Our Position on the Crumbs
Jesus would be the first to admit how pleasantly shocking this response from the Canaanite woman was. Having been challenged from all angles to prove his God status; having been challenged with disbelieve from all camps across Israel, it came as such a pleasant surprise—a shocking one, to meet this desperate mother who responded with: “Yes…but even the dogs eat the crumbs that fall from their master’s table” when He, occupied with a duty towards Israel, had tried dismissing her, a Canaanite, with this painful comment, “It is not right to take the children’s bread and toss it to their dogs.”
It is profound, is it not? For one to, in their desperation, liken themselves to dogs—dogs who can make do with leftover crumbs that happen to fall from a master’s table. But it is ridiculous, is it not—this anecdote? It is ridiculous to begin this piece with this analogy when the matter for discussion today is our nation’s local content and local participation laws—as they relate to our oil and gas sector. We sure cannot propose to be dogs, game for the crumbs in our very own home, can we? Such a resignation—to be the masters as we are in our own homes, yet resign at the same time to being dogs only deserving of the leftover, fallen-over bread crumbs, such a resignation would not draw from Jesus, as it did in the case of this Canaanite woman, “…you have great faith!” Rather, He would most definitely say something along the lines of, “Oh foolish Galatians! Who has bewitched you?...” and by ‘Galatians’ He would mean Ghanaians. But luckily things will not deteriorate to this point—we hope.
On the concept of ‘ours’
We continue our musings with Dr. Kweku Ainuson, one of the nation’s prime business lawyer and law lecturer. “The laws are fine; it is the enforcement thereof—that’s where the problem lies.” It was important Dr. Ainuson began on this note because it happens too often… It happens too often that whenever fractures in societal and national systems are identified, there is almost always an instinctive recourse to ‘law blaming’. In order to distract attention perhaps from our physical form and our physical parts—the destructive parts we have had to play in causing these fractures, we tend to point to the law, as principal cause, as the very entity needing change. And then energies and resources are exerted to rectify the law, only for situations to keep prevailing in their ‘fractured-ness’. Why? Because somebody enacted and rectified the laws—the letter of the laws, without bothering to actually change the system.
Having joined the train of this over-three-centuries-old economic activity (fossil fuel production), Ghana has, as an upside, a wealth of knowledge on the global front on the subject matter from which to tap. The abundance of human knowledge on this sector extends to its laws; it extends too to the systems and structures prerequisite for the effective and propitious functioning of the sector. So since oil and gas exploration began as far back as the 1980s in this country, and ‘gold’ was finally struck in 2007, the nation has made it a point to enact crucial legislations that would see to the smooth running of the sector, with senior oil-producing countries across the world as our templates. We did so even at the period when discovery in commercial quantities had not yet been made—this is what it means to lay the groundwork in preparation for the ‘saviour’. John the Baptist would be proud.
In the late 20th century, the Petroleum (Exploration and Production) Decree, 1984 (PNDCL 84) was enacted to regulate the then hopeful Ghanaian fossil fuel sector. Under section 23 of the Decree, where the obligations of the contractor were spelt out, we had in subsection 10, an obligation on the contractor or subcontractor to employ “as far as is possible” Ghanaian citizens; and in subsection 12, they were to “as far as practicable” utilise goods and services produced in Ghana in their operations.
Note that this was at a time when oil and gas exploration and production in the country was merely a pipe dream. This then being the case, the Ghanaian market, naturally determined by the laws of demand and supply, had no real tangible ‘demand’ to cling to, so naturally Ghanaian petroleum goods and service providers and skilled persons needed to fulfil the above-stated legal provisions were scant. Yet the law endeavoured to imbibe in us this culture of ‘it is ours; hence must directly benefit us’ very early in this whole journey. Yes, you can say that this is like that time that husband and wife got into an argument over who would get to ride in the front-seat of their unborn child’s future car.
In section 23(13), the contractor and subcontractor were required to prepare and implement plans and programmes to see to the training of Ghanaians; and subsection 14 went further to require of these international oil companies (IOCs) the implementation of plans for technology and skill transfer. Under section 23(15)(c), they were required to open and maintain banks in Ghana. This was the legislative climate in the country up until the dream became reality in 2007, and actual work began in 2010—the laws had to change to meet this very tangible reality.
So in 2016, this old law was repealed and replaced with the Petroleum (Exploration and Production) Act, 2016 (Act 919). We find under this new law, section 60 rehashing the requirement for the ‘employment and training of Ghanaian citizens’, and under section 61, there is the direction for the utilisation of ‘Ghanaian goods and services’. Under section 62, the obligation of ‘technology transfer’ is reiterated; and section 63 comes in rehashing the obligation on the licensee [now included proudly], contractor, or subcontractor to prepare and submit to the Petroleum Commission, a ‘local content plan’.
Even prior to this re-enactment, there has been in existence, since 2013, the Petroleum (Local Content and Local Participation) Regulations, 2013 (L.I. 2204), a law which was enacted to lend specificity and form to our nation’s plan of attaining utmost indigenous involvement in the industry—a matter so urgent that it was deemed deserving of a body of laws of its own. Before we proceed in briefly dissecting L.I. 2204, a distinction (as inferred from the Regulations), between these two, very interconnected terms is necessary: ‘local content’ and ‘local participation’.
Local content is defined under the Interpretation portion of the Regulations (regulation 49) 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 regulation however does not explain what ‘local participation’ is. It is unclear whether we are to infer that the two are in fact one and the same thing. However, further reading of the Regulations reveal yet another form of local involvement, one not truly captured under this definition just given, one which is arguably the overarching aim, the ultimate endgame, one which has to do with the ownership, management, and control of petroleum businesses—a form which we may aptly describe as ‘local participation’. So then, local participation may be defined as the quantum or percentage of ownership and management by locals in the petroleum industry. It is safe to say that local content is the steps taken to reach a brighter future of immense local participation.
Great Plans for Great Expectations…
“We always pass such brilliant pieces of legislations. L.I. 2204 is a fantastic piece of legislation. Not only does the Regulations make provision for, among others, the derivation of goods and services by IOCs from Ghana, the employment of Ghanaians, and the overall utilisation of local expertise in the petroleum business, it goes on to make a comprehensive list of the minimum level of local content prerequisite for each and every segment and subsegment of activities related to the industry. It stipulates a progressive local content expectation for each of these activities—from the beginning of petroleum production activities, to five years in, and then 10 years into production. For each of these activities, for each of these landmark periods stipulated, the percentage of local content prerequisite is stipulated by law.
The law goes on to require of all IOCs the submission of local content plans for approval and supervision by the Commission. In situations where IOCs are unable to abide by local content expectations, they are to indicate in writing to the Commission, reasons why, and must include steps they have or endeavour to undertake to aid the rectification of those hurdles to local content enforcements stipulated. There are to be quarterly and annual reports provided for the Commission’s review by these IOCs…” Dr. Ainuson notes.
Indeed, in the First Schedule of the Regulations (as regulations 10 directs us to), an exhaustive list and compartmentalisation of petroleum activities and services are made, with percentages of local content prerequisite indicated against them. For the goods and services local content requirement, all IOCs are to, according to the First Schedule, have a progressive local content level. At the beginning of an IOC’s petroleum activities in the country, they are supposed to have not less than 10% local content in the goods and services acquired for their operations. 5 years into operations, this minimum local content level is to increase to 50%. Then 10 years on, this minimum requirement is to be raised to somewhere between 60 – 90%.
When it comes to the employment of Ghanaians, the law breaks down the industry’s workforce into ‘management staff’, ‘technical core staff’, and all ‘other staff’. An IOC is required by the Schedule to have, at the start of operations, not less than 30% of all its management staff as Ghanaians. 5 years into operations, the minimum ought to be between 50% and 60%. 10 years on, this local content levels for employment of management staff by these IOCs must be somewhere between 70% and 80%. For technical core staff, the starting percentage is 20%, while its progression is same as the management staff—both 5 years and 10 years on. When it comes to all other staff, the starting local content level is pegged at 80%; five years on, levels must not be below 90%; 10 years into operations, levels must be a full 100%.
The Schedule goes on to give an exhaustive breakdown of the industry’s types of goods and services, and gives for each of these products and activities, specific local content levels, and means of measurements to be employed by the Commission—all within the broad specifications for ‘goods and services’ as already discussed.
Per the Second Schedule of the Regulations (jointly read with regulation 14), an IOC is required to provide the Commission quarterly forecasts, ‘not later than the first day of each quarter’ indicating, among others, the goods and services they intend to contract for and their estimated values. In this case, the Commission is made privy before the fact—before actual purchasing or contracting is made. If there are actually Ghanaians capable of delivering on these stipulated goods and services, the Commission has ample time to be in the know—it won’t then be expected to take lame excuses for non-enforcement from IOCs.
When it comes to the provision of goods and services, any non-indigenous Ghanaian company which intends to provide goods and services to an IOC is required by law to enter into a joint venture (JV) with in indigenous company—and must give this Ghanaian company an equity participation of 10%. This is provided for under regulation 4(6).
There is an ultimate aim to create for ourselves, an oil and gas industry largely owned and driven by Ghanaians. Regulation 4 of L.I. 2204 ambitiously stipulates, “…an indigenous Ghanaian company shall be given first preference in the grant of a petroleum agreement or licence…” This is a direction which could have been more religiously adhered to had the Ghanaian been equipped on all these crucial fronts, right from the very get-go with, among others, the needed financial resources and technical expertise—so as to be able to rise up to the challenge of claiming fully what is ours. But the facts on the ground say something different. Crippled with inadequate capital and technical know-how, the Ghanaian petroleum industry has proven itself in dire need of foreign hands. This need for foreign investment in the oil and gas sector is not particularly peculiar to Ghana. Worldwide, the petroleum industries of countries have shown themselves in need (in varying degrees) of FDIs. A nation’s situation is suboptimal, if its industry is largely foreign driven, as Ghana’s is.
The entire Regulations, together with all other relevant legal provisions on the matter of local content and local participation, is an exercise in ‘baby steps’. Regulation 4, after opening ambitiously with its dictate of ‘first preference’, goes on to (in sub-regulation 2) stipulate the minimum Ghanaian equity participation needed for a petroleum agreement and licence to be legally valid; and it is meekly pegged at ‘at least 5%’—the GNPC’s involvement does not factor into this 5%. Even this 5% is amendable by the Minister of Energy and Petroleum—if it is found that no indigenous company was able to satisfy this requirement of equity participation. Needless to say, the law balances ambition with reality.
The interest of Ghanaian companies in these petroleum agreements and licences when attained, must be protected—hence such licences cannot be transferred from Ghanaian hands into non-indigenous hands. All such transfers must be from one indigenous Ghanaian company to another. The law goes on to direct all IOCs to, before the start of their operations, submit a plan providing details on the equity participation of Ghanaians in these petroleum licences and agreements of theirs, the roles and responsibilities of these Ghanaian companies, and the strategies they (IOCs) are putting in place to ensure knowledge and skill transfer to these indigenous companies.
The local content and local participation laws of our country are, no doubt, an exercise in ‘progression’. The ultimate aim of these laws are to, as already indicated, serve as a means to a grand end—an end where the Ghanaian is truly the owner of this very land called Ghana and the resources that may be contained within it. Under article 257(6) of the 1992 Constitution, we find all natural resources contained within the territories of Ghana being vested in the President on behalf of and in trust for the people—Ghanaians.
The people of Ghana are the principal persons of interest for the country of Ghana. Hence laws and prevailing circumstances that find them being dealt a bad hand across all the various segments of their social, economic, political lives, and in this particular case, in their country’s petroleum sector, are in the end, quite blatantly unconstitutional. The nation’s local content and local participation laws, they are cognisant of this fact. In fact, this is the bedrock on which these laws themselves are built. So the laws being perfectly laid, one can only conclude that the intended fruits are being reaped here and there. Or?
After the law, must come enforcement. After the laws, must come accountability. Religious, unwavering accountability and enforcement is the only sure way of ensuring that these brilliant laws reap their intended benefits of sustained socioeconomic development. There is arguably little to no wiggle room in this law. The only gaping wiggle room seems to be in its enforcement. Because the narrative that has unfolded since 2010 has been: “For many of us, the good times never came” as Dr. Ainuson puts it. There was a whole fanfare when the nation, after decades of searching, finally hit oil in 2007. There was a whole fanfare, and promises of a very bright Ghanaian future—a future of exponential economic growth and overall improvement in the standard of living of Ghanaians when potential in commercial quantities was announced in 2010.
This fanfare was in no way a delusion on our part. Because since the discovery of mechanisation and the derivation of energy sources to fuel industry in the 18th century, an energy source like oil and gas has basked in the ‘saviour’ throne for centuries, worldwide. Energy is that which drives industrialisation; industrialisation has been that which has driven and still drives this modern age of ours. So then, there is nothing outrageous about these petroleum-fuelled fanfares countries engage in. And there is definitely nothing absurd about the fanfare that surrounded Ghana’s discovery of petroleum in 2007. Countries painstakingly exert energies and resources in search of oil and gas in hopes of a brighter future.
Isn’t it a tragedy then, should these countries finally find this very thing they’ve been dreaming of (oil and gas), yet find themselves, decades into the production of this energy source, none the better—the dream attained yet deferred still, experiencing sustained ‘economic dwindling’ (not economic growth)? When this happens, wouldn’t one be right in wondering: ‘what went wrong?’ And experts, having studied the matter closely, won’t they be right in coining a term as grim as ‘natural resource curse’ in description of this phenomenon of disappointment?
Ghana had great dreams for oil and gas, and this dream we sought to concretise with legislative and regulative enactments and environments such as the Local Content and Local Participation Regulations, 2013 (L.I. 2204). But as it stands, one is left to wonder if those undertakings we made for ourselves under this law has been met, and whether the overall dream of economic prosperity has also been met. The question in a nutshell remains: in these two extreme polar ends, a) ‘natural resource blessings’; b) ‘natural resource curse’, where does Ghana find herself? These are the types of questions we will find answers to in the subsequent article. But you do know the answer to this already, don’t you? Right there in your pocket, you have those answers…
[Published in the Business & Financial Times (B&FT) - 29th June, 2022]