Local Content and Local Participation in Ghana’s Power Sector
Over the past few years, Ghana has been rolling out local content and local participation regulations in various sectors of the economy. In 2013, comprehensive local content and local participation regulations in the upstream oil and gas sector were introduced, as well as in the electricity supply industry in 2017.
The Energy Commission (Local Content and Local Participation) (Electricity Supply Industry) Regulations, 2017 (L.I. 2354) (the “Local Content Regulations”) aim to:
- achieve at least 60% local content in the electricity supply industry;
- achieve at least 51% local participation in the electricity supply industry;
- create employment for Ghanaians;
- promote local businesses in the electricity supply industry;
- retain benefits in Ghana;
- transfer technology, know-how and expertise to Ghanaians; and
- increase competitiveness among local manufacturers of electricity equipment, electrical appliances and renewable energy equipment.
Local equity requirements
Local participation involves setting minimum thresholds for Ghanaian shareholding in enterprises operating in the power sector in Ghana. The following are highlights of local equity/participation requirements in the power industry:
- An entity established to manufacture electrical equipment, electrical appliances or renewable energy equipment must have a minimum equity participation of 40% by an indigenous Ghanaian company (at least 51% of its equity is owned by a citizen of Ghana; has Ghanaian citizens holding at least 80% of executive and senior management positions; and any other position held by Ghanaian citizens).
- A Ghanaian citizen cannot transfer to a non-Ghanaian citizen more than 60% of the equity shareholding of the Ghanaian citizen in an entity established to manufacture electrical equipment, electrical appliances or renewable energy equipment. However, this requirement does not apply to a public company or a company that is listed on the Ghana Stock Exchange.
- Other local equity shareholding thresholds are:
|Power sector activity||Initial local equity||Target local equity|
|Wholesale power supply||15%||51% in 10 years|
|Electricity supply activities related to renewable energy||15%||51% in 10 years|
|Electricity distribution||30%||51% in 10 years|
|Electricity Sales Service||80%||100% in 5 years|
|Brokerage services||80%||100% in 5 years|
|Investment in electricity transmission infrastructure||15%||49% in 10 years|
Local content requirements
Local content involves setting minimum thresholds for the utilisation of Ghanaian goods and services in the electricity supply chain. The following are highlights of local content requirements in the electricity supply industry:
- Persons engaged in electricity supply industry activities are required to purchase electricity industry equipment from entities that manufacture the equipment in Ghana. All such equipment and the required thresholds are specified in the Seventh Schedule to the Local Content Regulations.
- A service provider in the electricity supply industry is required to establish and maintain a place of business in Ghana. The service provider must maintain personnel with the requisite capacity to operate the place of business.
- A service provider in the electricity supply industry must submit a local content and local participation plan (“Local Content Plan”) to a committee established under Regulation 9 of the Local Content Regulations (the “Committee”) for approval before carrying out any activity in the electricity supply industry. The Local Content Plan must demonstrate the service provider’s compliance with local content requirements under the Local Content Regulations. The Local Content Plan must consist of:
- an employment and training sub-plan;
- a research and development sub-plan;
- a technology transfer sub-plan;
- a legal service sub-plan;
- a financial services sub-plan;
- an allied services sub-plan;
- an ancillary services sub-plan; and
- a fuel, lubricant and water supply services sub-plan.
- The Local Content Plan must provide details that will ensure that:
- first consideration is given to services provided in Ghana and goods manufactured in Ghana; and
- qualified Ghanaians are given first consideration for training and employment in respect of the work programme for which the Local Content Plan is submitted.
- The Local Content Plan must also contain detailed provisions on how a service provider guarantees the use of locally manufactured goods where such goods meet the specifications of the electricity supply industry.
- The Committee is required to issue a Certificate of Authorisation to a service provider if the Committee is satisfied that the Local Content Plan complies with the Local Content Regulations.
- In relation to procurement, a service provider in the electricity supply industry is required to comply with the following:
- implement a bidding process for acquiring goods and services that gives full and fair opportunity to indigenous Ghanaian service providers;
- ensure that the award of contracts is not solely based on the principle of the lowest evaluated bid;
- ensure that where an indigenous Ghanaian company has the capacity to execute a contract, the indigenous Ghanaian company must not be rejected exclusively on the basis of the principle of the lowest evaluated bid;
- ensure that where the total value of the bid of an indigenous Ghanaian company exceeds the lowest evaluated bid by not more than 10%, the contract is awarded to the indigenous Ghanaian company;
- ensure that in the evaluation of bids, if the bids are adjudged equal, the bid with the highest level local content is selected.
The Local Content Regulations provide details on thresholds for the employment of Ghanaian citizens and for the use of raw materials produced in Ghana.
A service provider in the electricity supply industry is required to facilitate technology transfer to Ghanaian citizens through, for example, the formation of joint venture or partnership arrangements for licensing agreements between a Ghanaian service provider or supply company and a counterpart foreign service provider or supply company. A service provider is required to provide annual reports within 60 days after the end of the year on the implementation of the technology transfer sub-plan contained in the Local Content Plan.
A service provider in the electricity industry must insure any insurable risk through an indigenous Ghanaian insurance brokerage firm or where applicable, a reinsurance brokerage firm. A service provider who requires legal services in connection with activities in the electricity supply industry must retain the services of a Ghanaian legal practitioner or a firm of Ghanaian legal practitioners whose registered place of business is located in Ghana.
The Local Content Regulations also impose detailed requirements on service providers in the electricity supply industry in relation to the procurement of financial and banking services. Service providers are required to retain only the services of Ghanaian financial institutions. A service provider in the electricity supply industry must maintain a bank account with an indigenous Ghanaian bank and transact business of a minimum of 10% of its total financial transactions through the bank account held with the indigenous Ghanaian bank.
The Local Content Regulations also require service providers in the electricity supply industry to award contracts to indigenous Ghanaian engineering and technical consultancy companies to provide engineering and technical consultancy and maintenance services. Where it is established that there is no local capacity or expertise, service providers may engage the services of offshore engineering and consultancy firms.
It is expected that the Local Content Regulations will propel the growth of the electricity supply industry in Ghana, create more employment opportunities for Ghanaian citizens, add value to locally produced goods, enhance technology transfer to Ghanaian citizens and benefit the local economy as a whole.
Electricity supply industry includes any activity in the power sector (a) that requires a licence under the Energy Commission Act, 1997 (Act 541) or the Renewable Energy Act, 2011 (Act 832) and (b) related to the manufacture of electrical equipment, electrical appliances or renewable energy equipment in respect of projects for the development and utilization of renewable energy resources.
Cletus is an Associate at ENSafrica with interest in Taxation and Project Finance