Ghana: Local Content And Local Participation In Ghana's Petroleum Industry: An Overview Of The Petroleum (Local Content And Local Participation) Regulations, 2013 L.I.2204

Last Updated: 2 June 2014

Guest Author: Seyram W. Adabla, Legal Counsel, Ministry of Energy and Petroleum, Ghana

Oil and gas was discovered in commercial quantities in Ghana in 2007 specifically in two deep water blocks, West Cape Three Point and Deep Water Tano. These discoveries were unitised to form the Jubilee Field with estimated oil reserves of about 800 MMbbl of light crude oil with an upside potential of about 1.8Bbbl, as well as significant quantities of associated natural gas. In addition to the Jubilee Field, other discoveries have been made which are in various stages of development. These discoveries have intensified interest in Ghana's petroleum industry both locally and internationally leading to increased exploration activities in Ghana.

Though Ghanaians are happy about the discovery of oil in commercial quantities, it is important that the Government of Ghana ensures that the discovery of oil and gas contributes significantly to the growth of the economy and helps accelerate development and industrialisation. The high interest in Ghana's oil and gas industry has brought to the fore certain critical issues including local content which require the enactment of specific legislation to reinforce the legal and regulatory framework for the sector.

As an example of the need for an increased contribution of the petroleum industry to the Ghanaian economy, the 2010 Population and Housing Census estimated the population of Ghana to be around 26,658,823 and with an unemployment rate of 5.3 percent. These figures have increased tremendously over the years with a significant increase in graduate unemployment from 2.7 percent in 2000 to 9.1 percent in 2010. These high unemployment rates have resulted in an increased demand for the creation of opportunities within the petroleum industry for the benefit of citizens of Ghana and Indigenous Ghanaian Companies.

Organs of state and legislative background

The Ministry of Energy and Petroleum ("Ministry") through the Minister of Energy and Petroleum ("Minister") is responsible for formulating, implementing, monitoring and evaluating energy and petroleum sector policies in Ghana.

The Petroleum Commission Act, 2011 (Act 821) ("2011 Act") was passed in 2011 to establish the Petroleum Commission ("Commission") a governmental body tasked with regulating and managing the exploitation of petroleum resources as well as providing a framework for collecting, allocating and managing petroleum revenue in a responsible, transparent and accountable manner. As the upstream petroleum regulator, the Commission is mandated to regulate, manage and coordinate all activities in the upstream petroleum industry for the overall benefit and welfare of Ghanaians and ensure a sustainable development of Ghana's oil and gas resources.

Local Content Policy

On 3rd March 2011, the Government of Ghana through the Ministry, after extensive stakeholder consultations, developed the Local Content and Local Participation in Petroleum Activities Policy ("Local Content Policy"). The Local Content Policy outlines strategies on how the Government intends to develop the oil and gas industry with optimal local content and local participation by enhancing national development, creating jobs and effectively managing the potential revenue from oil and gas production and processing, in addition to ensuring security for oil and gas installations in the industry as a whole.

The Local Content Policy is geared towards a progressive and comprehensive integration of Ghanaian citizens into all aspects of the oil and gas industry to ensure the benefits of the industry are maximised for Ghanaians through education, skills and expertise development, the transfer of technology know-how and active research and development activities.

Though these interventions were laudable, the opportunities created in the petroleum industry for Ghanaian citizens and Indigenous Ghanaian Companies were still at extremely low levels. This situation heightened the demand for the Government to enact legislation to compel contractors, subcontractors, licensees and other related entities in the petroleum industry to engage Ghanaian citizens and create equal opportunities for Indigenous Ghanaian Companies to ensure the development of local capacity, the promotion of value addition through the use of local expertise and Ghanaian goods and services, and the increase in the competitiveness of domestic businesses in the oil and gas industry.

The Petroleum (Local Content and Local Participation) Regulations, 2013 (L.I. 2204) ("2013 Regulation") was thus enacted. Though it was enacted based on the Local Content Policy, the enactment of the 2013 Regulation also gave effect to certain aspects of the 2011 Act by giving the Commission the legal backing to demand and monitor the implementation of local content in the petroleum industry.

Objectives of the 2013 Regulation

Regulation 1 of the 2013 Regulation stipulates the main purpose for the enactment of the such legislation. These include:

  • the maximisation of value-addition and job creation through the use of local expertise, local goods and services, local businesses and local financing in the petroleum industry;
  • local capacity development through education, skills transfer, expertise development and the transfer of technology;
  • increasing the capability and international competitiveness of domestic businesses;
  • the creation of petroleum and related supportive industries;
  • maintaining a degree of control for Ghanaians over development initiatives for local stakeholders; and
  • providing for robust and transparent monitoring and reporting systems to ensure the delivery of local content policy objectives.

The development of Ghanaian local content in the petroleum industry is thus at the core of the 2013 Regulation.

Requirements and obligations under the 2013 Regulation

The licensees, contractors, subcontractors, the Ghana National Petroleum Corporation ("GNPC") or other related entities are enjoined by Regulation 3 of the 2013 Regulation to ensure that local content is a component of all petroleum activities which they are engaged in from exploration through to development and decommissioning. It is important to note that in the Government's assessment of the ability of a non-Ghanaian licensee to engage in petroleum activities in Ghana, in addition to assessing the company's technical and financial capabilities, its commitment to local content will also be assessed.

Some of the important requirements under the Regulation are set out in the following paragraphs.

Submission of local content plan for approval

Regulation 49 of the 2013 Regulation defines an "Indigenous Ghanaian Company" as a company incorporated under the Companies Act, 1963 (Act 179) that: (a) has at least fifty-one percent of its equity owned by a citizen of Ghana; and (b) has Ghanaian citizens holding at least eighty percent of executive and senior management positions and one hundred percent of non-managerial and other positions.

Chapter 3 of the 1992 Constitution of the Republic of Ghana deals with citizenship and stipulates who is considered a citizen of Ghana.

Operators engaged in petroleum activities are required under Regulation 7 of the 2013 Regulation to submit a local content plan ("Local Content Plan") for approval prior to engaging in petroleum activity. The Local Content Plan must indicate the roles, responsibilities and equity participation of Indigenous Ghanaian Companies and the strategy for the transfer of technology and know-how to Indigenous Ghanaian Companies.

The Local Content Plan must also contain detailed provisions to ensure that priority is given to services provided within Ghana and goods manufactured in Ghana so long as such services and goods meet the specifications of the petroleum industry in accordance with normally acceptable standards. Qualified Ghanaians must also be given priority in respect of employment and adequate provisions must be made for on the job training for Ghanaians.

The Local Content Plan is further required to have a sub-plan relating to employment and training indicating amongst others a forecast of hiring and training needs, the specifications of skills needed, the anticipated skill shortages in the Ghanaian workforce, the specific training requirements, the anticipated expenditure in implementing the sub-plan, the time frame for the provision of employment opportunities for the Ghanaian workforce and a succession plan for positions held by non-Ghanaians.

A research and development sub-plan is also required to be incorporated in the Local Content Plan to provide an outline of revolving three to five year programmes for petroleum research and development initiatives to be undertaken in Ghana with an attached expenditure for its implementation and a provision for public calls for proposals for research and development initiatives associated with the activities of the operators in the industry particularly indicating the criteria for selecting proposals which qualify for support.

Additionally, technology transfer sub-plans aimed at promoting the effective transfer of technologies from the operators to Ghanaian Indigenous Companies or citizens are required to be incorporated into the Local Content Plan as well as sub-plans relating to legal services and financial services.

Establishment of local office

The 2013 Regulation makes a requirement under Regulation 6 for operators to establish a project office within the district where their project is located prior to carrying out any work or activity in the petroleum industry.

Participation of Ghanaian citizens and Indigenous Ghanaian Companies

It is mandatory under the 2013 Regulation for an Indigenous Ghanaian Company to be given first preference in the grant of a petroleum agreement or a licence with respect to petroleum activities subject to the fulfillment of all other conditions stipulated in the 2013 Regulation.

In cases where a non-Indigenous Ghanaian Company intends to enter into a petroleum agreement or a petroleum licence, that company is obliged under the 2013 Regulation to give at least five percent of its equity participation to an Indigenous Ghanaian Company other than the GPNC. The Minister may vary this requirement in cases where an Indigenous Ghanaian Company is unable to satisfy the requirements of the five percent equity participation.

Additionally, under Regulation 4(6) of the 2013 Regulation, a non-indigenous Ghanaian supplier or service provider which intends to provide goods and services to any operator in the petroleum industry within Ghana is required to incorporate a joint venture company with an Indigenous Ghanaian Company and grant the Indigenous Ghanaian Company at least ten percent equity participation in the joint venture company.

Bidding processes for petroleum industry contracts

In tendering for goods and services in the petroleum industry, the 2013 Regulation requires operators to establish and implement a bidding process for the acquisition of goods and services which gives preference to Indigenous Ghanaian Companies.

This obligation is in line with the provisions of Section 60 of the Public Procurement Act, 2011 (Act 663) which directs procurement entities to grant a margin of preference for the benefit of tenders for work by domestic contractors, the benefit of tenders for domestically produced goods or the benefit of domestic suppliers of services.

Regulation 12 of the 2013 Regulation provides that an award of a contract shall not be solely based on the principle of the lowest bidder. An Indigenous Ghanaian Company with the capacity to execute a job shall not be disqualified exclusively on the basis that it is not the lowest financial bidder. Particularly, where the total value of the bid submitted by an Indigenous Ghanaian Company does not exceed the lowest bid by more than ten percent, the contract shall be awarded to the Indigenous Ghanaian Company. This provision further directs operators to ensure that where bids are adjudged equal in any bidding process, the bid with the highest local content shall be selected.

This provision is not intended to discriminate against non-Indigenous Ghanaian Companies but to develop and build up Ghana business participation. A non-Indigenous Ghanaian Company is permitted to provide goods and services in the petroleum industry except that, that company must incorporate a company in Ghana in accordance with relevant applicable legislation and operate from Ghana in association with an Indigenous Ghanaian Company where practicable.

Employment and training of Ghanaian citizens

As stated earlier, the unemployment rate is high in Ghana and one of the drivers of local content in the petroleum sector is the need to create employment and build the capacity of Indigenous Ghanaian Companies. Local content is generally considered a significant initiative for job creation and the promotion of economic diversification.

It is mandatory under Regulation 19 of the 2013 Regulation for only Ghanaians to be employed in junior and middle level positions in the petroleum industry. The operators in the petroleum industry are also required to submit a programme for the promotion of education, practical attachments, training, and research and development of Ghanaians as well as a succession plan for employment positions currently occupied by non-Ghanaians.

The first schedule of the 2013 Regulation stipulates specifically the local content levels to be attained from the date of effectiveness of a licence or petroleum agreement for goods and services and recruitment and training which operators in the industry are required to fully adhere to. It provides for instance that at the commencement of every petroleum agreement or licence, thirty percent of the management staff of the operator must be Ghanaian citizens.

Insurance and reinsurance services

The 2013 Regulation also mandates operators in the petroleum industry to comply with the provisions of the Insurance Act, 2006 (Act 724). Operators are also obliged under this provision to insure all insurable risks relating to the performance of their petroleum activities in Ghana through an indigenous brokerage firm or a reinsurance broker where applicable. Insurance services can only be sought offshore subject to the approval of the National Insurance Commission if Ghanaian local capacity is fully exhausted.

Legal services content

In cases where a contractor, subcontractor, licensee or other related entity engaged in petroleum activity requires legal services in Ghana, that operator is obliged to retain only the services of a Ghanaian legal practitioner or a firm of Ghanaian legal practitioners with an office located in Ghana. This provision is monitored through the legal services sub-plan which is required to be submitted to the Commission under the 2013 Regulation showing a comprehensive report on legal services utilised in the preceding six months by expenditure, the forecast of legal services required in the ensuing six months with projected expenditure and annual legal services budget for the ensuing year quoted in Ghana Cedi and United States Dollars.

Financial services content

The 2013 Regulation mandates a contractor, subcontractor, licensee or other related entity to retain only the services of Ghanaian financial institutions or organisations except in cases where the approval of the Commission is sought and received for the engagement of services of foreign financial institutions or organisations. It is also mandatory to maintain a bank account with an Indigenous Ghanaian Bank (a bank with one hundred percent Ghanaian or a majority Ghanaian shareholding) and transact business through banks in Ghana.

As stated earlier, it is a requirement for operators to submit a financial services sub-plan for approval. This sub-plan must specify the financial services utilised in the preceding six months by expenditure, the forecast of financial services required in the ensuing six months with projected expenditure and a list of financial services utilised in the preceding six months, the nature of such services and the expenditure thereon.

The Local Content Committee

The Local Content Committee ("LCC") was established by the Commission to act as the watchdog and oversee the implementation of the 2013 Regulation in the petroleum industry. In the performance of its role, the LCC is required to ensure measurable and continuous growth in local content in all petroleum activities.

The LCC is mandated to oversee, coordinate and manage the development of local content, prepare guidelines with targets and formats for local content plans, make recommendations for the implementation of the 2013 Regulation, educate the public on the provisions of the legislation, undertake local content monitoring and audit and perform other functions as may be required by law or the Commission.

Investigation, offences and penalties

Regulation 45 of the 2013 Regulation permits the Commission to initiate investigations into activities of operators to ensure that the Ghanaian company principle of ensuring that Indigenous Ghanaian Companies and Ghanaians benefit directly from the petroleum industry is not diluted through fronting or bid rigging and cartelisation.

Regulation 46 of the 2013 Regulation stipulates penalties for various offences in respect of violations of its content. These offences range from false representations, connivance, fronting and general violation of the provisions of the 2013 Regulation. Penalties for these offences are both administrative and criminal. It is noteworthy that, in instances where offences are considered grave, a term of imprisonment may be imposed upon conviction.

Complaint review mechanisms

Though the Commission is the institution mandated to implement the 2013 Regulation, a person aggrieved by the decision of the Commission in relation to the implementation of the 2013 Regulation is permitted to lodge a complaint with the Minister for review and the Minister is obliged to make a decision on the matter within thirty days of receipt of the complaint.

Conclusion

The 2013 Regulation creates enhanced opportunities for citizens of Ghana and Indigenous Ghanaian Companies to participate in the petroleum industry. It is a step towards an effective integration of the industry into the national economy. If implemented efficiently, it will improve the competitiveness of Indigenous Ghanaian Companies, enhance local capacity and expertise and reduce dependence on foreign expertise in the execution of petroleum sector projects.

Crucially, the incentives under the 2013 Regulation are not just stacked to the benefit of the citizens of Ghana and Indigenous Ghanaian Companies. Foreign investors intending to conduct business in the Ghanaian petroleum sector can take advantage of the dispensation given to Indigenous Ghanaian Companies by forming a joint venture business for the provision of goods and services in the petroleum industry.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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