The Africa Centre for Energy Policy (ACEP) is worried about the delay in passing Ghana’s regulations on Petroleum Local Content and Local Participation as it has the potential to undermine Ghana’s resolve to maximize the benefits of the oil and gas industry. This in our view is due to lack of political will on the part of our Government as industry and diplomatic lobbyist have pressurized the Government into a “withdrawal syndrome”.
ACEP recognizes that in the short to medium term, petroleum revenues from oil and gas are likely not to provide the accelerated development expected by the country due to the relatively lower amount of revenues coming to the Government as Ghana’s share of petroleum. We strongly believe that local content offers the greatest opportunity to support the development efforts of the country. This can be achieved by ensuring that significant amount of oil spending occurs in Ghana, Ghanaian industries are supported to manufacture and fabricate basic equipments; and Ghanaian suppliers participate in minor and major procurements in partnership with foreign companies where necessary.
Unfortunately the delay in passing the local content regulations stands in the way of the country from ensuring that exploration and service companies comply with commitments that promote domestic economic development. We are even more worried because the delay has already denied Ghana opportunity to take advantage of some major developments in the oil and gas sector.
First, as we delay the passing of the regulations, new oil contracts are being negotiated with provisions contrary to requirements in the draft local content regulations. For instance, even though the draft regulations provides for a minimum of 5% equity for Ghanaians in every oil contract, the recently approved oil contract by Cabinet between AGM Petroleum and the Republic of Ghana provided only 2.5% for the participating Ghanaian company, MED Songhai.
Second, two Plans of Development on Tullow’s “TEN Project” and ENI’s Sankofa Project have been approved by Government. These projects have very important procurements involving billions of US Dollars; but Ghanaian suppliers cannot be guaranteed any significant role in these transactions due to lack of comprehensive regulations. The “TEN project” for example is expected to cost about US$6 billion. Also, the Minister of Energy and Petroleum, Honourable Kofi Armah-Buah announced recently that about US$20 billion would be invested in the oil and gas industry in the next five years. We are at a lost as to what percentage of these investments will involve local procurements or foreign procurements involving Ghanaian companies, if we do not have the relevant framework to enforce this.
CONCERNS OF LOBBYISTS
We take notice of the many attempts by industry and diplomatic lobbyists to prevent our Government from passing the local content regulations in its current state and which has resulted in the delay in passing the regulations; and wish to assure them that Ghana’s regulations are not different from what pertains in other countries.
For the sake of clarity, we wish to restate the concerns of the lobbyist – the high targets for meeting local content requirements, the low level of capacity of Ghanaian industries and suppliers; and the penalty for violating the regulations.
We also wish to state our views on these concerns as follows.
1. On the high targets for achieving local content against low capacity of Ghanaian industries and suppliers to meet the demands of exploration and service companies, we think that such targets are not different from those of Nigeria and Brazil, two important oil producing countries with considerable development in local content. We however appreciate the capacity constraints and recommend that the Petroleum Commission introduces an independent certification system through competitive bidding; which can match local content plans of foreign companies against available capacity. The certificates issued to foreign companies can be used by the Petroleum Commission to evaluate compliance with the targets. This ensures that foreign companies are not penalized for Ghana’s low capacity levels.
2. On the penalty for violations of the regulations, we think that Ghana’s provisions are also not different from other jurisdictions. In Brazil, financial penalties are applied. In Nigeria, violations of the local content Act attracts a fine of 5% of the project sum for each project in which the offence is committed or cancelation of the project. Ghana’s draft framework for local content also provides for a fine on conviction and it is only when offenders default that the imprisonment clause is triggered.
RENT SEEKING BEHAVIOUR
Our worry however is that whilst the law provides important mechanisms for preventing corruption by operators and Ghanaians through local content, the same law provides the Minister of Energy room to perpetrate corruption, rent seeking behavior and fronting. Regulation 4 (2) of the draft LI provides that “there shall be at least a five percent equity participation of an indigenous Ghanaian company other than the Corporation to be qualified to enter into a petroleum agreement or a petroleum license”. But sub-regulation 4 provides the Minister the power to determine the persons qualified for the minimum equity. This is discretionary and provides room for the Minister to impose local companies of his choice on petroleum licenses, a situation that promotes abuse of power. In our view, the guidelines for determining qualifications should be provided in a Schedule to the Regulations. This is consistent with Article 296 of the 1992 Constitution of Ghana which requires non-judicial officers who exercise discretionary power to publish by constitutional or statutory instrument regulations to govern the exercise of the discretionary power.
We also recommend that Government should put in place a comprehensive local capability development programme to develop the capacity of Ghanaians, Ghanaian industries and Suppliers to meet the challenging demands of the oil and gas industry. Even though a small industry, Ghana’s oil and gas industry could be leveraged to build Ghanaian competencies that could serve the regional oil and gas market.