Ghana’s Local Content Fund Still Empty
  • Aren’t we hungry yet?

By Gilbert Borketey Boyefio

 Information gathered by the Orient Energy Review indicates that contractors operating in Ghana’s oil and gas sector are holding in trust monies meant to be paid into the Local Content Fund, which is established to provide financial support for indigenous SMEs to competitively participate in the country’s oil and gas sector.

So far, the contractors, who are mainly foreign companies, have not paid a single pesewa into the Local Content Fund, which was established by Ghana’s Petroleum (Exploration and Production) Act, 2016, Act 919,to provide an enabling environment for local and indigenous SMEs to competitively compete with their foreign counterparts in the country’s nascent oil and gas sector.

According to Article 66 (1a, b, c and d) of the E&P Law, “The sources of money for the Fund include: contributions from a contractor as agreed in a petroleum agreement; contributions from a sub-contractor of the sum of one percent of the total consideration payable by the contractor or licensee for every contract; moneys approved by Parliament; and grants.”

The law came into effect on August19,2016, and the Petroleum Commission wrote to the contractors in January 2017 to informed them to start the deductions of the one percent of all tenders and contracts awarded and pay same into the Local Content Fund.

Some of the contractors were of the view that the one percent deduction into the Fund was not from them but rather their sub-contractors; a position the Commission agreed with them on, but was however of the view that it is easier if the contractors deduct the one percent at source rather than the Commission chasing individual sub-contractor for payment. Both parties finally agreed to this position.

In principle the contractors were supposed to have started the deduction of the one percent to be paid into the Fund immediately after the Commission wrote to them.

 

So Where Is The Money?

However, months after the communication from the Commission, they are yet to start receiving monies from contractors and sub- contractors into the Fund.

Unfortunately, the Commission cannot also tell whether the contractors have started deducting the one percent from contracts awarded to sub-contractors.

As things stands now, the contractors are expected to be holding the deducted monies, if any, in trust for the Commission; though no firm decision was taken on this matter.

“We do not know how much money is being held in trust for us. But we have to sit down with them to look at how many contracts have commenced since we communicated with them and reconcile the figures. Though there is a moratorium that you are not paying today, after the reconciliation all monies due to the Fund has to be paid into it,” disclosed Mr. Vincent Yankey, Director of Finance, Human Capital and Administration at the Petroleum Commission.

Further information gathered by Orient Energy Review revealed that as at the time of writing to the companies, the Commission has not even opened the bank account for the Fund in which to pay the deducted one percent.

 

This Mr. Kwaku Boateng, Director, in charge of Special Services, explained was as a result of the absence of a board for the Commission, a key statutory requirement for the establishment of the Local Content Fund and opening of an account for the Fund.

Article 66 clauses 2 and 3 of the E&P Law specify the important role the board of the Petroleum Commission plays in the establishment of the Fund and all its activities.

Mr. Yankey however pointed out that in June, 2017, with the help of the old board and approval of the Controller and Accountant General’s Department, the Commission has been able to open a Cedi bank account for the Fund; and is working on opening a dollar accounts with the approval from the Ministry of Finance, but pointed out that “this should not hinder people from paying the Cedi equivalent of the one percent into the Cedi accounts”.

He explained that the Board of the Commission is yet to decide whether the monies being held in trust by the contractors, if any, should attract an interest payment or not.

 

Are we not hungry enough?

For the purpose of achieving the object of the Local Content Fund, the E&P Law provides that moneys from the Fund shall be applied to: education, training, research and development in petroleum activities for Ghanaian citizens, indigenous Ghanaian companies and Ghanaian institutions of learning; and loans on a competitive basis to Small and Medium Scale Enterprises to support their participation in petroleum activities.

According to Mr. Yankey, tentatively, the Local Content Fund is expected to be operational by the end of this year; after the new Petroleum Commission board that was inaugurated in August 11, 2017, agrees on the draft guidelines and the sector minister approves it.

Considering that the two major challenges inhibiting indigenous players, lack of capacity and financing, from effectively and competitively participating in the country’s oil and gas sector are addressed by the establishing of the Local Content Fund, one would have thought Ghana’s authority will have attached some urgency to its realization.

In August this year, Ghana’s neighbour, the Nigerian government, launched a $200 million Nigerian Content Intervention Fund, NCIF, to guarantee financing at single digit interest rates for local operators handling projects in the oil and gas industry.

 

Absence Of The Fund Is Hurting

According to Mr. Nuertey Adzeman, the high interest rates at which local companies are assessing financing in the country is making it difficult to do business in the oil and gas sector, noting that, ‘Interest rates from the banks are as high as 30-35percent’, making local borrowing unbearable.

Mr. NuerteyAdzeman, who is the Executive Secretary of the Ghana Oil and Gas Service Providers Association (GOGSPA), was of the view that this situation is choking the local companies from actively participating and being competitive in the sector as envision be the local content law.

“Foreign companies are coming to do business in Ghana with single digit interest rates from their banks. So from the word go, they already have a huge advantage over the local companies,” he pointed out.

Sharing in the excitement of the Local Content Fund, Mr. Kwaku Enin, Chief Executive Officer, Zeal Environmental Technologies Limited, agreed that Fund will definitely be a game changer for local SMEs who stand to benefit from accessing funding at a very low and reasonable rate as compared to the banks or financial sector.

He proposed that as part of the modalities to accessing the Fund there should be a risk assessment of prospective applicants.

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