DR. DOUGLAS ZORMELO MANAGING DIRECTOR, ZORMELO & ASSOCIATES

PRESIDENT OF GOGSPA

Why An Indigenous Oil & Gas sector?

Requirements for developing an indigenous Oil & Gas Sector

How the Objective can be achieved

GOGSPA’s Interests

Comments on L.I. 2204

Conclusions

Industrialization in general has: ◦ since the second world war, experienced faster growth than

any other sector of economic activity ◦ also increased its share and value of internationally traded

goods ◦ Industry adds value to raw products ◦ Experiences less price fluctuations

Create jobs and expertise

Create indigenous wealth for domestic investment

Contribute to overall industrial development in the country

Build capacity

Retain wealth created from the sector in the country

Entrepreneurial Capacity Capital Knowledge, Skills and Expertise Technology Connection into the international Oil & Gas

industry networks Educated workforce Legal and institutional/Regulatory framework Governance structures Enabling Environment

Through the Petroleum (Local Content and Local Participation) Regulations, L.I. 2204 as a first step if properly implemented ◦ In the Purposes of the Regulations under the General Provisions of the

Regulation the Local Content Law details the various things that would facilitate the development of an indigenous local Oil & Gas industry Use of local expertise, goods and services The use of local businesses and financing and the retention in the country Development of local capacity in petroleum value-chain Transfer of technology Increase the capability and international competitiveness of domestic

businesses Create petroleum and supportive industries that will sustain economic

development Achieve and maintain a degree of control for Ghanaians over development

initiatives for local stakeholders A robust and transparent monitoring and reporting system, etc.

Whether L.I. 2204 will help in achieving the objectives of developing an indigenous Oil & Gas industry depends on how well it is implemented.

We are particularly interested in the implementation of the following as a step in the creation of a local Oil & Gas industry: ◦ Regulation 4(1) indigenous Ghanaian company is to be given first

preference in the issuing of petroleum agreements or a license; ◦ At least 5% equity participation of an indigenous company other than

GNPC before a company is allowed to enter into a petroleum agreement or license

◦ A non-indigenous company which intends to provide goods and services to a contractor, a subcontractor, licensee, the GNPC or other allied entity within the country must establish a joint venture with an indigenous Ghanaian company and offer it at least 10% equity participation

◦ Regulations 11 & 12 regarding: Preference to indigenous Ghanaian companies 12(5) Says:

Where a non indigenous Ghanaian company is required to provide goods and services to the contractor, subcontractor, licensee, or other allied entity, that non indigenous Ghanaian company shall

a. Incorporate a company in Ghana as provided in regulation 4(5) and operate it from Ghana; and

b. Provide the goods and services in association with an indigenous Ghanaian company, where practicable.

The provision of a five percent equity participation for an indigenous Ghanaian company is important for capacity building critical areas of the Oil & Gas industry such as: ◦ Exploration, Development and production;

◦ The negotiations involved at that level of operations in Oil & Gas;

◦ Networking and international competitiveness capacity building, etc.

Local Content has a price

The rules regarding the requirements forming a joint venture with an indigenous Ghanaian company and granting that company at least a 10% equity stake in the joint venture is also critical for capacity building in various service provisions and in technology transfer. However the operative words are: ◦ Joint venture; and ◦ Indigenous Ghanaian company, not an allied company of

a contractor, subcontractor, licensee or GNPC ◦ not merely equity provision to, say, employees of a

registered non-Ghanaian company

An indigenous company is defined in Regulation 49 as: ◦ A company incorporated under the Companies Act, 1963

(Act 179) a. That has at least fifty-one percent of its equity owned by a

citizen if Ghana; and

b. That has Ghanaian citizens holding at least eighty percent of executives and senior management positions and one hundred percent of non-manegerial and other positions.

◦ Where therefore an operator or its allies form a joint venture with a non-indigenous goods supplier or a service provider, that would be deemed as circumventing the law and would be illegal. This will not promote competition and engender the development of international competitiveness of indigenous companies.

Grandfather Agreements of the IOCs Assumptions about indigenization The role of GNPC in promoting local content (Petrobas in /Brazil) The role of the Petroleum Commission and the Local Content

Committee: ◦ Capacity ◦ Monitoring criteria

Funding of the Petroleum Commission Policing of the Petroleum Commission Circumvention of L.I. 2204 by foreign goods and service

providers Superficial/Lukewarm attitude to local content by IOCs Procurement procedures not clear. Foreign goods and service

providers knowing about opportunities before indigenous goods and service providers

For the Regulation to facilitate the development of an indigenous Oil & Gas sector, the following, among others, must prevail: ◦ A strong Petroleum Commission

◦ GNPC setting the pace for local content

◦ Checking the negative aspects of indigenization

◦ Availability of finance for local industries at competitive rates

◦ High standards of performance

◦ Transparency in procurement

◦ Capacity building by indigenous companies themselves