Ghana's Oil and Gas Industry: The Need for Local Content.

Since the highly publicized oil finds of 2007 which have culminated in the Jubilee field development project, and while phase one of that project was ongoing, many other exploration activities have be going on earnestly. Today, except for industry watchers and those close to the action, many have lost track of counting the number of commercially viable finds that have been made in Ghana since 2007. Whilst all eyes may be on Jubilee’s production, the Tweneboa-Enyenra-Ntomme (TEN) development project is also in progress. The Mahogany deep, Teak, Akasa, Banda (MTAB), Odum, Sankofa, Dzata, Owo, Gye Nyame, Paradise, etc are all finds made subsequent to Jubilee. Just as nobody today follows news about new Goldfield development projects across the country, so will news in the oil fields that has very little to do with new finds. Instead, the focus may be on how revenue from oil and gas is or is not being used and the repercussions of that.

Folks in the western region have trumpeted the discovery of oil in commercial quantities offshore cape-three points as the beginning of the end of their woes, expecting this to lead to a massive change in their fortunes, increase employment opportunities, etc. The country as a whole looked forward to the first out-pour of crude oil in the last quarter of 2010, expecting this to bring in revenue which will be used to, among other things, improve infrastructure, education, agriculture, etc. Calculations were done on how much in dollars 120,000.00 barrels of crude oil per day from the jubilee field will translate into for the nation. From 2008 to date, traffic on the roads and to the ports of Sekondi and Takoradi has increased with each passing day, and while the Takoradi harbor is undergoing some expansion, the road networks have seen no expansion or improvement. In fact the roads have deteriorated.

The discovery and production of oil was seen to be the solution to all our socio-economic development problems. To me all this was and still is a big fuss. What will oil and gas revenue do that revenue from Gold, Cocoa, Bauxite, Manganese, Diamond, Timber, Rubber, etc have not been able to do for mother Ghana? Will oil and gas revenue be managed any differently to ensure it makes a difference in our lives? Will oil and gas not come with the curse it brought onto some countries? Will the discovery and production of oil and gas not lead to the emergence of a few untouchables of the industry rather than an equitable and fair spread of wealth, knowledge and expertise through the creation of jobs across Ghana?

Even before first oil was exported, Chiefs in the western region have called for a 10% share of oil revenue, probably taking a cue from President Obasanjo’s 13% revenue reallocation to the Niger Delta in 2000 (Asamoah, 2013). Other voices have asked that all offices and institutions (for policy and regulation) for oil and gas be relocated to the western region. In 2013 (JoyFM), the call was no longer for 10% revenue or for an “oil capital city” in the region, but for the minister of a yet to be realigned ministry of petroleum (oil and gas) and energy to be an indigene of the western region. The key to achieving our common developmental goals using oil and gas does not lie in having chiefs from “Some-where-land” ask that 10% revenue be ceded to them or that another ministry and a separate minister be appointed when oil is found and produced in my region (Some-where-land). This was not the case with gold, cocoa, rubber, etc which have been managed under centralized institutions rather than regional institutions for all this while. Instead, the key lies in ensuring that we do not become a “good example” of countries that are “cursed by their blessings” (resources). These curses may manifest in the Dutch disease, social unrest (militancy; which for me is not the product of oil discovery and oil production but rather the result of unemployment and neglect), environmental issues (disasters and recovery failures), corruption, general impoverishment and underdevelopment, etc all of which are perpetuated by corruption.

Local content holds a major key to averting the above, hence the need to take a holistic view of local content and issues relating to it. Direct oil benefits to the state include royalties, carried interest, paying interest, additional oil entitlement, petroleum income tax, annual surface rental, sharing revenue, etc. Proceeds from the above, which are paid into the petroleum holding fund as prescribed by the petroleum revenue management act of 2011 (Act 815), are later disbursed into the heritage fund (9%), stabilization fund (21%) and the remaining (maximum 70%) allocated as budgetary support in the consolidated fund. However, if we look beyond these direct benefits and begin to look at how much further revenue and socio-economic development can be achieved from new local business opportunities (aviation, telecoms, medical support, etc), we will realize that the cake could be much bigger than 100% of lodgments into the petroleum holding fund.

Through local content, vegetable farmers, bakers and bakeries, the welders and black smiths around the corner, fishermen whose operating space has been encroached upon and local ship chandlers are all assured of some revenue from the oil and gas value chain. Without local content, apart from having foreign owned companies and non-citizens at the helm of affairs, we will also have to contend with a situation where bread, fruits and vegetables, fresh water, tilapia and even tooth picks used on oil installations and platforms will come from neighboring countries like Cote D’Ivoire and Nigeria, or from Europe and where Kenkey, Koosey, Sobolo, Gari and other local foods are supplied by non-Ghanaians or never find their place in menus on oil and gas platforms. Every activity in the upstream oil and gas industry, from the acquisition of exploration rights to exploration and possibly appraisal, from development through production to decommissioning must result in jobs for the Ghanaian. Enforcing Local Content regulation will benefit all in a more sustainable way than even sharing the country’s share of oil revenue equally among the 10 regions of Ghana (i.e. 10% per region).

Imagine an oil and gas industry that sources 90% of its workforce from among Ghanaians, with Ghanaians having significant or controlling equity interests and holding well paying decision making positions not only in the oil companies but also in those acting as contractors, sub-contractors, ancillary service providers, etc. Imagine that a significant proportion (in terms of value) of supplies of goods and services are from Ghana’s domestic economy, with Ghanaians and Ghanaian owned companies providing waste management services, engineering, welding, fabrication, diving, marine surveying, chartering/ brokerage, agency, crew/ personnel, training and development, recruitment, vessels, telecommunications, entertainment, advertising and publicity, finance/ insurance, logistics, freight forwarding, haulage & transport, destination inspection, aviation, procurement & port supplies, catering, security services, etc and supplying equipment, rigs, vessels, chemicals, ship stores/ spares, and foodstuffs. Imagine the jobs that these will create, the tax revenue to be generated by government, the multiplier effect that this will have on the domestic economy, the potential for infrastructural development, for institutional capacity building and for human capital development. This is just the tip of the iceberg on how far the focal industry, which on its own is relatively small but in terms of spending, is huge, could stimulate other value chain activities and ensure the retention of significant oil and gas benefits within Ghana.

Indeed relying only on revenue from “oil and gas production” and leaving all other ancillary services in the value chain in the hands of non-Ghanaians is analogous to a situation where a property owner (Ghana) whose children (individuals and corporate Ghana) could manage the property as a hospitality centre, create employment for even people in the extended family (22 million citizens), decides to rent the facility out; he receives rental income which is not sufficient for the upkeep of his family, now made up of an unaccounted number of unemployed members. Failure to recognize these linkages and ensure that Ghanaians are empowered by law and by human capital development programmes to take advantage of the opportunities will aggravate an already deteriorating situation.

Mr. Asumah Banda, a renowned Ghanaian entrepreneur, recently lamented how unfriendly Ghana’s business environment is to the Ghanaian. My own observation is that, regulatory institutions in Ghana have adopted the old-fashioned regulatory posture towards the Ghanaian, but the non-Ghanaian experience the new-school facilitation posture of these institutions. The Ghana Union of Traders Associations (GUTA) and the Ghana Investment Promotion Centre (GIPC), in a task force set up by the latter in July 2009, have tried in a futile attempt to rid the retail markets in Ghana of foreigners. Admittedly, the Ghanaian’s space, even in Ghana, is shrinking and foreigners are taking over every inch of the business and employment space on our homeland Ghana.

Whereas our development partners are looking for ways to create job opportunities for their citizens outside their home countries, as their own economies are in recession, we have failed to identify the potential for economic boom in our countries and to take pragmatic steps to protect local jobs for our people. Well qualified and physically fit Ghanaians alike travel to other countries to do menial jobs under harsh conditions, whiles foreigners escape these harsh conditions in their home countries with little or no better qualification, skills or knowledge to Africa to enjoy the best treatments right from our airports to prime residential areas, take away the best paying jobs and positions, leaving the Ghanaian to survive through micro economic magic.

Ghana is now a middle income country with an expanding middle class. While this is good for the economy, it also poses a danger to productivity as the levels of literacy and education could mean that the population might begin to shy away from some jobs, as we have already seen with rural urban migration and the shift away from agriculture with preference for unavailable white collar jobs. Indeed, the role of various professions, professionals and industry sub-sectors as well as local produce in oil and gas and in all contracts may revive industries that appear to be dying. Oil and gas production must not lead to the demise of industries which have sustained our economy prior to oil discovery, so they may survive and continue to sustain our economy years after our oil reserves have been exhausted or depleted.

Local Content and participation is defined in the “Local Content and Local Participation in Petroleum Activities Policy Framework” as “… the level of use of Ghanaian local expertise, goods and services, people, businesses and financing in oil and gas activities”. Local content, whether we are referring to its laws or its application in all the existing industries in Ghana, is not a new concept. Provisions for local content have existed in the extractive industries of Ghana [as regulated by the Minerals and Mining Act 2006 (Act 703)], in commerce [per the Ghana Investment Promotion Centre Bill, 2013 and its antecedent laws; GIPC Act 1994 (Act 478) and the Investment Code, 1985 (PNDCL 116)] and in the oil and gas industry [under section 23, subsection 10 to 14 of the Petroleum Exploration and Production Law 1984 (PNDCL 84)].

The partners in the TEN field project, according to Offshore Magazine (May 2013), “have committed to use the project to expand Ghana’s local fabrication capability and supply chain capability”, which is a positive indication. Current statutes provide that, they (the partners) “shall”, but only “as far as practicable”, do as they have committed to. Knowing that the industry is highly technical, technology driven and requires specialized input, this “commitment” as well as the “obligation” can be conveniently avoided. This noted, therefore, we must be guided that “words are words; explanations are explanations; promises are promises; but, performance is a reality”. What gets measured gets done and if it counts (or must count), it must be counted. Until compliance with specific provisions of a law(s) is monitored and measured and established non-compliance is punished, we will forever wait, but in vain, for manner from heaven even as our blessings overflow.

To a large extent, therefore, provisions in existing legislation on local content appear to be achieving less. This is as a result of a lax enforcement of laws that in themselves are inadequate. Luckily, we are very much aware of the weaknesses of existing legislation on the subject and as a result, we have gone beyond the “Local Content and Local Participation in Petroleum Activities Policy” (2010) to put together a bill which received cabinet’s approval some time back. As though we do not know the bill’s potential, when passed into law and enforced to the letter, to transform our economy, improve and or further consolidate our middle income status, we have entertained commentary from foreign lobbyists, whose interests can never be the same as ours except where guided by the “invisible hand” alluded to by Adam Smith in “the wealth of nations” (1776). A bill that was laid 11 days to the dissolution of the 5th parliament of the 4th republic and which has spent over 11 months in the 6th parliament of the republic was definitely past due, giving the lobbyists and their sovereign backbones (who we call our development partners) the room to attempt to derail our common resolve to work for the people of Ghana.

Arguments from the US and the EU suggested that if the bill is passed into law in its current state, Ghana will not be able to attract the needed foreign direct investment (FDI) into the Oil and Gas E&P sector, and that the law is over ambitious, etc. It is made to appear as though Ghana needs the FDIs more than the investors need resource rich destinations like Ghana to invest in. If you ask me, I do not know when the exploitation of oil and gas in our part of the world has to be under conditions that are totally different from what pertains anywhere in the world. As such, I am not sure that Norway or Trinidad & Tobago for instance lost their attractiveness for FDI on account of their very good local content regulations for the oil and gas industry. Can it be argued that Ghana’s oil is so different from, say, Norway’s that Ghana and Ghanaians for that matter cannot expect to have an increasingly higher participation at all levels of the value chain in the industry?

The industry is often said to be “emerging”, and this description may be as permanent as the term “developing” which has been ascribed to Ghana and many other countries for all of my life. I know that since the GNPC was established, and of course since the days of GHAIP to now TOR, the country has invested in professionals with skills and knowledge relevant for working anywhere in the industry.?We must not be under the impression that the upstream oil and gas industry is so new to Ghana that we have to wait for as long as Nigerians have been waiting (till today) to make local content a reality. Indeed, from TOR’s operations since 1963, Salt-pond field’s production since 1987 and GNPC’s role from 1984, Ghana cannot be said to be without some technical experts. Every other day that passes, we are getting closer to the policy target timeline and to the peak production and decline stage of the industry (25 years life cycle for Jubilee field), yet still far away from achieving the targets (e.g. achieving “full local participation in all aspects of the oil and gas value chain of at least 90% by 2020”). Thankfully, unlike in Nigeria, where the Nigerian Oil and Gas Industry Content Development Law was only introduced in 2010, we did not have to wait decades after first oil to have a local content law as parliament has on Tuesday 19th November 2013 passed the Petroleum (Local Content and Local Participation) Regulation, 2013 (LI 2204).

It is not my wish to see Ghana’s “emerging” oil and gas industry never fully emerged in my lifetime if that also means that it remains in the hands of non-citizens. I would rather it is run by Ghanaians now and never fully emerging, than to see non-Ghanaians run it with the hope that someday Ghanaians will take charge. Otherwise, “in the long run” and by the time we are considered ready to take charge “we’ll all be dead”. We witnessed the influx of Chinese and other foreign nationals into Ghana to engage in illegal mining (Galamsey) with impunity. We know of the troubles in Nigeria’s Niger Delta which have roots in how oil wealth is managed. If only citizens were gainfully employed in the activities of companies that are exploiting these resources, we will have less desperate and idle hands to stoke the fires of chaos and lawlessness which even non-citizens find easy to engage in.

We have been operating mines for the extraction of various minerals throughout the history of this country, and from where I am sure we can boast of some of the finest geologists and geophysicists, yet we still hear that we do not have local expertise to work on projects in the oil and gas industry. Yes, we might not have had some key skills five years ago, but how long does it take to develop skills based on similar existing knowledge to be able to deliver results? How many lawyers and finance professionals, or engineers and artisans haven’t upgraded their knowledge and skills such that their capabilities are higher today than that which non-citizens currently working in the industry are said to have?

We may be able to count on the IOCs/ Operators and other contractors to demonstrate a commitment to the ideals of promoting local content but we needed the local content law; we need the right to information law; and we need to “mend all leaking buckets” and strengthen the institutions of state tasked with protecting Ghanaian interests to do exactly that. If we don’t do the right things at the right time, to turn our resources into jobs for our people rather than be rent collectors, we will be seen to have failed the next generation of Ghanaians who will inherit a nation run in all respects by non-Ghanaians. The IOCs have demonstrated a commitment to promote local content even in the absence of a specific law, and their fears of the new law will only betray the sincerity of previously expressed commitments. It is in the interest of the IOCs and contractors as much as it is in our own collective interest as Ghanaians to make local content work the way it has worked in the countries we often mention as models to follow.

Let’s not only “tell the time”, but let’s also “build the clock”. It’s time for all to walk the talk. It is time to build and strengthen institutional capacity and very quickly implement the law, not time to go to sleep. If we don’t act fast and decisively, we may have a local content marathon with features of a steeple chase, which I believe has been the case with all other laws on the subject in other industries – we do not want oil and gas “Galamsey”. If we fail to enforce our beautifully crafted and well intended law on local content, then just as the fisherman’s catch may be reduced by the fact that fish are attracted to well lit offshore platforms and oil installations which are no go areas (safety zones) for fishermen, so will the well established IOCs and the well connected industry service providers swam (or even sneak in) to Ghana, leaving no room for the Ghanaian to participate. The ball is on our turf! Our children must be able to answer when our grand-children ask them “what did we do with our oil?”.

Writer: Thomas Kwashie Attopley

Email: [email protected]/ [email protected].

Tel: +233 (0) 244 884 098/ (0) 277 884 098

Skype: thomaskwashie,

Twitter: @thomasevic

First Published in the 10 January 2014 Edition of the Business and Financial Times (BnFT) of Ghana.

References:

1.???????Asamoah Joe, 2013. Making the Oil and Gas find in Ghana a blessing, page 82. Joasa publications, Accra.

2.???????JoyFM, 2013. Super Morning Show of 17th January, 2013. Accra.

3.???????Offshore Magazine, 2013. Ghana gives go-ahead for Deepwater TEN development, Article [Online] available at: https://www.offshore-mag.com/articles/2013/05/ghana-gives-go-ahead-for-deepwater-ten-development.html [assessed on June 4, 2013]

4.???????Igo Weli, 2013. Nigeria’s Local Content Marathon – Key Strides, Forward Steps and Challenges, Shell International Limited.

5.???????Ghanaweb, 15th July 2009. GIPC inaugurates task force to monitor non-Ghanaian entrepreneurs. GNA News Item [Online] available at: (https://ghanaweb.com/mobile/wap.small/news.article.php?ID=165471 [assessed on November 22, 2013]