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Building local expertise in the oil sector

expansion takoradi

The Petroleum Local Content Participation Regulation, Act 821, 2013, derived from the Petroleum Commission Act of 2011 sets out the need to promote and maximise local expertise to ensure retention of businesses in the sector.

It also makes provisions for the creation of petroleum related support services aimed at improving economic gain and prosperity.

It is in the light of this that interest in the sector has surged, with local and multinational entities adopting strategies to ensure they are not left out.

With oil production growing steadily, it has necessitated the need to increase cargo handling capacity of the country’s ports to enable them to provide the critical services and logistics base for the country’s oilfields and the larger hydrocarbon industry.

Oil Service Infrastructure

With PNDC Law 160 of 1986 granting the Ghana Ports and Harbours Authourity (GPHA) the right to develop existing ports and to build new ones, the GPHA initiated the Takoradi Port expansion project in 2012 to construct a breakwater and further dredge the facility to position the port to meet the challenges of the oil and gas find in Ghana.

With an injection of 197million Euros and an additional $200 million, the GPHA set out the expansion of utility services and further increased the port’s capacity to handle bigger and more modern vessels efficiently, and above all provide logistics support for offshore oil and gas activities.

The expansion will further create opportunities for the participation of private investors to support the petroleum industry.

The GPHA, determined to adequately position the country’s ports as a major player in international shipping and the provision of oil services, has further put together a consortium of local banks to raise an additional $400 million.

The GPHA will not have planned to expand the Takoradi port to include the provision of oil services if Ghana had not joined the league of oil producing nations.

Management of GPHA might have further been inspired by President John Mahama’s own words at a sod-cutting ceremony for the Takoradi Port Expansion works on December 4, 2012 that “The Port of Takoradi will therefore be able to take in safely, modern, bigger and deep-drafted vessels, reduce ship turnaround time and also provide a service and logistics base for the oil field.”

“Allow me at this stage to also recognise the collaboration between the GPHA and Viking Offshore Support Services for the development of Ghana’s first local content oilfields support base here in Takoradi. The hub, I have been told, will serve the entire West Africa oil and gas offshore market. Government will stand with those who continue to work hard keeping the sweat on their brows for mother Ghana”, President Mahama added.

Atuabo Free Port

Notwithstanding the projects being undertaken by the GPHA, government, this year, initiated processes with LONRHO Ports Ghana, a limited liability company incorporated under the laws of Mauritius, and the Atuabo Freeport Ghana Limited, as per the draft agreement presented to cabinet for consideration for the construction of a free port for the oil and gas industry.

The commercial agreement requires that the government grants a “sole and absolute right” to the developer, a move LONRHO described as assisting the government to realise its local content objectives with the provision of onshore facilities to facilitate work in the upstream.

Per the agreement negotiated by Cabinet’s sub-committee comprising the Chief-of-Staff, Ministers of Finance, Trade, Transport, Energy and Foreign Affairs, with technical inputs from the GPHA and the Free Zones Board (FZB) and subsequently approved by Parliament on July 16, this year, the “sole and absolute right” to the British firm in the Western Region, demands that no other port could be developed by government nor any of its affiliated agencies for the oil and gas industry.

Although the Takoradi Port expansion project is a strategic initiative aimed at building the capacity of the port to offer services in oil and gas industry, the approved agreement expressly frowns on any such development of the Port of Takoradi as it prohibits the port from offering services now or in the future to oil and gas supply vessels without the permission of LONRHO.

A move many players describe as side-stepping the country’s Constitution and making the huge investment made by GPHA useless and also dashing the hopes and aspirations of Ghanaians.

Interestingly, the Commercial Agreement pretended to promote local content while at the same time prohibits the participation of already established local players in the industry.

While acknowledging that the building of the facility would create jobs for young people, particularly those from the region, the exclusion of the Port of Takoradi from offering oil and gas services will lead to about 60 per cent  of its current workforce being declared redundant as the port will no longer be commercially viable handling primarily cocoa, manganese, bauxite, clinker, wheat and limestone which it had been doing between the late 1990s and the early 2000s.

Whereas LONRHO demanded that government facilitates the arrangement of financing for the project, including entering into direct agreements, not even government funding or guarantees could guarantee a transfer of the facility to the Ghanaian government at the full expiry term (estimated at 50 years) of the commercial agreement.

Again, the financial benefits of the project to the nation are very ambiguous.

While the Agreement talks about Ghana having about 45 per cent stake in the business, it is silent on how and when dividends would be shared by the shareholders.

The Presidential Assent to the Atuabo Freeport Agreement therefore prohibits GPHA from engaging in oil and gas services.

Thus, with the port’s ongoing development of Ghana’s first local content oilfields support base as a hub to serve the entire West Africa oil and gas offshore market  result in  a waste of the tax payer’s money as the full benefits of the project would not be realised.

Provision of Service

There is no doubt that the building of the facility will create jobs for young people, particularly those from the region.

The developer further plans to establish a community development trust which it intends to fund.

The trust aims at community development programmes and projects, which would see the development of social infrastructure as well as the overall economic development of the Western Region.

Provisions of local content participation in the area of sub-contracting, preference for local goods and services were also incorporated in the agreement.

The incorporation of the local content, however, comes with restrictions that may limit the involvement of local players in its implementation and in the provision of its services to the disadvantage of the country.

For example, Section 13.2 of the agreement states that “The Developer may (at its sole discretion) contract with the GPHA for the provision of certain services by GPHA to the Developer.”

The provision further states that “If the Developer retains the services of GPHA, such services shall be provided on arm’s length terms, as mutually agreed between the Developer and GPHA, and GPHA will be reimbursed in accordance with the rates set out in the published tariff, in respect of such services, of the GPHA.”

Organised Labour’s Position

According to organised labour, the project would violate Section 5(1) of the GPHA Act of 1986 PNDCL 160, which states that the authority shall plan, build, develop, manage, maintain, operate and control ports.

The Secretary General of the Trades Union Congress (TUC), Mr Kofi Asamoah, was also of the view that the selection of Lonrho could not be described as being done in transparent terms and as such raises questions as to what bidding process were carried out.

“It is clear that the project has not gone through an open and transparent process of selection”, he stressed.

Organised labour further reiterated that, the provision 12.2.1 as contained in the commercial  agreement, and states that: “The GOG shall not exercise, and shall use its reasonable endeavours to ensure that no relevant authority shall exercise, any discretion granted to it under the Constitution of Ghana, any applicable laws or otherwise in manner which is arbitrary or discriminatory to the project, the Developer or any Affiliate thereof”, undermines our national laws.

The above provision, Mr Asamoah emphasised, could have national sovereignty and security issues for the country.

“The project requires too many concessionary terms in the oil and gas industry to be viable. These concessionary terms are not in the short and long-term interest of the country”, he pointed out.

He queried why LONRHO should be made the sole determinant of all forms of fees, charges, tolls, levies or dues imposed and payable by the Free Port users, including the Government of Ghana (GoG), when parts of funding of the project was being sought for by government and its affiliated bodies.

“Such an agreement would position the Developer to exploit the users of the facility as a monopolist and will not be subject to the control of any price regulator like Ghana Shippers Authority”, he lamented.

“Although the project recognises that GPHA, which represents the interest of Ghana, has the capacity to offer similar services, it further engaged the use of all manner of strategies for the country to discriminate against its own interest”, Mr Asamoah regretted.

The Atuabo Freeport initiative, the Maritime and Dock Workers Union (MDU) believes, cannot have the infrastructure, the network, competent persons and the overall capacity to deal with important security issues of stowaways, illicit drug trade, arms trade, and piracy, among others.

“Investing in security at the port is very expensive and a private port would not make the needed investment to ensure that the port is secured”, the General Secretary, MDU, Mr Daniel Owusu-Koranteng opined.

With Ghana already holding the unenviable tag as a leading stowaway nation, and government further battling an increasing drug trade, a further implementation of the Freeport status could amount to ceding part of the nation to the control of foreign interests.

“We are of the opinion that the oil and gas service falls under the local content part of the oil industry and we expect Parliament to make appropriate laws to ensure that the interests of Ghana in the oil and gas business is protected”, the group stressed.

While Parliament might not have considered the short and long term interest of the nation before ratifying the Commercial Agreement on that fateful July 16 day of 2014, it would be worth noting that the legislative body must be seen to be strengthening national laws not to undermine them.

Source:  Daily Graphic

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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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