Local Content Policy And Value Creation; The Case of The Upstream Oil And Gas Extraction Industry In Ghana

ABSTRACT

Ghana upon the oil discovery developed the local content policy to guide upstream oil exploration and production in 2011 with the passage of Petroleum Commission (PC) Act, 2011 (Act 821). Subsequently, the government developed a legislative instrument (L.I. 2204) in 2013 to support the regulation to promote local content. This study sought to examine the impact of the local content policy and value creation in the upstream oil and gas sector in Ghana. This objective was achieved using a descriptive survey among PC, International Oil Companies (IOCs) and Service Companies. A sample of 28 respondents were chosen using purposive sampling technique. Firstly, the PC has highly upheld its mandate of monitoring compliance and enforcement of the law among both the IOCs and the Service Companies. Secondly, the study revealed that the L.I. 2204 has helped to create value in the upstream oil and gas sector through job creation, skills, knowledge and technological transfers. Thirdly, the study revealed that the components of the L.I. 2204 that promotes value creation are giving indigenous companies right to 5% equity in IOCs and giving IOCs at least 10% joint venture partnership with local service in the provision of goods and services. Fourthly, the benefits of the local content policy to the Service Companies are supportive supervision provided by the PC and knowledge and skills gained in quality controls in the provision of goods and services. The key challenge of the implementation of the local content policy is the high compliance cost and bureaucracies and delays in awarding contracts, resulting to inefficiencies in allocation of resources.