Ghana’s Local Content Fund designed to boost financing opportunities and assistance to indigenous Ghanaian companies operating in Ghana’s upstream oil and gas sector continues to face challenges in implementation.
This has been the case due to some contractors resorting to provisions in stability clauses as basis for non-compliance, according to the latest PIAC report.
The Local Content Fund which was established under the Petroleum (Exploration and Production) Act, 2016 (Act 919) since then has faced two main challenges- delayed payments of contributions and outright violations of payments. The Local Content Fund requires the deduction of one per cent (1%) contract sum into the Local Content Fund.
The nature of stability clauses relate to protection from fiscal regime changes and other contractual agreements as provided in the petroleum sector. Stability clauses are given to international oil companies due to the possibility or risk of loss of investments in petroleum sector.
As part of incentives to encourage investments in its oil find in 2007, Ghana included stability clauses in contractual agreements with international oil companies (IOCs).
Investment security is one of the major ‘commodities’ treasured by international oil companies (IOCs ) considering the fact that host nations may exercise their ‘sovereign power’ over contractual agreements that both parties append signatures to. Wherein, such economic conditions may render IOCs both politically and economically vulnerable.
Considering the foregoing, however, in this situation of non-compliance of the Petroleum Act, 2016 pertaining to the local content fund, some oil companies are at breach.
This appears to be a typical case of oil companies hiding behind stabilization clauses to render the government ineffective in exercising some legislative provisions. These provisions are to serve the interest of Ghanaians in terms of boosting employment opportunities and helping local oil companies operating in the sector to thrive.
Stability clauses and petroleum sector benefits
Some stakeholders have indicated displeasure over the insufficient returns the country has obtained from its oil find more than a decade now. Institutions such as the Ghana Institute of Governance and Security (GIGS) have been at the fore in criticizing regulations in the petroleum sector.
Co-chair of the Ghana Extractives Industry Transparency Initiative (GhEITI) has also expressed similar sentiments indicating that the country’s inability to properly sequence the existing governance framework was the first mistake after the country discovered oil.
This issue under scrutiny fits within the broader constructs of current happenings in Ghana’s petroleum sector from the unitization of Eni and Springfield as well as the recent Exxon Mobil exit from the upstream petroleum sector.
The question to ask regarding the stability clause agreement borders on whether risks of investment in the petroleum sector are unexpectedly high and should still be guarded and the fact that the government seeks to maximize benefits from its oil find for the betterment of the country’s citizens.
On the basis of the former, some experts have suggested that stability clauses should be reviewed, thus, citing a de-risked petroleum sector as the reason. For the latter, although somewhat disliked by IOCs, which is the government’s implementation of regulations to request more returns from its oil find, this is legitimate and very much required.
While these two objectives on the part of both parties are somewhat opposing, the government must encourage dialoguing and stakeholder meetings with IOCs to chart a national path that will inure enormous benefits to the country than currently. This may include providing term limits to stability clauses within the sector.
It is perceived that considering existing circumstances, the compliance of IOCs to the local content fund will still face challenges. The government must holistically look at the problems within the sector including those mentioned above in order to avoid loss of investments in the sector as well as reap its just due to the benefit of its people.
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