On Thursday, August 4, 2016, the Petroleum (Exploration and Production) Bill, 2016, was passed into law, after a long and extensive consultative process.
The petroleum industry in Ghana, entered a new phase in its development, with the discovery of larger commercial quantities of oil and gas in deepwater offshore Ghana. This phase has come with new challenges as the country moves into the actual development, production and utilization of its oil and gas resources.
These challenges include financial and environmental challenges, as well as the challenge of ensuring local content and local participation in the petroleum industry, among others.
It has become evident from these challenges that the current legal and regulatory framework governing the industry is not robust enough to counter the challenges. The framework therefore has to be tightened up as a matter of urgency, to adequately protect the interest of Ghana and to ensure that maximum benefits are derived for this finite natural resource whilst creating certainty and transparency to sustain interest in the country’s basins.
Even though the Petroleum( Exploration and Production) Law, 1986, PNDCL 84 makes provision for some of the above-mentioned matters, it does not do so extensively, nor does it provide for the much-needed incentive for investment to achieve sustained interest in the industry by both local and foreign investors.
This Bill expatiates on these principles and provides further clarity. Some key highlights of the Bill include the following:
1. Management and Exploitation of Petroleum Resources
The overarching principle that the management of petroleum resources should be conducted in accordance with principles of good governance and transparency, for the maximum benefit of Ghanaians is a theme that runs through this Bill. It is expected that a contractor will develop and produce petroleum in accordance with international best practice to avoid waste and ensure the long term recovery of our petroleum resources.
2. Conducive Environment for Investment
The Bill creates an attractive environment for potential investors to participate in the sector by providing certainty and transparency in the ground rules for operations. Open, transparent and competitive public tender processes have been introduced to precede the entering into of a petroleum agreement. This process which exists under PNDCL 84 has been further expanded to include the requirement for the Minister to publish an invitation to tender or an invitation for direct negotiations in the Gazette and at least two state owned national newspapers or any other medium of public communication.
3. Minimum Work Obligation During the Exploration Period
The Bill introduces an obligation to commit a contractor who fails to fulfill either in whole or in part, the minimum work obligation agreed under a petroleum agreement during the exploration period to pay to GNPC the amount required to complete the unfulfilled portion of the work program for that working period.
4. Petroleum Register
The Petroleum Commission is required under the Bill to establish and maintain a petroleum register of petroleum agreement, licences, permits and authorisations and the register shall be open to the public. This provision further deepens the Bill’s approach to transparency.
5. Employment and Training of Ghanaians
The Bill imposes an obligation on persons carrying out petroleum activities to ensure that Ghanaian citizens, with the requisite qualifications in categories and functions as prescribed are employed. They are also to prepare and implement training programmes for Ghanaian citizens in all aspects of petroleum activities.
6. Use of Ghanaian Goods and Services
Persons engaged in petroleum activities shall acquire materials, equipment and consumer goods produced or provided for in the country by an indigenous Ghanaian company of similar quality and cost to foreign material or goods. They are also required to contract local service providers to the extent that the services they provide are similar to those available on the international market.
There is no doubt that this new law will have a positive impact on Ghana’s economy.
The petroleum industry will be a significant source of revenue for the Government of Ghana in the form of royalties, income and capital gains tax, participating interest and bonuses. The provisions of the Bill seek to consolidate these sources of revenue into law rather than to leave them to be a subject of negotiation in petroleum agreements. Revenue so derived, will support the nation’s industrialisation and growth strategies, whilst creating jobs for Ghanaians, thereby contributing significantly towards the alleviation of poverty in Ghana.
The Bill which provides transparency and certainty will also encourage increased investments by international oil companies thus leading to an increment in capital inflows.
The provisions on local content and local participation in petroleum activities as well as a Local Content Fund will lead to job creation and the building of indigenous capacity, which will enable Government achieve its objective of ensuring that the nation’s petroleum resources are harnessed for the benefit of all Ghanaians and thus ultimately improve the standard of living of the ordinary citizen.
Edward Abambire Bawa