local content and stakeholder management development & implementation republic of ghana 1...

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LOCAL CONTENT AND STAKEHOLDER MANAGEMENT

Development & Implementation

Republic of Ghana

MDPI/GIG Oil and Gas Training

MDPI/GIG Oil and Gas Training 2

Local Content For Ghana’s Oil & Gas Industry

Key Learning Outcomes Will provides practical tools, hands-on experience and best practices in the fast growing discipline of Local Content management. To explore the dynamics of the diverse workforce in the global oil and gas industry. To gain an in-depth understanding of the importance and application of ethics and corporate social responsibility.


Course Content

• What is local content?

• Why nations need local content law

• Challenges of operationalizing Local Content Laws

• Overcoming some of the challenges by acquiring

soft and hard industry skills

• Highlights in Ghana ‘s Local content policy

• Highlights of best practice local content

• Ethics and Corporate Social Responsibility


IntroductionMaking Oil and Gas Resource a Blessing not a Curse

• The petroleum resources belong to the nation and should be developed to the benefit of the whole society.

• Local content goals should be long term

• National control and state participation

• Resource management

• Building and fostering a Ghanaian oil community

• Technology and competence


What is Local Content?

The term ‘local content’ describes the range of benefits the oil and

gas industry can bring to the areas where it operates. Companies

can provide measurable benefits by:

• employing and training local people

• buying supplies and services to enhance the capacity of local

suppliers

• supporting community development work

In simple terms, local content refers to the use of local skills and

materials in constructing and/or maintaining an asset or service.


World Energy OutlookAccording to BP forecasts “global demand for

energy is expected to increase by 50% between now and 2030. Eighty-five percent of the energy to meet this demand is expected to come from fossil fuels”


Significance of oil and gas to National Development

• Fiscal linkages: Provides an important share of the export earnings in dependent countries, up to 90% for some countries

• Generates financial revenues through royalties taxes etc.• Forward and backward linkages: Industry creates

jobs & Can create linkages with other sectors of the economy

• Environmental linkages: The use of natural gas as energy source can help reduce greenhouse gas emissions and combat global warming

• Natural gas can be used to replace inefficient fuels• Consumption linkages: Can influence savings levels

and therefore investment – eg. Infrastructure development, education, health etc.


Timeline for Hydrocarbon Discovery in Ghana

• June 2007- Mahogany-1 Discovery• August 2007 – Shedua – 1 Discovery

The above two discoveries have been unitized and christened the JUBILEE FIELD – The field is currently under production.

• March 2008 – Odum-1 Discovery• March 2009 – Tweneboa-1 Discovery


Timeline for Hydrocarbon Discovery in Ghana Cont.

• July 2009 – Sankofa – 1 Discovery• February 2010 – Dzata-1 Discovery• July 2010 – Owo/Enyenra Discovery

• 2011– Teak Discovery– Banda Discovery– Gye Nyame Discovery– Paradise Discovery– Akasa Discovery


Social Impacts

• Increasingly, E&P projects are taking place in environmentally and socially fragile areas.

• There are unsatisfied demands of local populations, specially indigenous peoples, more aware of their property and cultural rights.


Challenges Facing Developing Countries

• Environmental issues surrounding the exploration and production of oil and gas; destruction of ecosystems; biodiversity; gas flaring etc.

• Dutch disease : i.e. Currency appreciation resulting from a sharp rise to inflow of foreign currency;

• Resource curse – conflict, governance, low human development etc.

• Price volatility: volatile and uncertain revenue flows complicates not only fiscal management, but also budgetary and long-term planning; discourage investment; etc.

• Increasing local participation in the sector & creating linkages with other sectors


Respect for Indigenous Rights• The ILO Convention 169 indicates that Governments shall

consult to indigenous peoples to develop measures, regional plans and specific projects that could impact them and set up mechanisms for their participation.


Why nations need local content laws

•To avoid the phenomena of the resource curse

Avoiding the resource curse requires action by all

stakeholders involved in regulation, finance,

development and management of extractive

industry projects.

•However, it is increasingly understood that that Oil

and Gas companies and their contractors can make

an important contribution through pursuing a

conflict sensitive approach to project development


Why nations need local content laws Cont.

Because when Local content policies and

strategies are properly implemented they can be

an important instrument to promote development

and poverty reduction by;

• Providing jobs and opportunities for local

businesses,

• Facilitating technology transfer, and

• Building local knowledge and

skills that are critical for development.


Challenges to Implementing Local Content Laws

The oil and gas industry is highly capital-intensive with limited direct employment opportunitiesA significant proportion of the goods and services demanded by the industry are highly technological and specialized in nature, and are typically supplied by competitive international markets.


Challenges to Implementing Local Content Laws Cont.

•In addition, the complex and hazardous nature of

the industry demands the highest level of

performance in terms of quality, technical

integrity, and health safety and environmental

standards (EHS).

•Inadequate quality of local educational systems,

arcane regulatory environments, poor access to

finance, and deficient local infrastructure


Acquiring Skills to Overcome Challenges

Technical (Hard Skills)

• Geology

• Geophysics

• Drilling

• Production

• Maintenance

• HSE

Non Technical (Soft Skills)

Accounting

Finance

HRM

Administration

Project Management

Security and Protection


• Human • Resources

• Facilities &• Infrastructure

• Materials &• Manufacturing

• Institutions &• Systems

Technical Areas for Training & Development


National Skills Development in Oil & Gas

• Universities – KNUST, UG• Polytechnics - Takoradi Poly, • Training Institutions – MDPI, GIMPA, etc• Oil Companies – Scholarships, Internships, Attachments

Funding Agencies• Government – Support Educational Institutions,

Companies and Individuals • Donor Agencies – World Bank, EU, DFIT, • COTVET


Developing Ghana’s Local Content• Ghana sought the assistance of those with

experience especially Norway, Trinidad and the

operators.• Resulted in the preparation of the local

content policy by Ministry of Energy.• A bill to give legal backing to this initiative has

been prepared and presented to parliament.


Policy Objectives.

• The main objectives of the policy are to:

Maximize the benefits of oil and gas wealth generation by optimizing the use of local expertise, goods and services in the oil and gas value chain.

Increase the capability and competitiveness of domestic businesses and industrial sectors.

Create supportive industries that will sustain economic development.

Develop local capability in all aspects of the oil and gas value chain through education, skills and expertise development, transfer of technology and know-how.


Ghana’s Local Content Policy

This policy is expected to drive the sustainable development of our Oil and Gas endowment through:

• identification of stakeholders and their roles;

• capacity building and training;

• technology transfer and its indigenization;


Ghana’s Local Content Policy Cont.• Infrastructural development;• Creation of a conducive and thriving

environment for optimum local participation; and

• Integration of the Oil and Gas sector into the long term national development plan


Setting up Regulations for the Petroleum Sector

• Petroleum Revenue Management Act.

This Act was passed by Parliament last year and outlines how the revenue received from the oil find will be judiciously managed.

– Petroleum Commission Act.

The Petroleum Commission Act was passed by Parliament in early 2011 to ensure that the Petroleum Commission regulates and manages the upstream petroleum activities. The PC Board was inaugurated on 23rd November 2011.


Regulations for the Petroleum Sector

• Local Content Bill.

A draft legislative instrument for local content is currently being reviewed by the Ministry and its Agencies. The LI will be subjected to extensive stakeholder discussions before it is sent to Parliament for approval.

– Local Content Committee.

A Local Content Committee(LCC) will be set up to supervise, coordinate, administer, monitor and manage the development of local content in the oil and gas industry. It will also implement the provisions in the local content regulations.


Examples of how local participation can be harnessed

• Brazil - Petrobras maintained an active involvement in the industry from its formation and acquired technology in deep water drilling through international expertise.

• Malaysia - Formed partnerships with international oil companies; Local industry gained best practice, management skills and cutting edge technologies used by oil companies.

• Norway - openness towards international companies combined with a strong focus on national value creation. Technology agreements were signed to fund R&D and existing capabilities and competitive strengths were leveraged.


Adopting Best Practice;Example - The Brazilian Experience

• Nationalization Policy of Petrobras• Controls about 75% of all operating licences• About 2,000 companies registered in the supply chain for

the offshore petroleum industry.• Oil companies to comply with ‘Local Content Certification’

as prerequisite for contract award.• In the mid 1990s, local participation at ‘exploration’ and

‘development’ phase were 5% and 15% respectively. Currently it stands at 80% minimum for both


Constraints facing local participation (I)

• Inadequate skills to deliver services required • Availability of services unknown to local players - short lead

time in preparing for bids• Lack of transparency in awarding contracts • Slow and inefficient pre-qualification and certification

procedures;• Small, poorly structured indigenous companies competing

against IOCs and foreign major contractors• Competition from well financed and efficient, larger and

foreign firms• Lack of depth in local financial markets to support oil and

gas projects • Local entrepreneurs have little access to longer-term

finance and often have to use short-term facilities to invest.


Constraints facing local participation (II)

• Disadvantages in export markets - inability to gain marketing knowledge and supply goods on time and with sufficient quality.

• High cost of fabrication in host country as against fabrication overseas due to: eg. In Nigeria high custom duty (>40%) paid on materials to be used for fabrications in-country as against 5% on fabricated items.

• Lack of materials such as steel which constitute 75% of construction industry (The existing steel plants were not targeted at the O & G sector)


Addressing the Challenges (I)

Manage the Environment• Make oil companies more responsible – Step up regulations

against gas flaring and venting to meet international standards

• Leveraging on technology to capture and store carbon dioxide eg. In Salah project in Algeria

• Investing in infrastructure to valorise the wasted gas & providing incentives such as infrastructure sharing for gas transportation, distribution, export

Eliminate the Dutch Disease• Channel revenues into developing physical and human

capital• Sterilize revenue inflows that can not be absorbed – eg.

foreign investments, stabilisation funds, funds for future generations


Addressing the challenges (II)

Avoid Resource Curse• Direct benefits of oil revenues to citizens• Involve principal stakeholders in developing plans for the

use of resource revenues to invest in development and poverty reduction

• Strong civil society• Transparency – e.g EITI• Build institutions for managing resources


Boosting local participation

• Understand the strengths and weaknesses of local enterprises to ensure policy responsiveness

• Promote programs to upgrade and train local companies so as to enable them to meet the quality requirements and standards of large energy companies as well as training and seminars for entrepreneurs on business development and management

• Create institutions that focus on R&D and Set up long-term plans to support and finance R&D.

• Encourage & provide tangible benefits for oil and gas companies to hire and train young graduates - eg. tax rebates or even royalty changes


Boosting local participation Cont.

• Encourage business to communicate opportunities & requirements clearly

• assist indigenous firms through matchmaking and local content development fairs to identify opportunities

• Enhance access to credit to local entrepreneurs through innovative financing mechanisms, e.g. the creation of a local content support fund, guarantees for bank loans, structured finance

• Government support for a supplier finance facility. This can be set up in partnership with banks and NOCs.


Boosting local participation Cont..

• Local content with policies should aim at boosting local competence

• Develop legal, and regulatory frameworks essential to the development of innovative financial instruments, including venture capital, small equity investments, leasing

• Innovative structures are needed to guarantee financing to local entrepreneurs

• Strengthen the capacity of financial institutions to evaluate local entrepreneurs creditworthiness in a cost-effective manner,

• NOCs should build and maintain long-term, mutually beneficial relationships with IOCs – IOCs can share responsibility for local content development – offer guarantees to loans. E.g. BP offered loans to SMEs in Angola


Lessons from Other Nations

• Local content policies entrenched in their legislation• Operating license agreements incorporated capacity

building clauses• Substantial share of nations’ acreage were allocated to

national oil companies• Development of R&D in-country was a strong prerequisite for winning a license• Favorable macroeconomic environnent; infrastructure for business development and social infrastructure• Some measure of (temporary) protection granted to local industries• Local refining of stated % of crude oil production


Assessment so far...The case of Schlumberger Ghana

• Ghana Local Content Targets90% LC within 10 years for priority Supplies5% Equity with Contractors10% Equity with Sub-ContractorsManagement Staff as Ghanaians Initial 50% to 80% within 5 years

Technical Staff as Ghanaians Initial 30% to 80% within 5 years

Schlumberger Staffing in Ghana

Year GH EX Total2008 44 10 54 2009 93 50 1332010 106 58 1642011 180 132 312

Schlumberger Staffing in Ghana

Year GH EX Total2008 44 10 54 2009 93 50 1332010 106 58 1642011 180 132 312


Assessment so far...Local Content is Everyone’s Responsibility

LOCALSUPPLIERS

REGULATORS

GOVERNMENTS

INTERNATIONALSUPPLIERS

COMMUNITIES

PARTNERS

NGO's

OIL COMPANIES

LOCALCONTENT

Successful Local Content delivery requires all stakeholders to pro-actively become engaged

Local Content is about recognising the opportunities at all levels and areas and striving for involvement and success

Local Content is a mutual investment that benefits all stakeholders

(Tullow’s Philosophy)


Recommendations for Effective Implementation

• Adoption of open competitive bidding for most projects

• Requiring bidders’ provision for local content in ITT response

• Encouraging operating partners to carry out enlightenment programs for indigenous contractors

• Domestication of reservoir management and seismic processing projects

• Breaking major projects into small manageable packages to accommodate indigenous contractors


Recommendations for Effective Implementation Cont.

• The policy should ensure that as oil flows, individuals and local companies profit from technology Transfer.


Ethics and Corporate Social Responsibility

• Ethics is part of an organisational culture that sets the norms of behaviour by which people in the organisation will abide because the norms have some moral authority.

• Organisations tend the justify their actions beyond profit maximization.

• Code of ethics are set of rules that is widely accepted and appreciated by the people it affects since it cannot be enforced.


Ethics and Corporate Social Responsibility

• Companies are more that just ‘economic machines’ regulated by legal contracts. They are a network of people working together towards a common goal.

• There is the need for humanising the workplace and society at large.

• The concept of Externalities:- Social benefits versus social cost


THE END

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local content and stakeholder management development & implementation republic of ghana 1...

Documents

gas training slide

mdpigig oil

gas resource

gas companies

term local content

local content goals

local content policies

global oil