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LOCAL CONTENT AND STAKEHOLDER MANAGEMENT Development & Implementation Republic of Ghana 1 MDPI/GIG Oil and Gas Training.

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Presentation on theme: "LOCAL CONTENT AND STAKEHOLDER MANAGEMENT Development & Implementation Republic of Ghana 1 MDPI/GIG Oil and Gas Training."— Presentation transcript:

1 LOCAL CONTENT AND STAKEHOLDER MANAGEMENT Development & Implementation Republic of Ghana 1 MDPI/GIG Oil and Gas Training

2 Local Content For Ghanas 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. 2MDPI/GIG Oil and Gas Training

3 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 3MDPI/GIG Oil and Gas Training

4 Introduction Making 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 4MDPI/GIG Oil and Gas Training

5 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. 5MDPI/GIG Oil and Gas Training

6 World Energy Outlook According to BP forecasts global demand for energy is expected to increase by 50% between now and Eighty-five percent of the energy to meet this demand is expected to come from fossil fuels 6MDPI/GIG Oil and Gas Training

7 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. 7MDPI/GIG Oil and Gas Training

8 Timeline for Hydrocarbon Discovery in Ghana June 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 8MDPI/GIG Oil and Gas Training

9 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 9MDPI/GIG Oil and Gas Training

10 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. 10MDPI/GIG Oil and Gas Training

11 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 11MDPI/GIG Oil and Gas Training

12 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. 12MDPI/GIG Oil and Gas Training

13 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 13MDPI/GIG Oil and Gas Training

14 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. 14MDPI/GIG Oil and Gas Training

15 Challenges to Implementing Local Content Laws The oil and gas industry is highly capital-intensive with limited direct employment opportunities A 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. 15MDPI/GIG Oil and Gas Training

16 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 16MDPI/GIG Oil and Gas Training

17 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 17MDPI/GIG Oil and Gas Training

18 Human Resources Facilities & Infrastructure Materials & Manufacturing Institutions & Systems Technical Areas for Training & Development 18MDPI/GIG Oil and Gas Training

19 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 19MDPI/GIG Oil and Gas Training

20 Developing Ghanas 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. 20MDPI/GIG Oil and Gas Training

21 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. 21MDPI/GIG Oil and Gas Training

22 Ghanas 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; 22MDPI/GIG Oil and Gas Training

23 Ghanas 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 23MDPI/GIG Oil and Gas Training

24 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 23 rd November MDPI/GIG Oil and Gas Training

25 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. 25MDPI/GIG Oil and Gas Training

26 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. 26MDPI/GIG Oil and Gas Training

27 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 27MDPI/GIG Oil and Gas Training

28 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. 28MDPI/GIG Oil and Gas Training

29 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) 29MDPI/GIG Oil and Gas Training

30 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 30MDPI/GIG Oil and Gas Training

31 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 31MDPI/GIG Oil and Gas Training

32 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 32MDPI/GIG Oil and Gas Training

33 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. 33MDPI/GIG Oil and Gas Training

34 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 34MDPI/GIG Oil and Gas Training

35 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 35MDPI/GIG Oil and Gas Training

36 Assessment so far... The case of Schlumberger Ghana Ghana Local Content Targets 90% LC within 10 years for priority Supplies 5% Equity with Contractors 10% Equity with Sub-Contractors Management 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 Total Schlumberger Staffing in Ghana Year GH EX Total MDPI/GIG Oil and Gas Training

37 Assessment so far... Local Content is Everyones Responsibility LOCAL SUPPLIERS REGULATORS GOVERNMENTS INTERNATIONAL SUPPLIERS COMMUNITIES PARTNERS NGO's OIL COMPANIES LOCAL CONTENT 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 ( Tullows Philosophy ) 37MDPI/GIG Oil and Gas Training

38 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 38MDPI/GIG Oil and Gas Training

39 Recommendations for Effective Implementation Cont. The policy should ensure that as oil flows, individuals and local companies profit from technology Transfer. 39MDPI/GIG Oil and Gas Training

40 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. 40MDPI/GIG Oil and Gas Training

41 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 41MDPI/GIG Oil and Gas Training

42 THE END ANY QUESTION? 42MDPI/GIG Oil and Gas Training


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