Part 1- Legal Environment
This write-up is the first in a series of management based campaign to help persons with an energy services startup ambitions here in Ghana. The introduction of the Local content law LI 2204 (2013)1 has brought about some excitement among local entrepreneurs looking to quickly exploit the business opportunities in the industry. The early years after the announcement of the discovery of commercially viable oil offshore in Ghana were certainly almost dominated by huge multinational companies but since the proposal of the Local content bill which has now become the LI 2204, the industry has seen some small to medium ventures characterized by both internal and external investors willing to accommodate the inherent risks associated with doing energy business in the West-African sub-region.
How the Law makes it exciting as an entrepreneur
Regulation 4 of the LI 2204 brings about a feeling of hope and protection of investment to local entrepreneurs who have or plan to have an equity stake in whatever joint venture they plan to establish with a 10% minimum equity stake for non-indigenous companies and 5% for indigenous companies. The truth however is, whiles we jubilate at the prospect of hundred percent Ghanaian owned oil and gas companies, the industry is highly regulated with respect to international standards of operations. This means that we cannot discount foreign expertise especially those coming from economies with energy at the forefront of their development for many years. Fortunately, LI 2204 takes the transfer of skills and technology into account making it one of the key objectives of the law.
With respect to management, the First Schedule of the Local Content law specifies in great details a timeline with associated levels of Ghanaian citizens to be employed from inception of business activities and this makes it exciting for young oil and gas graduates. There are currently a lot of higher degree graduates with energy and oil and gas training currently in Ghana with majority of them unemployed or working in non-energy related sectors. The 80% in 10 years set out by the law appears to be in order as the young generation of energy experts gain the much required experience in this knowledge intensive industry and warm themselves into critical management positions.
Below is a summary highlighting the key facets of the local content agenda in Ghana;2
As communicated by various stakeholders including the African Center for Energy Policy (ACEP), the local content law is not without challenges as certain critical accompanying laws are either not complete or do not provide the needed backing. Also the law has been described as being skewed to the functions of the Petroleum Commission with effective governance being central in the successful implementation of the law. It is also worthy to mention that Ghana is bound by certain treaties resulting from a number of memberships to international organization such as the World Trade Organization (WTO) and the United Nations (UN). The country is also bound by various bilateral treaties and these can impact on the rights of various foreign investors regarding the local content law such as the restriction on joint venture requirements and restrictions on use of domestic suppliers. The General Agreement on Trade Services (GATS), a WTO agreement, for instance poses such restrictions.2
The existence of clear legal structures in the natural resources sector especially in the energy sector gives a clear direction to small service companies. There are more pressing dynamics to consider in the management of small oil and gas companies in Ghana which shall be discussed in subsequent posts.
1. source: www.reportingoilandgas.org
2. source: Local Content: Ghana – Petroleum, Columbia Center on Sustainable Investment, June 2014