Fronting for foreign companies in Ghana’s upstream sector undermining local content policy

The acting Chief Executive of the Petroleum Commission, Egbert Faibille, says fronting by Ghanaian companies for foreigners is one critical challenge undermining the commission’s mandate to promote local content policy in the oil and gas sector.

He added: “We used to be at a stage where people thought that the commission was acting helpless in the face of fronting at almost brigandage levels. Through our Monitoring and Evaluation Department, Costs Audit Department as well as our Compliance Department, we have identified most, if not all of the strategies which have been used for fronting.”

Mr Faibille made these revelations at the opening of the 2019 Local Content Conference and Exhibition (LCCE) organised by the Petroleum Commission in Takoradi on the theme, “Maximising in-country value addition, putting the spotlight on the role of Indigenous Ghanaian Companies (IGCs) in Joint Ventures (JVs) in the upstream petroleum sector.”

Since its inception, the LCCE has become the flagship of local content event of the oil and gas industry in Ghana, and gradually becoming the most vibrant and compelling event in Ghana.

Attending the conference are international delegates from Brazil, Nigeria, Trinidad and Tobago, Uganda and Mozambique, who would share experiences and expertise with Ghana.

Mr Faibille told the conference that some companies had undermined the efforts being made by government and the commission to create opportunities for Ghanaian businesses, and that about 50 per cent of joint venture arrangements in the upstream services sector, were not suitably matched in terms of business objects and capabilities.

He said there were countless cases relating to ‘misaligned’ services, creating imbalances in most of the existing JV arrangements and “thus becoming convenient grounds for what can simply be referred to as fronting”.

“This situation is regrettable, since it strongly restricts the opportunities for local capacity development and indigenous participation. It is inexcusable and an affront to the local content policy objectives and the work of the commission.

“Whilst we tirelessly break our backs to implement indigenous participation in the JVs to derive the optimal benefits local business, there are some indigenous companies who are undermining the process by conniving and abetting with some foreign companies to breach our very laws,” he noted.

Mr Faibille declared that: “The era of fronting is about to end. Beginning next year, the commission, working with other state actors, including the Registrar General’s Department and the Ghana Revenue Authority will begin enforcement of the relevant laws, including tax assessments on the basis of one’s equity participation and hence profit sharing.

“There will also be a revocation of operating permits and non-issuance of permits to IGCs and their partners proven after thorough investigations to have been engaged in fronting. Let me therefore use this opportunity to advise all those engaged in fronting to put a stop to it immediately.”

Ghana, Mr Faibille said, needed an indigenous pool of experience and highly skilled upstream service companies willing to prioritise, adapt and compete prudently in the industry.

He said the commission continued to monitor closely the procurement and bidding processes of the major operators in line with the requirements of L.I. 2204, to scrutinise all local content documents (local content plans, procurement plans, invitations to tender, requests for proposals, among others) submitted to it.

A number of these plans were queried, while some cases were rejected to ensure maximisation of local participation and in-country spending, he said.

Mr Faibille said that the commission would not rest on its oars to achieve a localisation ratio of more than 80 per cent.

The commission, Mr Faibille said, approved contracts valued at US$ 420 million and out of this, about US$77 million went to IGCs, explaining that, the figures excluded Jubilee and TEN Fields, operated by Tullow Ghana Limited.

Source: Energy Mix Report