Challenges Facing the Implementation of Local Content Policy Framework in Ghana
This article looks at the problems being faced by Ghana in implementing local content and local participation as a developing country with limited capacities and also dealing with IOCs and sub-contractors which are well established and are well connected globally. As a developing country with very little experience in the oil and gas industry, one of the main obstacles faced by the implementation of the local content policy in Ghana is the lack of local capacity and capabilities in virtually all sectors of the oil and gas industry.
These short comings would obviously affect Ghana’s hopes of taking advantage of the numerous employment opportunities in the industry and also make it difficult for local businesses to be able to provide goods and services which are competitive in terms of “price, quality and timely availability” as stipulated in the policy framework. One of these challenges is the fact that local businesses servicing the oil and gas industry require a sound capital base because of the capital intensive nature of the industry.
Challenges Facing the Implementation of Local Content Policy Framework in Ghana Essay Example
However, many Ghanaian companies may not be in the position to afford this and the only way out is to source funding from banks which could affect the quality and efficiency of goods and services provided. Another option is to partner foreign companies to boost their financial capabilities but this will in a way defeat the purpose of the policy itself which seeks to encourage indigenous businesses to take up the challenge of providing goods and services for the oil and gas industry.
Another major obstacle in the realization of the local content policy in Ghana and many other countries is the fact that these IOCs have well established supply chain networks. They therefore prefer to deal with global suppliers or award major service contracts to specialist firms such as Worley Parsons, KBR Aker Solution, Amec and Schlumberger whose financial strength, reputation and technical capabilities can be guaranteed (Olsen, 2011). Also, most IOCs are reluctant to abandon these already established ties and deal with local companies for cost saving reasons.
This makes it difficult for local companies to compete with such reputable names (Olsen, 2011) In some cases, some oil companies and sub-contractors operating in Ghana’s Jubilee oil field, have acted in contravention of their contractual and legal obligations to adhere to the local content and local participation policy as highlighted by some recent incidents. In October 2010, oil riggers and offshore workers petitioned the Ghana National Petroleum Corporation (GNPC) against what it termed discrimination in the award of contracts for oil rig operations on the Jubilee oil field.
According to the riggers, agencies like Menergy Oil, O & L Trinity and Sea World which had been registered by the GNPC to employ artisans such as motormen, floor men, caterers, crane drivers and badge masters for oil rigs operating in the oilfields were rather employing foreign nationals instead of local artisans who were equally qualified (General News Agency, 2011). This worrying development contravenes Section 5. of the local content and local participation policy which states that operators in the petroleum sub-sector should as much as possible avail opportunities for Ghanaians with requisite qualifications and expertise to be employed in various levels of operations. Another issue has to do with the servicing offshore installations which require the acquisition and operation of vessels such as supply boats, tug boats, anchor handling vessels and air-crafts by Ghanaian owned companies, failure to do this will result in IOCs contracting foreign companies to take up this responsibility.
This lack of capacity to provide services for offshore installations has impacted negatively on some Ghanaian companies. In Feb 2010 for instance, Tullow Oil, one of the operators of the jubilee oil field in Ghana abrogated its contract for the transportation of personnel and cargo of the oil company to the offshore jubilee platform with Ghanaian-owned Citylink Airline Company in favour of Noordzee Helikopters Vlaanderen (NHV), a Belgian company (Ghana business news, 2010).
According to Tullow oil, despite its obligation to the implementation of the local content policy, its decision was based on its commitment to meet offshore oil and gas standards. Also, the growing intensity of work on the Jubilee field necessitated the company to contract a world class standard Fixed Wing and Helicopter transport service. It therefore appears that City Link Airlines was edged out of this contract because of its inability to rise to the challenges posed by the oil and gas industry. These challenges mean that a lot still needs to be done if Ghana is to achieve its set target of 90 per cent by the year 2020.
Therefore, there is the need for a concerted effort by all stakeholders to address these challenges in order to see to the successful implementation of Ghana’s local content and local participation policy. Recommendations Based on what has been gathered so far, this study would like to make the following recommendations; · First and foremost, all stakeholders must identify gaps in the industry with regards to human resources, infrastructure materials and institutions and identify ways of closing these gaps; this can be done by setting realistic targets that can be achieved. In order to deal with issues of capacity building, there is the need to expedite action on the proposed Ghana Content Development Act Oil and Gas Business Development and Local Content Fund which when established will support the development of local capacity and will be able to address some of these issues to some extent. · With regards to the servicing of offshore installations by local companies, Ghana could take a cue from Nigeria which instituted the Coastal and Inland Shipping (Cabotage) Act in 2003.
Section 2 of this act among other things, seeks to impose levies on vessels involved in Cabotage or Coastal trade if not wholly manned by Nigerians, not built in Nigeria or if majority of the shares of the shipping company are not owned by citizens of Nigeria. If Ghana is able to adopt this type of legislation, it will to some extent put some barriers to entry by foreign shipping companies and enable local companies to flourish.
Conclusion This study has shown how the issue of local content and local participation in the oil and gas industry has become a very crucial issue especially for many middle income and developing countries as they seek to gain maximization of national value creation through the oil and gas value chain by way of employment, value-addition, technology transfer and the acquisition and transfer of knowledge.
Ghana has since the discovery of oil and gas in commercial quantities also put in place, legal and policy frameworks to facilitate the development of Ghanaian capacity to manage its oil and gas resources and also make maximum use of this new found wealth to the benefit of its nationals and its developing economy as a whole.
Despite these legislative and policy frameworks that have been put in place and the efforts by the Ghana government, the IOCs, small and medium scale enterprises as well as other stakeholders to see to the successful implementation of this policy, there appear to be a number of encumbrances to the achievements of targets set by the government. Some of these obstacles include the lack of capacity, in terms of human resource and infrastructure, to meet the challenges in the oil and gas industry which is capital intensive, requires a great deal of infrastructure and a highly skilled labour force.
This therefore requires some extra effort by the government of Ghana especially, to expedite action in bringing into force the legislation on local content and local participation which is still going through parliamentary scrutiny and also support local businesses through various policies and financial schemes to bring them up to the standard required by the industry in order to ward off foreign competition. Furthermore, efforts must be made in conjunction with other stakeholders to train more Ghanaians in various aspects of the supply chain to enable them gain employment in the industry.
Finally, Ghana must also learn from countries such as Brazil, Norway, Malaysia, and Trinidad and Tobago. These are countries that have successfully used local-content laws to create jobs and fuel domestic economic growth. Ghana could also adopt some of these laws to enable it accelerate the development of its local content and local participation policy. Nutshell Still on the important issue of local content in the oil industry, Gilbert Azaah, in this article, captures the problems which have so far hindered the mplementation of the local content policy in the Ghana oil and gas industry. This is the final installment of this article.