By David Ofosu-Dorte and Isabel Boaten at AB & David Law, Ghana
In the thrill and excitement of Ghana’s oil find, many voices of reason have cautioned Ghana about the need to ensure that it learns from the painful experiences of other oil rich African countries whose people continue to be very poor despite huge oil revenue. Perhaps it is in response that the Government of Ghana (GoG) recently published its draft Local Content and Local Participation Policy.
The general objective is to ensure that Ghanaians and domestic entities benefit at all levels of the oil and gas value chain. In particular, the GoG seeks to ensure the sector creates jobs and also transfers some skill to Ghanaians. The GoG says this policy is part of its attempt to ensure sustainability of this resource and also a judicious management of the expected revenue.
Scope and Requirements
For the upstream sector the intention is to give first consideration to Ghanaian independent operators in the award of oil blocks, oil field licence, oil lifting licences and other related contracts. However, Ghanaians are themselves required to fulfil such conditions as the minister may specify. There is also a new requirement for a 5% equity stake and this 5% cannot be transferred to non-Ghanaians.
A similar policy has existed in the fisheries sector in Ghana even though there is a general suspicion that many of the so-called domestic shareholders are only secretly fronting for foreign owners.
Domestic Preference
In their operations, international oil companies (IOCs) “shall, as far as practicable,” use goods and services produced by Ghanaians or provided in Ghana under a margin of preference regime. What constitutes “as far as practicable” is yet to be defined and, as the saying goes, “the devil is in the detail.”
Also, after the commencement of operations, the level of participation of Ghanaians should be at least 10% by value in the provision of goods and services and increase to up to 20% subsequently.
Scepticism and Response
There is an attempt to further operationalise one of the provisions in the existing petroleum model agreements, i.e. the need for IOCs to transfer skills over time. Operators are required to submit plans and programmes for the training of Ghanaians in all job classifications.
The policy also provides that at least 50% of the management staff of an entity should be Ghanaians from the start of petroleum operations (“petroleum operations” is already defined under the already existing model petroleum agreements), to increase over a five year period.
Already the sceptics have expressed doubts as to whether there is existing local capacity to meet this requirement. The question is being asked as to how this objective can be achieved in the face of various challenges, including the lack of finance, human resource capacity and technology.
The initial response appears to be rather encouraging. For example, the Government has reiterated its commitment to the policy and that it will support various institutions to build the requisite local capacity.
Interestingly some IOCs have also indicated their willingness to support capacity building of Ghanaians at both local and international institutions in order to bring them to the standards they require. Perhaps, it is in the longterm interest of the IOCs to do so. So the policy may gain general support.
Recently, a local newspaper profiled a Ghanaian expert who is a top-level-manager at Tullow Oil, one of the leading IOCs in Ghana’s jubilee fields. He had just returned from the diaspora. Perhaps a strategy to encourage the return of Ghanaian industry experts from the diaspora is one solution.
Promise of Reward
The Government has promised to institute mechanisms to promote development of local businesses in this sector. In particular it is proposed to provide rewards to IOCs that comply with all Local Content and Local Participation “Regulations”. Of course the policy is expected to be promulgated into regulations after further consultations.
Will it work?
Laudable as this policy may seem, from the point of view of Ghanaian and indigenous entrepreneurs, the question is being asked, “will it work?” Many factors will determine the answer to this question, including the government’s commitment to ensure its implementation and its ability to monitor compliance.
Another factor is how this policy impacts on the cost of operations of IOCs. If the cost of compliance turns out to be high, then an IOC lobby may emerge to advocate for relaxation of aspects of it. On the other hand, local lobby groups led by the powerful Association of Ghana Industries (AGI), which comprises entities duly registered to operate in Ghana, may also lobby to ensure compliance with this policy.
Time of course will tell. But the foreign investor is still very much in the game.