Local content: Myth or reality?

Ghana’s local content demands are very ambitious: some observers actually think it is overambitious for the Local Content Policy to stipulate that by 2020, 90% of services and supplies required by a project must be provided by “indigenous” companies.

While it will continue to be debated whether the lofty goals of creating jobs and indigenising knowledge, expertise and technology will be achieved, Ghanaians appear to be holding their own amidst daunting challenges.

With relatively little or no experience and money, they are pushing their way up and fighting for recognition in an industry dominated by a protective league of international cartels.

Data from the Energy Ministry indicate that as at December 2013 a total number of 6,929 personnel were employed in the petroleum upstream sector. This consisted of 5,589 Ghanaians and 1,340 expatriates, representing approximately 80% and 20% respectively.

The data further indicate that between 2008 and the first quarter of 2014, contracts worth US$584,221,448 had been awarded to Ghanaian companies in the oil and gas industry.

The figure, according to the ministry, represents a significant improvement in the sum of contracts going to Ghanaian companies — thereby strengthening government’s local content agenda.

So far, there are about 152 Ghanaian companies — of the 232 registered with the Petroleum Commission — providing direct and indirect services to the upstream industry.

They are providing services ranging from catering/hospitality services, logistics supplies and freight forwarding, to fabrication and waste management services.

The laws and regulations

According to the Petroleum Commission — regulator of the upstream petroleum sector, Local Content refers to the quantum/percentage of locally produced materials, personnel, financing, goods and services rendered to the oil industry which can be measured in monetary terms.

Local participation on the other hand refers to the level of Ghanaian Equity Ownership in the oil and gas industry. To qualify as Ghanaian/indigenous, the company must have at least 51% of its equity owned by a
Ghanaian with 80% management and senior positions occupied by Ghanaians.

The Petroleum Local Content and Local Participation Regulations, 2013, further stipulate that “There shall be at least a five percent equity participation of an indigenous Ghanaian company other than the Corporation [GNPC] to be qualified for entry into a petroleum agreement or to obtain a petroleum licence.”

Are Ghanaians fronting for foreigners?

Concerns have been raised, though, regarding the likelihood that Ghanaians are fronting for foreign concerns; by taking up the five percent equity only to hand it over to their foreign paymasters when discoveries are made.

In a July 2014 press release, the African Centre for Energy Policy (ACEP) drew parliament’s attention to what it considered “potential violation of the local content regulations (LI2204), which provides a minimum equity of 5% for indigenous Ghanaian firms in every Petroleum Agreement (PA).

“Two of the PAs do not meet this requirement. For example, in the Brittania-U’s PA, Hills Oil Marketing Company — the local indigenous Ghanaian firm, holds 5% in Brittania-U translating into 4% in the concession; whilst in UB Resources’ PA, the indigenous firm — Royal Gate, has 5% in UB Resources which translates into 4.35% in the concession.

“We also suspect fronting in some of the PAs. For example BlueStar, a Ghanaian firm has not submitted any documents on its financial strength. Heritage Oil in this case guaranteed the performance obligations of BlueStar. For this reason, we wish to call on government to disclose the beneficial owners of all these companies, both foreign and local.”

ACEP went on to say that: “Government must demonstrate beyond the new anti-corruption clause in the PAs that it means well for Ghana’s oil wealth, and must facilitate more comprehensive governance reforms around oil contracts if Ghana is to be a model of good petroleum resource management.”

Local content strides

Aside from the five percent equity stake in petroleum licences, however, there are a number of Ghanaians earning sub-contracts and providing various services to the upstream players.

Zeal Environmental Technologies, an indigenous company based in Takoradi, is today a foremost waste treatment services provider in the oil industry.

Waste generated from oil exploration has to be managed somehow, or the environmental consequences could be dire. Hydrocarbon waste and waste water can cause land, water or groundwater contamination.

To manage the waste requires state-of-the-art technology that not only separates the contaminated oil from waste-water, but also treats the waste for either re-use or safe discharge onto land.

Oil companies are bound by international law to treat their waste. If they do not find a facility in their jurisdiction to treat the waste, they “transboundary-manage” it. This means the waste is carted to a country where such a facility exists.

This is why waste from drilling activities in Liberia is currently brought to Ghana, and that is also because people like Mr. Kwaku Annin, a Ghanaian entrepreneur, have ventured into the area.

His company, Zeal Environmental Technologies, began in 1977 by providing corrosion engineering services to the erstwhile Ashanti Goldfields mining company. But when Anglogold bought into Ashanti, Mr. Annin said most of the contracts the Ghanaians were doing were outsourced to South Africans.

So when the oil and gas industry came “we saw this opportunity and decided to diversify”, he said.
Over US$4million, he said, have been invested in the establishment and running of a waste- treatment facility.

Today major players in the industry, particularly the Jubilee Partners, use the oil and gas waste management services of Zeal to manage their drilling-generated waste.

Zeal has a dedicated receptacle at Takoradi Port for receiving the waste, which is then transported to the treatment facility a few miles away. The waste is emptied into a reception pond that can take about 320,000 litres of liquid. From the pond it goes through various processes, and the oil condensate is separated from waste water.

While the condensate is further treated for reuse, the waste water is treated and discharged into open drains. Before the water goes out, though, it has to meet Environmental Protection Agency standards.

Checks are done on its PH or alkalinity levels, temperature, total suspended solids, and biological toxin demand, among others.

Engineers at the facility say the treated water can be used for irrigation purposes.
Mr. Annin said the company is investing in a state-of-the-art incinerator to start burning a whole range of waste matter, like oily rags, from various industrial activities.

Zeal also has an interest in establishing a facility at Atuabo to manage the waste that will be generated from the gas processing plant.

Local Content Fund proposed

The financial implications are huge, Mr. Annin admits, considering the highly capital-intensive nature of the oil and gas industry. More often than not, Ghanaians in the industry do not have the kind of financial outlay required to take on major contracts.

Meanwhile, government says it wants to incrementally lift the percentage of Ghanaian participation in the industry.

One of the key policy objectives in the country’s Oil and Gas Local Content Policy is to “maximise the benefits of oil and gas…by maximising the use of local expertise, goods and services, job-creation for people, businesses and financing in all aspects of the oil and gas industry value-chain, and retention of the benefit within Ghana”.

Mr. Annin believes that if these fine ideals are to be realised, government will have to set up a fund to support Ghanaians in the industry.

“I am not saying everybody. Government can do an audit and separate the men from the boys and support them,” he said.

In spite of the challenges, however, he expressed optimism about the prospects and called on Ghanaians to join forces if they are to gain control of the industry’s commanding heights.

Danest Engineering Limited is another Takoradi-based company, which provides welding solutions to various industries including oil and gas. The company is run by Daniel Kwarkyi, a US-trained welding inspector and educator who also trains young Ghanaians in welding.

So far, Mr. Kwarkyi says he has had two oil and gas-related jobs; one with the Ghana Gas Company and the other with Belmet of South Africa, a steel fabrication sub-contractor on the TEN Project.

The skills-gap and the lack of regulation

Daniel Kwarkyi’s major worry for the country, however, is the gaping skills-gap and the lack of serious effort to regulate training — leading to charlatans parading as trainers.

The story of welders shows the wide gulf between reality and aspirations, and exemplifies the barrier other craftsmen and professionals face as they seek to enter the industry.

In Takoradi, about 70 “professional” Ghanaian welders were hired for a welding job at a power plant. On the project was Daniel Kwarkyi, whose job is to ensure the work is foolproof, incapable of causing a future disaster in an industry where explosions can occur spontaneously.

The Ghanaian welders, with significant years of welding experience, put in an effort; they had a go at the job, eager to prove that they were the best hands around. Halfway into the job, however, the expatriate contractor became livid: the welders could not perfom to the required standard.

A compromise was reached and expatriate welders were brought in to complete the job. In the end, everyone was happy.

“Yes, we had to agree to bring in expert welders from outside; and we didn’t go far, just Egypt. We brought in 35 of them and they were marvellous,” said Mr. Kwarkyi.

“Even our own welders understood everything and were happy that these guys (the Egyptians) had come. But we need to learn from these experiences. Now that the oil industry has started, why don’t we set up a system like that? Bring in all the experts to help train our people from the universities, polytechnics and so on to handle such jobs?” he asks.

The 70 Ghanaian welders, he says, are representative of the kind of welders Ghana currently has to offer the oil and gas industry. Although they may have been welding for years, Ghana’s welders are mostly informally trained and often not trained to any code or specific qualification.

To bring home his point, Mr. Kwarkyi likens the situation to what pertains in the world of driving: “In driving, you only need a licence B to drive a Tico car; but if you have to drive a Yutong bus across the border to Burkina Faso, you have to have a licence F, and you still have to be trained on that thing before you can do the job.

“So if our welders have been welding for all these years doing burglar-proofs; welding articulated truck bodies and so on without any code, that’s ok. But the oil and gas industry does not operate like that; the code says you have to be qualified, and because they are not used to requirements of the code when you give them a code test they cannot do it.”

Additionally, he says “There are new processes coming up in the industry, like the Gas Metal Arc Welding, Flux-cored Arc Welding, Gas Tungsten Arc Welding, apart from the Shielded Metal Arc Welding, which are all processes used in the industry, and you need training on these because these pieces of equipment are not common”.

A training system, he reasons, needs to be set up based on the code, using the specifications for qualification as a training facility.

In welding, there are agencies and authorising bodies like the American Welding Society, the American
Society of Mechanical Engineers, and the American Petroleum Institute. South Africa also has the South African Institute of Welding, which regulates work there. Ghana has no such body.

“And all these bodies have codes or standards by which welding is done. For instance, if you work on wood structures, the American Welding Society demands that you have a certification called KWSD 1.1. For pressure vessels and piping, the code governing it is the ASME9. Then when you build cross-country pipelines, that is, say, from the Western Region Nzema area to Takoradi-Aboadze, you build according to a code known as ABI 11,” Mr. Kwarkyi explains.

“You cannot just get up and say ‘I am training welders’; to what standard? When you get to know the standards, then you put in place the necessary measures. So the training facility will need to have the equipment; it will need to have the consumables, and will need to have qualified and certified instructors to do the job. When you do not have these things in place and then you put guys in the classroom and say you are teaching them welding, you are deceiving them.”

A lot of deception, it appears, is already going on across the country — with all manner of people setting up what they call training institutions. Sadly, desperate young Ghanaians seeking careers in the petroleum industry are falling for it.

“For about three years now, I have been trying in the country to find a certified welding inspector and nobody has come,” says Daniel Kwarkyi, who also hints that “we will need between 500 and 1,000 welders — I mean welders who are qualified to do code work — within the next five years.”

But the training does not come cheap. At his own training facility, which has 24 standard training booths, Daniel Kwarkyi charges between GH¢9,800 and GH¢24,500 for the four major welding programmes that run for between 14 to 35 weeks.

The training is not cheap anywhere in the world, he says, and left to their own fate many would-be welders, for want of resources, would go without the training.

“Even in the US, the government sponsors a lot of the training. What the government of Ghana should do is to identify this need, and then identify people who are ready. It’s hard work; it’s not work for the faint-hearted, so identify people who are ready to learn. Now pay their fees. It could be a loan which they pay back when they start working, just as is done with the Students Loan Scheme.”

With the entry-level salary at around GH¢3,000 per month in the industry, Mr. Kwarkyi believes paying back government for the cost of their training should not be difficult for beneficiaries.

He adds that: “The government should set up a body that would look for people who are prepared and ready to learn. As for those already in the system who already know how to weld, I think it would be nice if somebody could sponsor them so that they do short courses to be upgraded to the code”.

The training needs of SMEs

Most of the 152 companies said to be registered with the Petroleum Commission are in the Small and Medium Scale category, with significant challenges in terms of systems and business processes, as well as a technical challenges regarding the oil and gas industry.

In response to these challenges the government, in collaboration with the Jubilee partners, set up the US$5million Enterprise Development Centre in Takoradi.

Over 300 SMEs have so far registered with the centre to take advantage of its range of business advisory services and training.

The training modules at the centre include Budgeting and Financial Management, Introduction to Oil and Gas Accounting, Introduction to Oil and Gas Contracting Processes, Terms and Conditions, and Managing Small Business Enterprises.

Others are: Business Spreadsheet Applications/Information Management using Databases, Contract Management, and Quality Management.

“Through the training modules, Ghanaian small scale enterprises (GhSMEs) are being adequately resourced to offer specific, realistic and alternative options to international oil companies,” Shika Acolatse, Director of the centre, said.

To give meaning to the local content agenda, the 14-modules were designed in collaboration with the oil companies to meet their specific needs and help beneficiary GhSMEs manage their businesses with a better understanding of business ethics and compliance.

According to the Director, the centre also takes the trainees through managing their organisation’s finances and budgeting, spreadsheet application in business, organisational planning, database applications, and information management.

Other major challenges the centre is helping GhSMEs overcome include proposal-writing and responding to bidding enquiries, as well as oil and gas accounting.

“The EDC has established a network of Ghanaian Business Service Providers (BSPs) to offer exclusive and varied professional services for GhSMEs to be competitive,” she said.

The professional services include legal advice on contracts, contracts bidding and company registration options. Others include information and communication technology needs of small and medium enterprises in today’s information age, as well as basic and advanced accounting needs of SMEs.

The centre also gives expert advice on financial instruments available locally and internationally.
Supporting the growth and driving the focus of the EDC are the EDC platform services, which include promoting joint venture arrangements between GhSMEs and international oil companies as a strategy to pool resources such as finance, technology equipment among others to meet the requirements.

This focus, Shika Acolatse said, provides a feedback mechanism for follow-up and information on contract awards to GhSMEs, and feedback on unsuccessful GhSMEs in pre-qualification and bidding processes.

Source: BFT

Show More

Related Articles

Back to top button