Local Content in Ghana's Oil and Gas Industry: Which Way Forward?

A new wind of change started sweeping through Ghana when the country poured its first oil in the last quarter of 2010 from its Jubilee oil field. The oil field is estimated to hold 1.8 billion barrels. Initially it was planned that within the first year of production 120,000 barrels per day (bpd) was to be produced, with the production ramping up to 250,000 bpd at the production peak a few years later. It currently produces about an average of 110,000 bpd.

Many people predicted the involvement and participation of local businesses in this sector, as it would directly impact on the socio-economic status of Ghanaians. This dream has not been fully realised till date. Local content has become a daily public outcry.

What is Local Content in the first place?

Local content is defined as the development of skills, technology transfer, use of local manpower and local manufacturing. In other words it involves the use of Ghanaian local expertise, goods and services, people and business in the operations of the oil and gas industry.

Many countries which are into oil and gas production are setting up requirements for ‘local content’ into their regulatory frameworks. These requirements aim to create jobs, promote enterprise development and accelerate the transfer of skills and technologies. Local content has therefore become a tactical issue for the oil and gas industry—presenting both challenges and opportunities.
In local content policy formulation, there is a phenomenon called Margin of Preference. Margin of Preference refers to the extent to which a person or group is given favourable treatment over others with the rationale of making that person or group more competitive.

In May this year, the Ghana government approved a second oil field called the Tweneboa, Enyera and Ntome (TEN). The TEN oil project is expected to produce about 80,000 barrels of oil per day when production finally begins in 2016. The field is located on Ghana’s Deepwater Tano Block which according to appraisal reports contains over 200 million barrels of oil.

Partners in the TEN projects are Tullow, Kosmos Energy, Anadarko Petroleum, Petro SA and GNPC. These are the same partners operating Ghana’s Jubilee field.
On June 6th this year, the Ghana Cabinet approved a new Local Content Bill for the Oil and Gas sector. The Bill which is a Legislative Instrument (LI) has been sent to the country’s parliament for approval into law. Parliament is yet to approve it.

After cabinet introduced the bill, Ghana’s Minister of Information and Media Relations, Mahama Ayariga, outlined some of the highlights in the bill.
“The key highlights of the policy include; that priority should be given to Ghanaians in the granting of licensing and agreements in the petroleum sector in all operations, where foreigners want to be involved they must partner with Ghanaians who should carry at least a five percent equity interest and that is reviewable at the pleasure of the Minister given certain circumstances.”

“Also there is an elaborate reporting procedure which requires that the companies use local services and products manufactured by Ghanaian companies and they must also make investments in research and carry out programs aimed at technology transfer to Ghanaians,” he stated.

This week the Minister for Petroleum and Energy, Emmanuel Kofi Buah advised the partners operating in the TEN project to start rolling out local content projects immediately.

The Ghana National Petroleum Corporation (GNPC), a state oil exploration company that also licenses firms seeking to participate in oil exploration in the country, has set an ambitious target to achieve full local participation in all aspects of the oil and gas value chain of at least 90% by 2020.
The absence of the local content law could deny many local businesses from expanding and growing. For instance, Tullow Oil is reported to have abrogated its air transport contract with CityLink – a Ghanaian owned airline company – and opted for Noordzee Helikopters Vlaanderen (NHV) of Belgium for the transportation of personnel and cargo of the oil company to the offshore Jubilee platform. Citylink has ceased operations and is going through merger talks with EgyptAir. It is not clear whether Citylink’s loss of the Tullow contract has anything to do with the former’s struggles.

Indeed, in October 2010, the Ghana News Agency (GNA) reported that, oil riggers and offshore workers petitioned the GNPC against what it termed discrimination in the award of contracts for oil rig operations on the Jubilee oil field.

According to the GNA report, the oil riggers alleged that companies 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, badge masters for oil rigs operating in the oil fields were rather employing foreign nationals; especially, Nigerians instead of local artisans who were equally qualified.
The Association of Ghana Industries (AGI) is on the heels of Government to cede some of the contracts in the oil and gas sector to local enterprises in order to promote the growth of the local industries. According to its President, Nana Owusu-Afari, the subject of local content in the oil and gas sector continue to be a very serious issue that government cannot ignore.

In all this, the question that needs to be asked is that, when given the opportunity, do Ghanaian locals, firms and businesses have the capacity to meet the challenge? The implementation of the local content bill must be gradual and collaborative, in my view, to lead to technology transfer and boosting of local capacity. Its pursuit should not be done in a blanket manner.