FINANCIAL CHALLENGES IN THE OIL AND GAS
INDUSTRY-A PAN AFRICAN APPROACH
PRESENTER: EMMANUEL QUARTEY - EXECUTIVE MEMBER, GOGSPA
VENUE: MOVENPICK AMBASSADOR HOTEL
DATE: 4TH JUNE, 2014
Protocols:
Mr. Chairman, Invited Guests’, the Ecobank Team, Members of GOGSPA,
Ladies and Gentlemen…
Gratitude:
We wish to express our profound gratitude to the organizers of this Forum,
for the invitation to be here today to be part of this occasion and most
importantly for the opportunity to share our thoughts on the Financial
Challenges affecting the Oil and Gas Industry in Ghana. We would also give
you an insight into the operations of our Association.
Our presentation highlights the views of members of the Ghana Oil and Gas
Service Providers Association (GOGSPA) and calls for the involvement of
Ecobank Ghana Limited, other financial institutions to come on board to
ensure success in the Oil and Gas Industry in Ghana.
PRESENTATION OUTLINE
 BRIEF ON GOGSPA
 HIGHLIGHTS ON THE NATURE OF THE BUSINESS AND
PRIMARY SOURCES OF FUNDING
 FINANCING NEEDS OF INDIGENOUS OIL AND GAS
COMPANIES
 KEY CHALLENGES TO RAISING CAPITAL
 RECOMMENDATIONS TO ADDRESS THESE CHALLENGES
BRIEF ON GOGSPA
Ghana Oil and Gas Service Providers Association
• The Ghana Oil and Gas Service Providers Association (GOGSPA) is
an advocacy, lobbying, consultancy, compliance and monitoring
group in Ghana and is well recognized by all key stakeholders in
the Upstream Oil and Gas industry. GOGSPA was incorporated on
14th August 2009 and inaugurated at Takoradi on 16th December
2009.
• As GOGSPA, we promote the interests and integrity of oil and gas
service providers in Ghana, to ensure that they carry out their
activities to the highest professional standards achievable.
• We ensure that high standards of professional conduct and
practices are maintained by members of the organization in their
dealings with the public and among themselves so as to generate
public confidence in the service provider.
BRIEF ON GOGSPA(CONTD)
We also facilitate and promote local content in the oil and gas industry,
ensure compliance with local and international standards, as well as
procedures and practices in the petroleum industry.
1.
2.
3.
4.
GOGSPA provides:
Business Development services
The Facilitation of Business Start-Up for both local and foreign companies
Capacity Building
Consultations for service providers in the Oil and Gas Industry.
Our core members are indigenous Ghanaian companies registered with the
Petroleum Commission as well as some foreign companies in the Oil and
Gas Industry. Membership is open to all service providers in the Industry.
Currently, our membership strength is Sixty Two (62).
BRIEF ON GOGSPA(CONTD)
MISSION
Our mission is to contribute to the growth and development of the Oil and
Gas Industry in Ghana.
VISION
Our vision is to strengthen the competitiveness of indigenous companies
in the Oil and Gas Industry, to train and build human resource capacity for
members and to work closely with all stakeholders in the industry.
THE EXECUTIVE COUNCIL OF GOGSPA
The Executive Council has the ultimate authority to take decisions and
make polices affecting the Association. This Council, elected through
GOGSPA elections is made up of 7 members.
PATRONS
Our patrons are the C.E.O.’s of Seaweld Engineering Limited and Zeal
Environmental Technologies.
KEY SERVICES PROVIDED BY MEMBERS

TRANSPORT SERVICES/LOGISTICS
•
SECURITY
•
WAREHOUSING
•
HOUSEKEEPING, CLEANING &
JANITORIAL SERVICES
•
MARINE SERVICES
•
ELECTRICAL INSTALLATION
•
WASTE MANAGEMENT
•
HOSPITALITY
•
REPAIRS & MAINTENANCE
•
CATERING
•
BANKING AND INSURANCE
•
•
•
•
•
•
TRAINING
ENGINEERING
FABRICATION
PROCUREMENT & EQUIPMENT SUPPLIES
MANPOWER/LABOUR MANAGEMENT
BUSINESS CONSULTANCY &
ADVISORY SERVICES
HIGHLIGHTS ON THE NATURE OF THE BUSINESS AND
PRIMARY SOURCES OF FUNDING
In Ghana, most indigenous Oil & Gas companies fall under what we
term as SME’s (Small and Medium Enterprises). Under GOGSPA we
have about 20 companies that we classify based on turnover to be
medium with the rest being small enterprises. The nature of the
businesses carried out has been mentioned in SLIDE 7.
1.The SME’s are financed firstly, by Equity that is in the form of
Ordinary shares for cash or for consideration other than cash.
2.The second source is Debt which is in the form of Long term loans
or Bank Overdraft with the interest rate currently hovering around
30% per annum. It is popular these days for Companies to
HIGHLIGHTS ON THE NATURE OF THE BUSINESS AND
PRIMARY SOURCES OF FUNDING (CONTD)
patronize Finance Houses for transactions like (clearance of goods from the
ports) which of course have very prohibitive interest rates of about 10% per
month.
3. The third and most advantageous form of Funding is Trade payables. A
reliable client could supply items at no finance cost if payment is made on
due date. The Customs Bonded warehouse concept is also a means of
finance as it enables the Company not to tie up needed working capital in
Equipment and Consumer goods which is not for immediate use.
KEY CHALLENGES TO RAISING CAPITAL
1. Absence of trust among Local entrepreneurs which makes it
difficult for Equity Capital to be raised as well as the formation of
Joint Venture Companies. Also, Companies not listed on the Stock
Exchange cannot raise capital from Offer of Ordianry Shares,
Preference Shares or Debentures.
2. The demand for Collateral security by banks before Loans or
Overdraft facilities are granted.
3. The bureaucracy involved in processing Term Sheets and Offer
Letters for loans and overdraft facilities. It could take over a
month to process a Loan application. In the Oil &Gas Industry,
delivery time is very critical.
4. The very high interest rates, Fixed COT and facility fees charged
by local banks makes it difficult for SME’s to break even let alone
to expand operations.
KEY CHALLENGES TO RAISING CAPITAL(CONTD)
5.
The next best alternative is borrowing in dollars at low interest
which is at LIBOR (London Interbank Offering Rate) plus a
spread of approx 4%. However, with the current rate of
exchange depreciation of the Ghanaian Cedi, a Local Enterprise
could run into financial difficulties as it would need more local
currency to service debt/loan contracted. Local banks could
lend at LIBOR only if receivables are in hard currency.
6.
Non-Dollarization of the industry which compels IOC’s to pay
for services in Ghana in local currency whereas tariffs are in US
Dollars creating exchange losses for local companies.
7.
Stringent demands by banks for SME’s to provide Financial
Statements and cash flow projections before loans or overdraft
facilities are granted.
8.
Banks demand confirmed irrevocable Letters of Credit which
requires SME’s to lock their funds in Margin Accounts which
yields no interest for them for the period of time that the
import transaction is not completed.
RECOMMENDATIONS TO ADDRESS THESE CHALLENGES
We need not re-invent the wheel so it would be most appropriate to look
at the experiences of some oil producing countries (e.g. Nigeria, Angola,
Brazil, Norway) that have faced such challenges and how they were able
to surmount them. We can learn from their experiences.
1. We would urge members of GOGSPA to form alliances (Joint Ventures)
to bid for contracts from the IOC’s. A case in point is a joint venture
between Seaweld Engineering Limited and Zeal Environmental Limited
forming a joint venture called ‘SEAZEAL’. Members should also do
business among themselves.
2. The IOC’s should contribute 1% out of all contracts into a Local
Content Fund for capacity building for the local oil service providers.
Out of this Fund 40% could be used to defray the high interest rates
charged by the local banks in view of the fact that access to
international capital is restricted.
3. We urge banks to resort to Recourse financing, that is using the fixed
and floating assets of our Companies as security for Loans and
Overdrafts rather than the traditional Collateral Security.
4. Banks should open deferred letters of Credit to finance imports for Oil
& Gas companies instead of the traditional irrevocable confirmed
letters of Credit where cash is placed in margin accounts that do not
earn any interest.
RECOMMENDATIONS TO ADDRESS THESE CHALLENGES (CONTD)
5. It is necessary for all Oil & Gas Companies to keep proper books of
Account and to prepare cash flow projections which would make it
easier for banks to process their application for advances timeously.
6. Administrative directives should be issued to banks to support Local Oil
& Gas Companies.
7. Bank Of Ghana has stated that ‘NO BANK SHALL GRANT A FOREIGN
CURRENCY DENOMINATED LOAN OR FOREIGN CURRENCY LINKED
FACILITY TO A CUSTOMER WHO IS NOT A FOREIGN EXCHANGE
EARNER’. The commercial banks should adhere to this.
8. Banks should look for foreign partners interested in financing Oil & Gas
activities in Ghana as a means of reducing the very high interest
rates charged on Ghana Cedi denominated Loans and Advances.
CONCLUSION
In our concluding remarks, we are appreciative of the fact that Ecobank Ghana Limited
has joined GOGSPA and would encourage other banks to follow suit to assist members
solve their financial challenges.
We hope our concerns and recommendations if addressed would go a long way to
improve the Oil and Gas industry for the benefit of all Ghanaians alive and those
unborn.
It is also our fervent hope and prayer that Ghanaians would move from being Service
Providers to Field Operators through the acquisition of oil blocks in Ghana in the spirit
of the Local Content initiative.
Thank you!!!!