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ANALYSIS-Ghana oil law aims to keep the people happy

Local hiring in oil sector seen crucial to Ghana stability

* Draft bill expected to reach parliament by July

* Ghana seeking to avoid ‘curse of oil’

Ghana is drafting rules on local hiring and transparency in its oil sector to avoid the discontent that spawned militancy in Nigeria and uprisings across the Arab world, but also keep big oil companies sweet.

Grumblings over the energy industry have already started just months after the first Ghanaian barrel was pumped. Any failure by the government to ensure employment in the sector could turn to anger, analysts say.

But if the rules go too far — with local content requirements overreaching the capacity to train workers — they could also become an obstacle to future investment.

“If we don’t involve these locals we are going to look at situations of insecurity and uncertainty that are going to compromise billions of dollars of investment,” said Selorm Branttie from Ghana policy think tank IMANI.

The issue is critical for one of Africa’s most stable and economically promising nations as it seeks to avoid the militancy seen in Nigeria’s Delta, which at its 2006 peak cut more than a quarter of its production, and the “resource curse” that has afflicted other developing nations.

Analysts said an alienated and unemployed youth in Ghana could also risk spawning the kind of anger that fuelled the “Arab spring”.

“A lot of the unrest in North Africa and the Middle East has a lot to do with youth bulge, many of them well educated with limited jobs on the market, looking for opportunities,” oil analyst Willy Olsen said.

Analysts said the legislation could also have implications for President John Atta Mills in elections set for next year, with Ghanaians hopeful the oil sector will ease unemployment, at 11.2 percent, and boost local businesses.

Oil is expected to help drive Ghana’s economic growth into the double-digits this year, shoring up its transformation from an aid-reliant country to one on a par with mid-income nations like Egypt or Iran.

The government target is for Ghanaians to fill 90 percent of jobs in what it calls “strategic areas” of the sector by 2020 — but analysts are concerned the rules could be watered down or that local training efforts could be insufficient.

A technical committee is reviewing a draft policy and implementation framework for local content that is expected to be laid before parliament by July.

First oil in Ghana came in a world record three and a half years after it was found offshore in commercial quantities. But legislation governing exploration, production and local participation is lagging.

It passed an oil revenue management bill in March, just before it received its first payment for exported crude.

Aside from the state-owned Ghana National Petroleum Corporation, major players in Ghana’s oil industry include U.K. firm Tullow Oil <TLW.L>, U.S. producer Anadarko <APC.N> and Kosmos Energy <KOS.N>.

OPAQUE CONTRACTS

Memories of poorly negotiated gold contracts that left Ghanaians with paltry royalties have made parliament nervous — around 250 amendments were made to the oil revenue management bill passed in March.

Ahead of the 2012 election, the ruling National Democratic Congress is keen to get the laws right first time.

Fishing communities are already blaming the 500-meter no-fishing zones around oil platforms for a drop in stocks, and civil society groups warn that Ghana’s rapidly expanding oil city of Takoradi may be turning into a ‘sin city’, with prostitution on the rise, rents skyrocketing, and traffic clogging the streets. [ID:nLDE7451MI]

Ghana has made significant efforts to entrench transparency through the passing of the revenue management law, which is reinforced by the extension of its participation in the Extractive Industries Transparency Initiative.

It includes a heritage and rainy day fund, quarterly publication of oil receipts and the establishment of an independent watchdog, but issues of contract and licensing transparency persist.

“There is an inverse relationship between transparency and governance risk,” says Mohammed Amin Adam, head of the Civil Society Platform on Oil and Gas. “We still have closed door negotiations of contracts as opposed to open and competitive bidding, even in areas where we have quality data.”

That may be changing. All contracts covering the offshore Jubilee field were made public last month ahead of operator Kosmos’ <KOS.N> floatation on the New York Stock Exchange earlier in May, exposing the fallacy that contracts covering other blocks need be kept secret, Amin said.

The upcoming Exploration and Production Bill is likely to enforce competitive bidding for oil contracts on areas with good data, while uncharted blocks will retain an open door policy, said Dr. Moses Asaga, Chairman of the Parliamentary Select Committee for Energy.

“The bill is about 80 percent ok and we just need to address other issues like post-discovery, capital gains tax, unitisation and joint operations arrangements between countries,” Asaga told Reuters.

Analysts expect parliament to pass the bill within two months, if all goes smoothly.

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Reporting Oil and Gas project was launched on 4th June 2009atTakoradi, Western Region, Ghana by Penplusbytes (PPB – www.penplusbytes.org) with the vision of providing a one stop online information and knowledge about Ghana’s oil and gas sector
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