Ghana's firms participate in the energy and utilites sector

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Ghana’s legal and regulatory regime for local content came into force in February 2014, setting in motion a process designed to retain as much value from the energy sector as possible. The country has a goal of attaining 90% local participation in all aspects of the sector by 2020. This would put it at the heart of a trend in the region and worldwide, whereby locals are seeking not only to profit from extractive industries but also to gain technical expertise, building up their own capacity to make investments.

Two pieces of legislation govern the regulatory regime for local content: the Local Content and Local Participation in Petroleum Activities Policy of 2011, and the Petroleum (Local Content and Local Participation) Regulation of 2013. The latter gives the Petroleum Commission the legal authority to monitor companies’ local content programmes.

Equity Offering

Foreign investors operating in Ghana are now required to offer an equity stake of at least 5% to an indigenous company above and beyond the share of 10% to 20% that typically goes to the Ghana National Petroleum Corporation, the national oil company. Foreign investors must also submit annually updated local content plans about how they intend to involve Ghanaian companies in their procurement strategies, their hiring and training of Ghanaians in local offices, their technology transfer plans, their financial services providers, and other elements of local content utilisation.

Procurement preference is expected to be given to local firms provided that their bids for contracts are within 10% of the lowest bid. Minimum thresholds will rise over the life of a project. For goods and services the schedule mandates at least 10% local content at the start, rising to 50% five years later, and between 60% and 90% by the 10th year. Foreign oilfield services firms operating in Ghana are required to do so through a joint venture company in which a local entity has a stake of at least 10%.

An indigenous company is one with at least 51% of its equity owned by a Ghanaian citizen, and with Ghanaians holding at least 80% of executive and senior management positions, as well as 100% of non-managerial positions. Expatriates are to be employed only when no Ghanaians are qualified and available. “It is preferable to hire locally, but we must hire expatriates to ensure we have the necessary skills,” said Romain Gras, managing director of Orsam Ortec. For technology transfers, local content plans are expected to include programmes of three -five years detailing plans for research and development. The financial services obligation means that foreign investors operating in Ghana must conduct their banking using a local bank. Moreover, any risks insured outside the country require the approval of the National Insurance Commission, the insurance regulator, and will be granted typically only when local capacity to insure them has been exhausted.

Reaction to the local content regime has been mixed, and features concerns about execution and enforcement. For instance, it may be hard to find indigenous firms able to take a 5% equity stake in a large upstream project, and in such cases the minister of petroleum has the discretion to waive the requirement. Further, the Africa Progress Panel, an NGO in Geneva, provided a critical review, stating, “The risk is that the distortion to the procurement process created by local content requirements could lead to undue delays and cost increases, and possible needless tensions between the international oil companies and national oil companies.”

Finance

Another obstacle to the development of a thriving local element is access to finance. Indeed, the Ghana Oil and Gas Service Providers Association has cited high interest rates as an obstacle to making profits and competing with foreign-capitalised firms, which may have access to finance at rates lower than the 20-30% range that is typical in Ghana.

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The Report: Ghana 2016

Energy & Utilities chapter from The Report: Ghana 2016

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This article is from the Energy & Utilities chapter of The Report: Ghana 2016. Explore other chapters from this report.

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