Local content target overambitious

The target to achieve 90 percent local content and participation in both capital and operational activities in the oil and gas industry by 2020 is overambitious and not feasible, an expert has said. “I think the period is too short. We should be able to take a long-term perspective and project our thinking. The strategy must be to grow gradually,” said John-Peter Amewu of the Africa Centre for Energy Policy (ACEP) and Manager of the Regional Extractive Industries Knowledge Hub (REIK Hub). Ghana’s oil and gas local-content plan, in respect to the provision of goods and services, targets 10 percent local participation from the onset, 50 percent participation in five years, and 60-90 percent local participation within 10 years. It is also aiming at 70-80 percent locally-trained management and technical staff in the oil and gas sector within ten years of its implementation. But Mr. Amewu, speaking at a two-day workshop organised by the Institute of Economic Affairs (IEA) for members of the Parliamentary Select Committee on Mines and Energy and other stakeholders in the oil and gas sector, was skeptical. “To construct a dry-dock of a standard size will take you three to four years. It takes a minimum of one year to acquire a welding certification. It takes 10 years of training and experience to qualify as a drilling engineer. The steel that is going to be used, if you say 90 percent local participation, you have to produce it yourself,” he said. There is also a cost to enforcing the local-content provisions. Though local content would lead to an increase in jobs, the downside is that local-content regulation could drive up project costs and affect government revenue. Due to the cost premiums required to meet any new regulation on local content, it could also erode investment returns. “That is one strong argument going on in Brazil, where they have had to reduce their local content drive below the 60 percent target. And so if you take all these into consideration, you realise that the 90 percent target is just not possible,” Mr. Amewu said. He advocated setting of specific targets for different segments of the oil industry, modelled along the lines of the Nigerian Local Content Act (NLCA). The NLCA is specifically targetted at building local capacity in areas such as fabrication/installation; equipment manufacturing; and construction of oil and gas infrastructure. Rather than setting a blanket target, he noted, the country needs to undertake a value-chain analysis to determine where it has comparative advantage and build capacity in those areas. Cost barrier The country’s local content plan is divided into six sub-plans: employment and training; research and development; technology transfer; local insurance services content; local financial services; and local legal services content plans. But before the plan has received legal backing, the cost of licencing a business to operate in the sector looks like becoming an important barrier to entry by locals. A schedule of fees for local businesses seeking opportunities in the oil and gas sector, which is still under discussion at the Petroleum Commission, shows that currently a Ghanaian services company wishing to engage in the oil and gas sector has to pay a subscription fee of US$50,000 (US$30,000 initial fee and US$20,000 renewal fee) and must have a turnover of at least US$5million. A Ghanaian company wishing to participate in exploration and production has to pay US$30,000 initial fee, and a US$30,000 renewal fee. These astronomical amounts risk barring Ghanaians from the sector and defeating the purpose of 90% indigenisation by 2020. source:b&ft