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Liberia’s Petroleum Policy Limited On Local Content – a Comparative Analysis of Ghana, Sierra Leone and Liberia

  • SOURCE: | qwesa2big
  • fpsoThe West African nation of Liberia experienced its first petroleum exploration in the late 1940s when the Government awarded the country’s first exploration contract.

    The contractor however did not perform thus causing the contract to fail. Subsequent attempts of exploration were made between the late 1960s and 1972 with no declaration of commercial discoveries. Also during this period, the Governments of the United States and Liberia jointly conducted an aeromagnetic survey which, after interpretation, exposed the presence of sedimentary basins on the continental shelf (up to 600 meters depth of Liberia).

    New blocks were awarded to a number of companies which did not result in the discovery of commercial deposits. This result diminished investors’ interest in Liberia’s petroleum sector for more than a decade.

    Subsequent exploration activities by AMOCO proved futile and it relinquished all acreage and ceased operations in Liberia in 1989.

    Subsequent seismic surveys by various companies confirmed the presence of six sedimentary basins ranging in thickness from 4000 feet to approximately 20,000 feet.

    The discovery of petroleum in deepwater in the offshore area of countries in the Gulf of Guinea, especially in West Africa, has drawn much interest in the region including significant interest in Liberia.

    As a result of this interest, exploration activities in Liberia’s offshore territory recommenced in 2000 after a decade of dormancy with the conduct of extensive 2D and 3D seismic surveys from 2000-2010) and the drilling of five exploratory wells within the last two years.

    The announcement in February 2012 of an oil discovery in Liberia has intensified this interest. At the time of the writing of this policy, it is uncertain whether this is discovery will prove to be commercially viable, or whether Liberia will ultimately produce commercial oil.

    But given the heavy interests and the potential and risks associated with the oil sector, the country must take steps now to ensure that any oil production would benefit its people. It has been made clear that the sector needs to be regulated properly in order to achieve maximum benefits for the people of Liberia- NOCAL.

    The Petroleum policy of 2013, currently before the House of Representatives for concurrence is limited on local content in the oil and gas sector of the country.

    The Liberian Senate, before taken its annual break, passed the Petroleum Policy of Liberia and forwarded it to the House of Representatives for concurrence.

    The House did not concur with the Senate on the policy, but rather, took the instrument for constituency consultations, Speaker Alex Tyler told Capitol Building reporters.

    Local content is a right or opportunity given to citizens of a particular country to invest in the oil and gas industry, as a means of strengthening their capacities, build the economy and reduce poverty.

    The oil and gas sector of Liberia, headed by the National Oil Corporation of Liberia (NOCAL), is not in isolation to others in the sub region, mainly; Ghana and Sierra Leone. The hydrocarbon industry of Liberia and Sierra Leone are at exploration stages, while Ghana is at production stage.

    As the three countries navigate through the process of exploration, development and production, the issue of local contents in the various petroleum policies are of keen concerns to many citizens to whom these resources belong.

    Some of the policies in the region are much clearer and to the point as it relates to the issue of local content, while others are lacking back.

    For instance, Ghana and Sierra Leone have in their petroleum policies funds for local content development, but Liberia does not have same in its policy.

    A research on the three countries clearly reveals similarities and differences in the petroleum policies when it comes to local content development and citizens’ participation in the sector.

    In the analysis, conducted by Mohammed Amin Adam, Executive Director – Africa Centre for Energy Policy outlined several issues that need to be taken into consideration in order to have an effective and transparent local content policy in the sector.

    He indicated that some of the main issues that needs to be critically addressed includes “the rule of law versus voluntary initiatives, Broad Provisions in the Petroleum Law and Regulations, Comprehensive local content law to enforce compliance, protectionism, competitiveness and the Issues of international standards”.

    He noted that, “Protectionism- the economic policy of restraining trade between states, through methods such as tariffs on imported goods, restrictive quotas (including Local Content targets), and regulations designed to discourage imports, and at the same time a comparative concept of the ability and performance of a firm or country to sell and supply goods and/or services in a given market.

    Amin also pointed to more focus bring place local content regulations, cocal content – protectionist or competitive and Policy focus of local content-that is ‘Ownership rights – In license and companies, Expenditure share in domestic economy – The extension of the buying power of oil and gas companies to local businesses and Employment – the transfer of technical skills by oil and gas companies to locals.

    However, the Chairman of the Senate Committee on Lands, Mines and Energy, Cletus Wotorson has said ‘no country can have a local content without capacity.’ He added that the capacity of Liberia needs to be built in order to effectively perform in the hydrocarbon industry.

    As indicated by Mr. Amin’s research, see how the three policies are similar and different as it relates to local content.

    Sierra Leone: Similarities

    In neighboring Sierra Leone, their petroleum policy provides “Opportunities for the employment of adequately qualified Sierra Leoneans (Cl.87(1)). No discrimination in the conditions of service between employees (Cl.87(2). Training – Prepare and implement plans and programmes for the training of Sierra Leoneans in all aspects of petroleum operations (Cl.87(3)). Preference to local goods and services produced in Sierra Leone, supplied by Sierra Leonean Companies and Suppliers. (Cl.88(1)) .Transfer of Technology.”

    Ghana: Similarities

    As for Ghana, Petroleum (Exploration and Production) Law (PNDC Law 84) Section (10) “opportunities are given as far as is possible for the employment of Ghanaians having the requisite expertise or qualifications in the various levels of the operations.’ Section (11) ‘No discriminatory practices on grounds of race, nationality or sex in the conditions of service provided for personnel.’ Section (12), ‘Use of goods and services produced or provided in Ghana for his operations in preference to foreign goods and services.’

    Section (13) ‘Companies prepare and implement… . Plans and programmes for training Ghanaians in all job classifications and in all aspects of petroleum operations.’ Section (14) ‘Companies prepare and implement plans for the transfer to the Corporation of advanced technological know-how and skills relating to petroleum operations but this provision.’

    Liberia: Similarities

    “Government will enact appropriate laws and promulgate policies and regulations for inclusion in contracts and other legal instruments that will commit international oil companies to the following: prioritize employment of qualified and competent Liberian citizens in the oil and gas and other associate industries; train Liberians in relevant fields relating to the oil and gas sector; contribute to institutions involved in the training of Liberian citizens to enable them be eligible and meet the requirements for positions in the hydrocarbon and associated industries; contribute to community development programs through joint ventures to transfer technology.”

    Sierra Leone: Differences

    ‘Local content Fund established and to be managed by the Minister (Cl.89(1)). No minimum equity provisions.’

    Ghana: Differences

    “A non-indigenous company shall provide for the equity participation of a citizen of Ghana with an interest of at least five percent in a petroleum agreement or a petroleum license. A non-indigenous company which intends to provide goods or services shall establish a joint venture entity with an indigenous Ghanaian company and afford such indigenous Ghanaian company an equity participation of least ten percent. Local Content Fund established to be managed by the Minister and Local Content Committee.”

    Differences: Liberia

    ‘No mention of local content fund. No minimum equity provisions.’

    From the analysis, it is absolutely cleared that two of the three policies (Ghana and Sierra Leone) evidently provides for local content development fund; but same does not apply to Liberia.

    According to the final version of Liberia’s Petroleum Policy, “Local content programs shell be designed to empower Liberians to participate in the oil and gas sector and promote added value in the Liberian economy through a systematic development of capacity and the utilization of indigenous Liberian human and material resources and services in the petroleum industry and related sectors. By localization the production of services and materials used in the oil and gas industry in Liberia to the maximum degree possible, Liberia can create far-reaching positive economic spillover.”

    It went further to say that ‘the government shall support the development of Liberian owned companies to participate in the Liberian petroleum industry. A Liberian owned company is defined as “a firm, enterprise, company or any business venture wherein a minimum of 51% of its share is owned by Liberians.” The Associations Law and other legal instruments shall be amended to reflect this definition. The Government shall support the participation of Liberian owned companies in its petroleum industry, including by helping them strengthen their capacity in service delivery and improving conditions for access to capital.

    In order to promote these goals, the Government shall adopt a petroleum local content strategy which will protect Liberian business interests and adequately develop the competence of Liberians to derive maximum benefits from petroleum resources. In order to develop this strategy, the Government shall review and amend the definitions and procedures governing local content to ensure that local content promotion programs provide genuine benefits to the development of Liberian industry and to reduce the risk that they will be used as vehicles for corruption or the enrichment of outside interests.

    The Government shall prioritize local and International Oil and Services Companies with proven track records of support for local content during the bidding process. The Government shall require international oil companies to issue regular public reports on their contributions to local content development. These reports should contain the degree to which they are using Liberian contractors, identify the Liberian companies and the principal projects in which they are engaged, and the composition of ownership. These reports shall also provide updates on the progress of training Liberians and nurturing local companies in line with national objectives.

    The Government shall develop programs aimed at building a skilled and competent Liberian work force that will be able to compete and participate in the oil and gas industry. In order to do so, it shall support the development of training institutes or programs to help build specialized skills in strategic areas related to petroleum operations or services, technical and job training programs at Liberian high schools and universities and scholarships for higher education.

    Within twelve (12) months of the effective of the PSC, the Government shall require contractors to submit a recruitment and training plan for Liberians. The Government shall develop its own human and institutional capacities in order to meet the demands that will emerge in-country as a result of the development of the oil and gas sector and effectively prioritize areas where there is an opportunity for the sustainable development of Liberian content.”

    Although, the policy as mentioned above provide opportunities for Liberian’s participation in the sector , however, it did not set aside a fixed amount of money as local content development fund. Such provision, if added by the House of Representatives, could be used to develop the capacity of Liberian businesses to compute with their international counterparts in the sector.

    The Petroleum Policy of Liberia is expected to be among the first bills that will be passed by the 53rd Legislature during their third sitting. By them, members of that body shall have completed ongoing consultations with their constituencies as indicated by the Speaker Tyler.

    “We believe the document is critical and don’t need to be passed too hastily. We need a wide range of consultations with stockholders in the executive and the private sector before passing the oil and gas law.”

    Early this year, both the House of Representatives and the Liberian Senate differed over the legislature’s direct involvement in the reform process of the oil and gas sector of the country. As a matter of fact, the Liberian Senate recalled its Lands, Mines and Energy Committee from the joint legislative committee setup to draft the oil reform policy of the country.

    After a period of bickering over their involvement into the drafting of the policy, they reached a decision to leave the matter to NOCAL to formulate the document before forwarding it to them for legislative consideration.

    Since the announcement of oil discovery of by one of the companies exploring off the shores of Liberia, African Petroleum (AP), debates about Liberia’s oil and gas sector have sparked mixed reactions in the country that has only been peaceful for just ten years.

    In February 2012, AP announced a major discovery in its Naria-1 Well offshore Liberia, a discovery that increased the company’s ranking on the stock market.

    However, NOCAL, Liberia’s oil and gas regulatory body, quickly issued a statement following the AP’s announcement, that further testing was needed to verify if the Bee Eater Well was commercially viable.

    A joint press release was later issued by NOCAL and AP stating that although the results of the Bee Eater well were encouraging, further testing would be needed before determining the well’s viability.

    The press began speculating a riff between NOCAL and AP caused by the un-authorized AP announcement. FrontPageAfrica, quoted a petroleum expert who explained the definition of “mean un-risked prospective resources” and stating that it did not mean AP had discovered 840MMstb proven, but that if they continue to explore, they MAY find oil and it MAYBE 840MMstb. What FPA understood as meaning, “smoke and mirrors”.

    According to Front Page Africa online, ‘Karl Thomas, Chief Executive Officer of AP, bragged in theFebruary2013 press release,{“2012 has been a very successful year for the company with the Narina-1discovery in Liberia and the expansion of the exploration portfolio with the addition of 5 more exploration blocks in Senegal, Sierra Leone and Cote d’Ivoire. In 2013 starting with the drilling of the high potential Bee Eater prospect in Liberia LB-09 and follow on drilling in Liberia plus Cote d’Ivoire and The Gambia/Senegal coast.”We are finalizing negotiations with PetroChina for an investment up to 20% equity in Block LB-09 in Liberia and are confident we will reach agreement shortly}”

    Some Liberians are of the certainty that the process leading to the awarding of several of the exploration contracts ware marked by discrepancies.

    Already, some ranking members of the 52nd and 53rd legislature including Speaking Alex J. Tyler, Senate Pro-temp, Ghehzongar M. Findley and Senator Cletus Wotorson have all admitted to errors in the awarding of the contracts in the hydrocarbon industry.

    However, there are still light after the thunder for Liberia. What is even better for the country is that the industry is just in its exploration stage and there are more rooms for corrections once commercial discovery is made.

    The new Petroleum law of Liberia provides that after a commercial discovery, there must be a new round of discussion as to how the parties intend to go about development and production. Section 6.1 of the petroleum law of Liberia provides that “A petroleum agreement that includes a hydrocarbon exploration permit, may be executed between the parties when a commercially exploitable reserve or deposit of hydrocarbon id discovered. The agreement shall clearly establish the rights and obligations of the National Oil Company of Liberian and the contracting party. A petroleum agreement shall be called a “services and risks contract” when it provides for the reimbursement of petroleum costs and the remuneration to the holder shall be paid in cash.”

    The petroleum industry is a very risky and highly cost intensive. Expects says it cost between US$75m to 100m to drill a single well. In instances, a company can a company hit a dry well after spending huge sum of money.

    Nevertheless, with the presence of multinational companies in the hydrocarbon industry, the issues of law reform in the sector has caught the attention of not only the government, but also the citizens.

    ‘as indicated in the petroleum police the government has vowed to ‘create standards in laws, regulations and contracts to encourage international oil companies to: prioritize employment of qualified and competent Liberian citizens in the oil and gas and other associated industries; train Liberians in relevant fields relating to the oil and gas sector; contribute to institutions involved in the training of Liberian citizens in order to enable Liberian citizens to be eligible for and meet the requirements of positions in the hydrocarbon and associated industries; use Liberian goods and services in the conduct of petroleum activities to the extent feasible; contribute to community development programs; support Liberia’s efforts to achieve gender equality and expertise over time and undertake joint venture activities in order to transfer technological knowledge.’

    Whatever the situation may be, the discovery of commercial oil in Liberia should lead to blessing which should better the lives of Liberians and develop the country and should not lead to conflict and corruption.

    Source: Roland Perry/Informer

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