The Challenge Of Delivering Local Content In The Oil And Gas Industry

So, I came across this interesting media report which said that:

“Ghana’s Enterprise Development Center has observed local businesses are not winning service contracts from International oil companies due to inadequate and inappropriate environmental health and safety measures. The development comes in the wake of implementation of local content law which compels multi-national oil companies to reserve some service areas for indigenous businesses.

It quotes one of the Project Coordinators as saying:

“….little progress has been made because most businesses are unwilling to cooperate. Most of them don’t have the right capacity to compete for contracts with the IOCs. They must recognize that they have to overcome some of their deficiencies. After five years of oil production, only a few local businesses have won contracts because many fall short of set standards. Most local companies are unable to win contracts  because they fall short on environmental health safety policy, standards and procedures, among others. The International Oil Companies want to know who is in charge of EHS and who does he report to and what goes into it

This news story drives home points myself, Marcia and Crystal made in our co-authored paper for the Association of International Petroleum Negotiators (AIPN) 2015 Research Grant (yes we won this internationally competitive research grant and delivered a great paper).

Local Content Legislation and Policies in Oil and Gas Producing Countries remain a hot topic as governments in producing countries try to find ways of pressuring companies to purchase local goods and supplies and thereby expanding the benefits of oil and gas in transforming their economies and societies for the better and in ways that are in line with sustainable development.

Based on our review of country experiences from Ghana, Nigeria, Brazil and Norway, we proposed the success or otherwise of local content policies should be anchored on the following:

1. Local content policies need to look beyond simple generation of economic rents to focus on the development of linkages ― i.e. backward, forward, and demand linkages.
2. It is imperative that the tools developed to measure agreed local content benchmarks are clearly defined to the acceptance of all industry players.
3. The success of local content rests on the availability of an industrial and supplier base to build upon. If the goal of the local content legislation/policy is to increase local participation, then there may be a case for government intervention to lower barriers to entry for local participants.

NB: The 100 page ‘Local Content Legislation and Policies in Oil and Gas Producing Countries’ will be published by the Association of International Petroleum Negotiators (AIPN) and a summary version in the Journal of World Energy Law & Business (JWELB – hosted by Oxford Journals) later this year.

Story: http://www.myjoyonline.com/business/2016/March-18th/local-businesses-asked-to-form-joint-ventures-to-win-oil-contracts.php

About the Author

Theo Acheampong
Theo is an economist and social media enthusiast who provides regular commentary on socioeconomic and political developments in Ghana and Africa at large. Theo is passionate about leadership, entrepreneurship and the role of innovative technologies in solving Africa's developmental challenges.