Ghana’s oil industry loses over US$300 million worth of local content contracts

Over US$300 million worth of local content contracts has been cancelled because of the impact of the COVID-19 pandemic on Ghana’s oil industry, the director in charge of local content at the Petroleum Commission has said.

Speaking to Asaase Radio, Kwaku Boateng said: “When you look at the supply chain, that’s where we have the greatest impact. At the beginning of the year, based on the projects and contracts that were approved by the Petroleum Commission, we were expecting in-country spending of contracts to local companies amounting to US$328 million.” 

He said, “Unfortunately, due to the effect of COVID-19 and the decline of activities in the oil and gas industry, all the companies that were supposed to undertake drilling and development projects have rescheduled their projects to next year, which implies that all these supply chain contracts had to be cancelled.

“At least over US$300 million worth of contracts to local companies has been cancelled because of COVID-19,” he said.

Job losses and boost to home-based industry

“When we look at local jobs, we are expecting that towards the end of the year, about 450 jobs will be lost as a result of COVID-19,” Boateng said. “Due to the movement of workers and the reduction in economic activity, the job roles that are supposed to be occupied by Ghanaian companies had to be slowed down.”

But he added, “However, we should also look at the positive side, in the sense that the effect of COVID has awakened us and the resulting disruption in the supply chain, meaning that imports from outside have also been curtailed or restricted.

“This also created an opportunity for us to look at the domestic production of some of these equipment and tools that are required by the industry and see how we can develop the domestic supply chain to fill the gap that has been created by the [lack of] imports.”

Boateng said, “We should have a new world order in local content development by trying to build a local supply chain to meet the requirement of the industry.”

Next licensing round to bring competition

The Ministry of Energy in July 2019 announced the winners for two oil blocks after evaluating the bids in Ghana’s first licensing rounds. 

According to the ministry, “First Exploration and Petroleum Development Company Limited in partnership with Elandel Energy (Ghana) Limited emerged winners of block GH_WB_02. ENI Ghana Exploration and Production Limited, in partnership with Vitol Upstream Tano Limited, emerged winners of block GH_WB_03.”

The country is expected to launch its second licensing rounds this year but the process has been slow because of the COVID-19 pandemic. Boateng said this is not the time for companies to bid for blocs and commit to exploration, “So, naturally, it has to be deferred.” 

He said, “The government is now looking at the impact of COVID-19 on the industry and how to minimise the domestic impact of the pandemic. Going forward, the licensing round has to be deferred. The impact of COVID-19 is expected to be long-lasting for the oil and gas industry, especially when you look at what is happening in the US.”

Boateng added, “When we go for the next licensing round, learning from the previous one that we did, what we need to do is to probably offer more attractive terms in order to compete for investment in the upstream sector, because we expect that when the impact of COVID-19 eases, many countries will engage in competition for investment into their petroleum sector.

“For us to enhance the attractiveness of Ghana beyond the geological prospects, we need to offer a relatively generous fiscal package to attract the companies,” he said.

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