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Local Content in Oil & Gas Industry: Dead or Alive?

  • SOURCE: | qwesa2big
  • A new wind of change started sweeping through Ghana when the country poured its first oil in the last quarter of 2010. The oil field is estimated at 1.8 billion barrels. Initially it was planned that within time first year of production 120,000 barrels per day (bpd) was to be produced, with the production ramping tip to 250,000 bpd at the production peak a few years later.

    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 to 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 operations of the oil and gas industry

    Many countries that are into oil and gas production are setting requirements for ‘local content’ into their regulatory frameworks. These requirements aim to create jobs, promote enterprise development said 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. It has also become an important issue due to the fact that in this day and age every country would like its citizens to be in the pole-position of its economy — and thus assist to keep its wealth u thin its borders as well as providing jobs to the ever-increasing population. This can be achieved through capacity-building, creating SMEs as well as offering products and services locally.

    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 time rationale of snaking that person or group more competitive. In the local content policy being advocated by the Ghana National Petroleum Corporation (GNPC), it proposes that first consideration should be given to Ghanaian operators in the award of oil blocks, oil field licences, oil projects and so on.

    The GNPC also proposes that where bids for oil contracts are being evaluated, the bid containing the highest level of Ghanaian content (the margin of preference) should be selected. The oil and gas industry depends on support or allied services. These achieve full local participation in all aspects of the oil and gas value chain of at least 90% by 2020.

    The 2005 Paris Declaration on Aid Effectiveness Highlighted the central role Local Content plays in economic development. Boosting Local Content can help to increase the oil and gas sectors relative contribution to economic growth its well as facilitation of technological transfer, reduction of foreign exchange costs, mitigation of risk and increased returns. It has been almost three years and still counting since Ghana poured its first oil in commercial

    quantities, yet there are still no laws to protect local participation in the oil and gas industry. “17he Legislative instrument (LI) that spells out regulations and give legal backing and enforceability to the local content provisions of the country‘s Local Content and participation policy framework on the petroleum sector, was laid before Parliament on Monday, 1st October, 2012. This bill was to come into force after Parliament had scrutinised, fined-tuned and passed it in 2012. Parliament is yet to pass the LI.

    The absence of a local content law is crippling many local businesses for instance, Tullow Oil abrogated its air transport contract with CityLink, a Ghanaian-owned airline company, and opted for Noordzee Helikopters Vlaanderen (NHV) of Belgium for transportation of personnel and cargo of the oil company to the offshore Jubilee platform. Indeed, in October 2010, the Ghana News Agency (GNA) reported that 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 Menegy Oil, 0 & L Trinity and Sea World which had been registered by the GNP( to employ artisans such as motormen, floor men, caterers and 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 at the heels of Government to cede some of the contracts in the oil and gas sector to local enterprises in order to promote growth of the local industries. According to its President, Nana Owusu-Afari, the subject of local content in the oil and gas sector continues to be a very serious issue that Government cannot ignore.

    Ghana’s desire to achieve its 90 percent indigenisation target in the country’s oil and gas sector by 2020 is held in abeyance by the continuous hold-up in passing the local content bill.


    Source: B&FT

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