved away from how technical equipment could be improved to enhance safety, to how the behaviour of members of the industry could be boosted to encourage a safer work environment. After the Piper Alpha Disaster in 1988, the approach adopted globally has been to focus on the systems of improving safety management in organisations (safety management systems SMS). This process led to integration of health and environment aspects to safety management system (-HSE-MS) as the work environment as well as health of employees affect the safety climate. Thus, many organisations put in Health, Safety and Environment under one unit.
In January 2004, the government created an independent government regulator, the Petroleum Safety Authority (PSA) with the oversight responsibility for technical and operational safety, including emergency preparedness, and for the environment under which people work. Under the Ministry of Labour, the PSA’s supervisory duties stretch across the industry, from planning and design through construction and operation to decommissioning. This role was hitherto, performed by the Norwegian Petroleum Directorate.
The widely accepted view in industry today is that in order to ensure reduction in incidents and the accident rate in the oil and gas industry, personnel must be made to act in a safest possible way. For systems to operate safely and effectively, they must be designed to support the people who operate them. It has therefore become very important to analyse the factors responsible for these human behaviours- why people behave the way they do- for appropriate corrective measures. This led to the development of several “safe behaviour” practices by engaging employees in the process to take responsibility for their role in ensuring a safe work place. Accidents do not just happen, they are caused. Significant to the Norwegian regulation is its deep rooted democratic culture where participation from and mutual co-operation between the parties is promoted. The interdependency and collaborative effort between the working parties therefore stem from the democratic culture of the Scandinavian countries. The tradition was mainly developed and bolstered in the organizational change and development sector, and it has dwelled on the need for collective participation of all stakeholders to make the desired positive change. The underlying argument is that an effective intervention and improvement process should be based on participation, dialogue, and workplace democracy. The overarching issue is that change and improvement in an organisation are facilitated and that the best results are obtained when employees are engaged in the change process.
It is believed in Norway that, increased participation improves the change process due to the creation of a favourable environment in which the employees could become an integral part of their work and thereby becoming creative and productive. The entire process is ‘human centred’.
The Government of Ghana must be commended for the bold decision to decouple the functions and responsibilities of GNPC. The establishment of the National Petroleum Commission is welcome news. The commission’s primary responsibility is to regulate and manage the utilisation of oil and gas found in Ghana’s Continental Shelf. Again, the formation of Ghana National Gas Company to develop and manage the natural gas resources is a step in the right direction. This leaves the GNPC to focus on its commercial activity of exploration and production of hydrocarbon resources and eliminates the issue of conflict of interest.
However, what needs to follow immediately is an unambiguous concrete programme by government, geared towards facilitating an environment that not only promote local businesses but also make them competitive on the global market. There always has been the argument that suggests that “most local companies do not have either the technical capacity or the needed capital base to undertake oil and gas projects”. Some even suggest that local companies deliver sub-standard services whenever they are given the opportunity. Well, whatever the case is, there is the need to grow the local businesses, if they are non performing, those in charge should crack the whip, name and shame, not sparing their collaborators (technocrats, who supervise the shoddy work) whom are been paid with the taxpayers money to ensure value for money.
Indeed, among the conditions that sustained the local content scheme in Norway were: strong democratic traditions of the nation, separation of power and independence of the private sector, transparency in the award of concessions and licenses, non-acceptance of corruption in the public service and business people. As a people, we need to eschew corrupt practices, stop cutting corners and deliver on our contractual obligations.
Like Apostle Paul asked “What shall we say, then? Shall we go on sinning so that grace may increase?” (Romans 6:1). It must stop somewhere, and if we indeed, want to move forward as a nation, there is the need for us to stop the mediocrity with which we transact and execute business. After all, Ghana is for Ghanaians and can only be developed by Ghanaians who are capable of managing their own affairs.
God bless our homeland Ghana! Long Live Ghana!