What’s In Ghana’s Local Content Policy

Ghana is about 241 days to first oil today, projected to produce at 120,000 bopd and subsequently 250,000 bopd in 2012. It is thus an unquestionable reality today that, oil will feature prominently in receipts and play a very significant role in the economic development of Ghana for a considerable time to come. In order to make meaningful gains with the resource, the substance of the Local Content and Local Participation policy by the Ghana government is critical. According to the Ghana National Petroleum Corporation (GNPC), Local Content refers to the level of use of Ghanaian local expertise, goods and services, people, businesses and financing in oil and gas activities. Government will therefore need a sound financial footing, fitting technology and strong expertise in the sector to be able to benefit fully from the resource. It is however, worthy of recognition that government is gravely constrained by finance, human resource capacity and technology in developing this resource. The draft Local Content policy placed before the Parliament of Ghana in January stipulated that all regulatory authorities, operators, contractors, sub-contractors and any other entities involved in any project, operations, activity or transaction in Ghanaian Oil and Gas Industry shall consider local content as an important element in their project development and management philosophy for project execution.

The policy objective of Government is to give first consideration to Ghanaian independent operators in the award of oil blocks, oil field licenses, oil lifting licenses and in all projects for which contract is to be awarded in the Ghanaian oil and gas industry.

An important feature for discourse is that, where bids are being evaluated, and where bids are otherwise equal, the bid containing the highest level of Ghanaian content shall be selected. Such a provision sounds great for local Ghanaian operators and businesses and will in effect place Ghanaians at the forefront of the nation’s oil business in a relatively shorter period.

Also ambitious is the target to achieve full local participation in all aspect of the oil and gas value chain of at least 90% by 2020. Several operators including Tullow Ghana limited, Kosmos Energy, MODEC, Saipem and Oando have already trained and or sent dozens of local trainees abroad for training. For instance in February this year, Tullow sent 14 Ghanaians to Scotland to undertake capacity training. World Bank, according to the Country Director, Ishac Diwan, is ‘embarking on an ambitious programme to train Ghanaians in the universities and financial institutions for taxation and management’. The bank in February voted $30 million to support capacity development of Ghanaians. These happenings have succeeded in building a stronger optimism around the emergent industry. And indications among the several operators are that strong emphasis is being placed on developing local content in their operations. The operators shall also give priority to the purchase of local products and services from citizens of Ghana are competitive in terms of price, quality and timely availability. A preference for Ghanaian entities, even if they are up to 10% more expensive is mandated.

In the case of non-Ghanaian ownership and operations, the entity must provide for the participation of a citizen of Ghana in an interest of at least five percent in the exploration and production activities under petroleum licenses. Another important feature of the policy is that a fund, Oil and Gas Business Development and Local Content Fund, is to be established to support local capability development aspects of the local content framework. The fund will be used primarily for education, training and research and development in oil and gas. Sources of the fund will include contribution from Licensed Operators, Oil and Gas Revenue, levies, grants and other support from Ghana’s Development Partners. The Ministry of Energy or the Ministry responsible for petroleum will oversee the disbursement of the fund. This is undoubtedly fitting for a developing nation like Ghana but it remains to be seen how effective the administration of this fund will be.

In general, the move by government is expected to obligate operators to attach significant importance to local content and to ensure that as much benefits as possible are retained in the local economy by indigenes. In executing this policy, it is our hope and expectation that government does not exercise laxity in ensuring that local operators (in spite of the huge advantage to them) meet the requisite qualification, technological and expertise requirements prior to awarding of contracts. For us the key thing to do at this budding stage of the industry apart from the above is to place high priority on supporting local institutions to develop local human resource to international standards in the areas of Petroleum Engineering, Well Drilling, Supplies, Support services, Marine, Safety and Rescue Operations amongst others. This will ensure that Ghana is adequately prepared to take charge of the industry within the shortest possible time and ensure that the nation benefits fully from the resource. The authors (Mutaru M Mutaru and Kelvin H Abdallah) work with the Research Development and Financial Consultants (RDFC) Limited. RDFC is an investment, business development and management consultancy with strong focus in the oil and gas industry. RDFC is a member of TRACE International and is listed as Business Services provider by the US Commercial Services. RDFC is also a member of the Aberdeen Chamber of Commerce as well as the American Chamber of Commerce (AMCHAM, Ghana).

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