Since the discovery of oil in commercial quantities in 2007, Ghana's petroleum industry has witnessed remarkable growth. In an effort to foster the development of the indigenous market, the Ministry of Energy introduced policies to take advantage of this growth. However, the actual participation of local companies, particularly in the upstream petroleum sector, has remained limited.
To develop the indigenous market, the Ministry of Energy enacted a local content and local participation policy in 2013 to give preferential treatment to Ghanaian petroleum businesses to:
- maximise local employment;
- develop local capacities through education, skills transfer and expertise development; and
- promote domestic manufacturing. Local content refers to the use of Ghanaian expertise, goods and services, people, businesses, and financing; while local participation refers to the level of Ghanaian equity or ownership in businesses.
However, only a few local companies have a stake in the oil and gas market, especially in the upstream petroleum sector which is characterised by activities involving the exploration and production of petroleum.
In 2022, the Petroleum (Local Content and Local Participation) (Amendment) Regulations, 2021 (“L.I. 2435”) came into force to expand the avenues through which an indigenous Ghanaian company (“IGC”) can partner with non-IGCs to provide services in the petroleum industry value chain. The effect of L.I. 2435 is likely to be an increase in Ghanaian participation.
Under L.I. 2435, the threshold for a company to be classified as an IGC has been raised from 51% to 100% Ghanaian ownership. Thus now, an IGC is defined as a company that is:
- incorporated under the Companies Act, 2019;
- fully-owned fully owned by a Ghanaian citizen;
- has Ghanaian citizens holding a minimum of 80% of executive and senior management positions; and
- has Ghanaian citizens holding 100% of the non-managerial and other positions.
Where doing so may deepen local content and local participation and maximise technology transfer, the Petroleum Commission (regulator of the upstream petroleum sector), may recommend a channel partnership or strategic alliance between the IGC and a non-IGC.
A channel partnership is an arrangement between an IGC and a non-IGC including a distributor, a vendor, a retailer or a consultant, to market and sell the products and services or technologies of the IGC in Ghana.
A strategic alliance is an arrangement between a non-IGC and an IGC by which the responsibilities are clearly defined and partners agree to share resources to undertake a specific mutually beneficial project. While a new entity is set up through a channel partnership, the IGC and non-IGC maintain their separate corporate identities under a strategic alliance.
The original regulations, L.I. 2204, introduced benchmarks for Ghanaian participation in the provision of certain goods, and services integral to petroleum activities to be met by target dates. For example, the supply of certain products was required to meet 100% Ghanaian participation or almost 100% within 10 years. However, L.I. 2435 favours Ghanaian companies by requiring that the level of Ghanaian participation in the supply of some products has to be 100% from the start of supply. This is the case for:
- low-voltage and high-voltage cables;
- freight forwarding;
- logistics and customs clearance;
- dredging services; and
- network installation and support services.
Lastly, the supply of certain commodity chemicals such as methanol (alternate fuel for internal combustion and other engines) and acrylic acid (one of the main chemicals used in polymer and rubber production) are reserved for indigenous Ghanaian companies.
The amendments will create an opportunity for foreign investors to be involved in the industry value chain in Ghana through the introduction of the channel partnership and strategic alliances. Clear guidelines and effective implementation will be key to ensuring the successful realisation of these objectives, ultimately contributing to the industry's sustainable growth and the economic development of Ghana
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Read the original publication at ENSafrica.
