Balance of interests in the petroleum local content and participation regulations
The oil and service companies support the principles of local content and are already working to address local content ahead of the implementation of the local content regulations, through employment of Ghanaians and use of available local goods and services.
In view of the specialised nature of the industry, there is a great deal of expertise that needs to be developed. For this reason, they bring in external advisers to help in the training of personnel, while coaching and mentoring continue to be a daily management affair.
In addition, personnel are assigned to operations outside Ghana so they can experience best practices available elsewhere in the industry and investments are made in sponsoring Ghanaians in technical and degree level studies and supporting the development of educational facilities for individuals and businesses. On the question of expatriates, these services are used in the deep water operating environment and other specialiSed jobs where the skills are currently lacking locally.
But even then, these specialiSed contractors only come in for short periods to do specific jobs and Ghanaians are being developed to assume these responsibilities in a planned and systematic manner over a period of time.
A major strength in the local content regulations is the central co-ordination by the Petroleum Commission, thus creating one central point to deal with all regulatory issues.
Opportunities in the local content regulations
No doubt local content and local participation regulations which create opportunities for indigenes and local companies are steps in the right direction.
The advantages in providing jobs and opportunities to create wealth and reduce poverty are well articulated by a civil society group, the Africa Centre for Energy Policy.
The centre sees local content as an opportunity to promote the interests of Ghanaian citizens in the petroleum sector.
In my interview with the Economic Desk of the American Embassy, it was clear that they were in support of ensuring that Ghanaians benefit fully from the oil industry.
They supported the idea of creating local employment, pushing for technology transfer and empowering local companies in the oil business to stand on their feet and be able to even compete outside Ghana once they acquire the expertise.
They advocated for transparency to ensure that all Ghanaians benefitted and that the terms of the regulations should encourage rather than discourage foreign direct investment into the industry.
Local content works well when there is transparency and all Ghanaians get an equal opportunity to benefit. There are, however, doubts that need to be cleared. Is the local content regulation full of over ambitious and unrealistic targets?
Are the local content and local participation regulations incentivising enough in a high risk, highly technical and specialised industry such as energy and petroleum to attract the best industry players with world class expertise and the financial clout?
Are the regulations encouraging unnecessary bureaucracy which can delay processes, knowing that time is of the essence in the oil industry?
These are some of the pertinent questions to ask as we seek for a balancing act in the local content regulations.
Talking about probably overstretched targets, an example could be made of the First Schedule of LI 2204 (Regulations 1 (c ), 10 and 18) which states in the tabulation that a minimum Ghanaian content in goods and services should be 10 per cent at start and move to 50 per cent at five years and 60 – 90 per cent at 10 years.
The views of industry players are that these targets are not realistic and, therefore, not achievable within the set time of five to ten years. One suggestion is that long term targets should be reviewed and reset annually. Annual reviews would allow all parties to monitor the growth of the industry and take into account the life cycle of oil and gas operations.
Such target resets could be done with the Local Content Committee, industry players, the Association of Ghana Industries (AGI) and the Petroleum Commission.
On unnecessary bureaucracies, sub-regulations 13 (1b) and 14 (1b) say that the Commission must be informed of all potential contracts and purchase orders greater than US$100,000. We are dealing with an industry whose contracts and purchases are exceptionally high and where the value of most items exceeds the US$100,000 threshold.
Would such a limit, therefore, not lead to overburdened administrative costs, inefficiencies and unnecessary delays?
One area of concern to most Ghanaians surveyed by the Africa Centre for Energy Policy is the discretion given solely to the Minister of Energy and Petroleum to determine which Ghanaian companies qualify as partners to foreign companies. Sub-regulations 4(2) and 4(4) of the local content regulations talk about a minimum five per cent equity participation by an indigenous Ghanaian company in any petroleum agreement or license.
It stipulates that the Minister of Energy and Petroleum shall determine the local companies who are so qualified to be given the opportunity to acquire the equity position.
First of all, it is difficult to understand why foreign companies with extensive global experience in selecting partners and suppliers and with substantial investments locally, are not being allowed to select their own local partners subject to regulatory approval by a substantive board such as the Petroleum Commission.
According to those who argue for the review of this sub-regulation, too much power has been left to the minister to decide which Ghanaian company shall be deemed eligible to participate. By this argument, if there is a Petroleum Commission in place to see to the management of the sector, why should one person be left with so much discretion to decide in this case?
In any case, Article 296 of the constitution states that discretionary power should be deemed to be fair and candid. Therefore, any discretionary authority must be backed by guidelines specifying the criteria for selection. This will ensure a level playing field and transparency.
So that the sub-regulation 4 (4) does not leave any ambiguity in the minds of Ghanaians and to eliminate capriciousness and bias, this particular sub-regulation should be either amended or withdrawn.
When contacted to comment on sub-regulations 4(2) and (4), a representative of the Ministry of Energy and Petroleum with the local content directorate said it was the ministry that prepared the entire local content and local participation regulations and, therefore, they have no comments to make. Pressed further, they clarified that the discretion would not be solely that of the minister as contained in the sub-regulations but in consultation with others.
How has local content worked elsewhere?
Some oil producing countries have successfully maintained the balance of protecting investor interests, while ensuring that the industry benefits locals broadly.
In Brazil for example, Petrobras is said to have maintained active involvement in the industry from formation and developed capability in deep water drilling through the use of international experts as trainers. Malaysia on its part formed partnerships with international oil companies.
Local industry is said to have gained world class best practice and cutting edge technology through its close cooperative relationships with the international investors.
Norway, a country cited for exemplary oil industry practices was said to have shown upfront openness towards international companies combined with a strong focus on national value creation.
All of the above countries are endowed with significantly more oil and gas resources, started with a better educated workforce and took decades to achieve their current levels of local content.
As Parliament resumes sitting, we are already well into the 21 days period after which the petroleum local content and local participation regulations automatically come into effect if there is no annulment or withdrawal.
At this teething stage in our oil production, and for an industry where the best of world class expertise partnerships are sought, one probably needs to ask whether the Local content and local participation regulations 2013 as they are now constituted encourage the much needed foreign direct investment (FDI), while building the local industry for the benefit of Ghanaians? That is really the question.
Article by Vicky Wireko-Andoh/Graphic Business/Ghana
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