Boosting Indigenous Ghanaian Companies’ Participation in Technical Areas of Ghana’s Upstream Oil and Gas Industry: A Lesson Study
Local content requirements have gained currency in resource rich countries, especially developing countries, because of the perceived greater benefits they bring which fiscal take alone does not secure: job creation, skills and technology transfer, growth and sustenance of infant industries, and the resultant local economic development through forward and backward linkages. Ghana's Petroleum (Local Content and Local Participation) Regulations, 2013 (L.I 2204) defines local content in the oil and gas sector as “the quantum or percentage of locally produced materials, personnel, financing, goods and services rendered in the petroleum industry value chain and which can be measured in monetary terms.”
The Regulations stress on local participation in both technical and non-technical areas of upstream operations with the overarching objective that after a decade, indigenous Ghanaian personnel and businesses would lead and effectively manage the entire value chain of petroleum extraction in Ghana and also become internationally competitive.
Existing literature and data from the Petroleum Commission (PC) shows that the country is on course in achieving local content targets on employment and supply of goods and services in non-technical areas. There is little evidence, however, of how indigenous Ghanaian companies (IGCs) in particular are taking advantage of mandatory minimum equity participation to embrace technical roles and become competitive as expected. Data from the Petroleum Commission shows that as at April 2019, only 51 IGCs held valid contracts to supply technical services to operators. This represents a paltry 7% of the 701 companies who were registered with the PC and awarded valid permits to operate in Ghana's upstream oil and gas sector. This phenomenon threatens the overarching objective of local content implementation in Ghana's upstream oil and gas industry.
It is against this backdrop that ACEP conducted this study to understand stakeholders' understanding of the rationale for equity participation provisions in L.I 2204, understand the factors behind the successes and challenges of IGCs' participation in technical areas of upstream operations, and to draw lessons and make recommendations that will position IGCs well to venture into technical areas of upstream oil and gas activities. This study used the qualitative approach to enquiry; interviews were conducted with key players from the industry. To ensure representativeness, respondents were selected using purposive and snowballing sampling techniques from industry associations, financial institutions, IGCs working in E&P activities and IGCs providing support services to E&P companies.