In this special focus on Ghana, Director of Centurion Law Group’s Accra office provides guidance on relevant legislation in the Ghana petroleum industry and how partnerships are formed between local and international entities.
By Genevive Ocansey, Director of Centurion Law Group’s Accra office
Ghana’s energy sector has experienced huge expansion since 2007, when the Jubilee field was discovered. In less than a decade the country became an oil producer, now with 110,000 barrels of oil per day output, and home to a large number of operators and service companies. The advent of the oil age has transformed the country as a whole and resulted in accelerated economic growth. The danger of such rapid growth in nations lacking solid and transparent regulatory and administrative processes is that the potential benefits of the oil industry may be lost, and the citizens of the nation may not reap the rewards of the influx of capital and the increase in available employment. In Ghana this is not the case.
For its part, the Ghanaian government has responded to the discovery and its attendant challenges by introducing laws to encourage and attract international investors and to create an improved fiscal system. The country has had stable democratic institutions for over two decades, while a strong rule of law and an effective judiciary have made Ghana all the more appealing to prospective investors.
Article 257 of the Constitution of the Republic of Ghana states that “Every mineral […] is the property of the Republic of Ghana and shall be vested in the President on behalf of, and in trust for the people of Ghana.” The government manages its energy resources through agencies such as the Ghana National Petroleum Company (GNPC), the Petroleum Commission, and the Ministry of Energy and Petroleum. The ministry is responsible for dealing with petroleum companies exploring and bidding for production contracts, while the national parliament plays a supervisory role and approves all petroleum agreements. Arbitration mechanisms are negotiated into most agreements and contracts, making it easier for multinationals to resolve disputes in a neutral and fair environment.
Partnerships and relevant legislation
Due to the risk involved in using sophisticated offshore exploration technology, capital requirements for this industry remain high. In the face of challenges presented by working in some oilfields, strategic partnerships have emerged as both prudent and economically beneficial options for investors. Major companies with experience using advanced technologies achieve the best results, as can be seen in the example of the Jubilee field, which is operated as a joint venture between Tullow Oil, Kosmos Energy, Anadarko, ENA, and GNPC.
In some instances, partnerships are a legal requirement, and petroleum agreements generally involve partnerships from the exploration stage on. Investors interested in the energy sector must have a thorough understanding of the industry’s legal framework in Ghana to ensure compliance.
Relevant legislation includes:
• Ghana National Petroleum Corporation Act 1983 (PNDC law 64)
• Petroleum Exploration and Production Act 1984 (PNDC law 84)
• Petroleum Revenue Management Act 2011 Act 815
• Petroleum commission Act 2011 Act 821
• Petroleum Income Tax Act 1984 (PNDC Law 188)
• Petroleum Local Content and Local Participation Regulations LI 2204 (2013)
• Petroleum Commission (fees and charges) Regulations 2015 LI 2221
The Local content law plays an important role in the petroleum sector and seeks to create opportunities for Ghanaian citizens to benefit from oil and gas projects. It states that “a contractor, subcontractor, or licensee carrying out a petroleum activity shall ensure that local content is a component of the activities that they engage in.” Complying with this law can be difficult, however, as there are not enough technically trained nationals to fill for certain positions. All companies and investors are encouraged to seek legal assistance and advice for any such issues.
All non-indigenous companies that intend to provide goods or services to the energy sector in the country must first establish a joint venture with a Ghanaian company, which should have an equity participation of at least 10 percent. With petroleum agreements there must be a minimum 5 percent equity participation from an indigenous company other than GNPC in order to qualify for a license. Investors are also obliged to transfer technology, impart knowledge, and train Ghanaian workers for skilled positions, and these activities must be approved by the Petroleum Commission after the formation of the joint venture.
It is worth noting that some local companies face challenges in obtaining capital for certain ventures, and that as a developing country Ghana’s financial institutions are not capable of providing the required capital for upstream petroleum development. The volatility of the local currency also creates obstacles for nationals involved in industry, while interest rates remain high.
In exceptional cases a foreign company may, through a bidding process, be approved for the provision of goods and services. However, that company will have to incorporate a firm in Ghana and operate it from inside the country, working in coordination with an indigenous company where possible. In all these situations, selecting the right kind of partnership is crucial, and the support of an experienced law firm is necessary to ensure compliance with the law.
Transparency and other legal considerations
Ghana has ratified the United Nations Convention Against Corruption (UNCAC) in addition to developing its own National Anti Corruption Plan in 2012. As a result, all companies must operate with zero tolerance for corruption and malpractice. Investors should be cautious about choosing their partners. Due diligence and legal advice from Centurion Law Group gives investors confidence in their partnership choices.
Additionally, the Extractive Industries Transparency Initiative (EITI) standards must be complied with to ensure transparency. This is paramount in the process of negotiating and signing a petroleum contract or agreement, and the continued reporting of revenue and payments from all operations should be made consistently available.
The effects of offshore operations on the marine environment is also a matter of legal consequence. The Environmental Protection Agency is the regulator for the environment in this regard, and companies must be approved and are regularly monitored and audited by this agency to guarantee that air and water pollution is minimized. Corporate social responsibility initiatives, including meeting certain ethical standards and compliance with labor laws, is another important consideration for companies working in Ghana. This must be closely examined by firms to ensure that business principles and policies are socially responsible.
There are many other legal requirements regarding taxation, immigration, work and visa processing, all of which are covered by Centurion Law Group’s consultancy and legal services. Multinational companies have benefited from partnerships because they are able to access labor at a cheaper cost and are not forced to employ expatriates. The creation of employment opportunities for the community and the development of other sectors such as tourism, hospitality, and real estate in areas where non-renewable resources are present has been commendable. This has helped to decrease unemployment levels across the nation. Developments in the sector have also provided opportunities for Ghanaian professionals living abroad, and have offered them the chance to return home and contribute to the growth of their nation.
The discovery of oil can be comprehensively advantageous when managed in a legal and ethical manner. Countries fortunate enough to hold valuable energy reserves can take decisive steps to foster investment that is beneficial to international investors and the host nation alike, as evidenced by Ghana’s experience over the past decade. With the support of local legal firms familiar with the various obligations and responsibilities required of investors, and partnerships with oil companies already based in-country, the exploitation of offshore energy deposits can be a profitable and constructive endeavor for all concerned.