Review Local Content Regulations To Maximize Benefits In The Extractive Sector

| Updated Nov 24, 2017 at 3:44pm



Civil society organizations have underscored the need for government to review the Local Content Regulations in the extractive industries and mainstream them into the general economy and define clear metrics for Local Content measurement in Ghana.

The revised Local Content for the Oil, Gas and Mining Industries should have realistic targets taking into consideration the capacities of indigenous companies to take advantage of opportunities in the sector.

Stakeholders at a round-table in Accra have observed that Ghana stands to gain more if indigenous companies are assisted to ride on the back of Local Content provisions to fully participate in the extractive sector.

The Centre for Extractives and Development, Africa, CEDA, the Natural Resource Governance Institute, NRGI and the Ghana Extractive Industries Transparency Initiative, GHEITI are leading a crusade to promote public discourse on Local Content as a strategy for economic development to enable the country to maximise benefits from natural resource extraction.

The Country has Local Content Legislative Instruments, LIs for the Oil and Gas as well as Minerals and Mining.

Upstream Local Content issues

The Local Content and Local Participating Regulations for the Petroleum Sector L.I 2204, 2013 came into effect in 2014 even though it was enacted in 2013.

The chief objective of the L.I was to maximise value addition and job creation through use of local expertise, goods and services, businesses and financing in the petroleum value chain and their retention in Ghana.

The Upstream Petroleum Sector legislative Instrument is anchored by four pillars, namely; usage of Ghanaian goods and services, equitable participation by Ghanaian citizens in the upstream sector, employment and skills development of Ghanaians and transfer of technology and know-how to Ghanaians.

According to Dr. Juliette Twumasi-Anokye, a Principal Consultant at Anojul Afriyie & Co, apart from the political commitment needed for the development of Local Content Policy and the promulgation of sector specific laws, the implementation of the LI 2204 lacked effective collaboration and institutional coordination among a range of stakeholders.

She called for real support for local companies to fully participate in the sector, explaining that access to finance remains out of the reach of the average indigenous companies making them non-competitive.

Successes chalked up since passage of the LI2204

Statistics from the Petroleum Commission have shown some levels of achievement.

As at December 2016 some 418 companies were registered and are providing direct and indirect services in the Upstream Petroleum Sector. Out of the figure 249 are Indigenous Ghanaian Companies.

According to the Commission if you take the ENI’S OCTP Project for instance, out of the US$6.2billion contract sum awarded, so far US$1.75 billion was given to Indigenous Ghana Companies.

It is reported that 93% of the 12,183 personnel presently employed in the sector are Ghanaians.

Two key projects, the Ghana Upstream Sector Internship Program and the Ghana Upstream Sector Technical, Vocational and Apprenticeship Program have been launched by the Petroleum Commission to solve the challenge of technical skills shortage in the sector.

In terms of “big” ticket infrastructure contracts some Indigenous Companies like Seaweld, Orsam, Belmet and Amaja have fabricated some components of the nation’s Floating, Production Storage and Offloading, FPSO Vessels. The Companies produced deck stools, jumpers and suction piles.

Others like Zeal and Rigworld companies now supply services like vehicle rental, freight forwarding, waste management, offshore catering and manpower supplies in the sector.

It is estimated that over US$20 billion has been invested in the upstream sector in Ghana in the past ten years.

The Minerals and Mining Sector Local Content

The Mineral and Mining (General) Regulations L.I 2173 was also promulgated in 2012 even though some elements of Local Content provisions existed in the PNDC Law 153 which made provision for local procurement.

Most mining companies have over the years flouted the provisions in the Mineral and Mining (General) Regulations L.I 2173.

Information available at the Minerals Commission indicates that the overall percentage of true local procurement achieved in 2014 was 77.9%.

This went down to 73.4% in 2015 and reduced further to 52.3% in 2016.

Even though there are punishments for non-compliance to the regulation, “no sanctions have been taken against the companies and nothing has been done to completely address this problem” Dr. Daniel Kwabena Twerefou, Senior Lecturer at the Economics Department, University of Ghana, Legon, lamented.

As captured in L.I 2173 if a mining company imports goods and services like general lubricants, bolts and nuts and conveyor rollers, the company is to be made to pay 5% of the total import value as punishment for not procuring them locally.

Also if a mining company fails to submit procurement plan for approval by the Minerals Commission, US$10,000/month for the first six month is the prescribed sanction.

Many challenges confront the effective implementation of the local content regulation in the Mineral and Mining sector.

They include; lack of enforcement, inability of local suppliers to deliver goods and services within required time, high interest rate in the country, unstable nature of the local economy in respect to inflation rate and fluctuating exchange rate.

These are disincentives to indigenous companies.

According to Dr. Twerefou, there is the need to provide conducive environment for investment and development along the mining supply chain and gradually allocate some revenue from mining to support local supplier development.

He also emphasized the need to redefine local content to focus on value addition while ensuring strict and efficient enforcement of the provisions in the Local Content Regulations.

Value addition to the natural resources was strongly reiterated as the way forward for the country. “Export of the raw natural resources has not given the nation the needed benefit and efforts must be made for investment to refine the resources locally. We cannot continue to be creating jobs for other economies when our people need jobs.” Dr. Steve Manteaw stated.

Story by Dominic Hlordzi