Ghana content rules: Risk managers must tread carefully when transferring risk overseas

Part of the new regulation stipulates that insurance for the oil business can only be bought overseas when local capacity has been exhausted. And the Ministry of Petroleum and Energy warned individuals or companies that may plan to simply front for foreign insurers to ship the premiums overseas will be tracked down and prosecuted. Emmanuel Armah-Kofi Buah, the Minister for Petroleum and Energy, told local paper The Daily Graphic that Ghanaians had been moved from the ‘back of the bus to the front’.hideThe law copies similar local content legislation developed in Nigeria to ensure that locals benefit from its vast oil reserves and not just foreign investors. It is thought Ghana’s oil reserves would yield US$20bn revenue within the next five years. Mr Buah hopes the law would ensure that most of that will be spent in the country to ensure Ghanaians had a fair share of the returns. Any international companies that are keen to invest in the Ghana oil industry will have to construct their risk transfer programmes carefully. The local Ghana market will not have adequate capacity for such large and complex risks. Risks will therefore have to be covered through global programmes in international insurance and reinsurance markets. But the Ghana authorities will clearly be watching such arrangements very carefully to ensure that the international companies do not use global programmes and captives as a way of exporting value back to head office. The Daily Graphic reported Mr Buah as saying that the days of oil companies buying insurance policies from foreign insurance companies are over. “An aspect of the new law which deals with insurance states categorically that a contractor or sub-contractor, licensee or other allied entity engaged in a petroleum activity that requires insurance shall procure the services of a local insurance company,” he reportedly said. The newspaper also reported Mr Buah as stating that the law also made provision for the National Insurance Commission (NIC), Ghana’s state insurance regulators, to grant approval for the acquisition of offshore insurance services only when local capacity had been exhausted. He also reportedly added that the law stipulates that the services of a Ghanaian legal practitioner or law firm and financial institution which has a ‘principal’ office in Ghana should be given preference. And the paper reported the minister as also stating that any Ghanaian who plans to front for any foreign company should not do so as they would be prosecuted. The Ghana government stated, however, that the Committee of Subsidiary Legislation on the Petroleum (Local Content and Local Participation) Regulations, 2013 (L.I 2204) recognises that for the local content rules to work the government should invest in the training of technical and managerial personnel. The Committee noted that The Ghana Exploration and Production Forum, an oil industry group, is opposed to regulation four which it believes gives ‘excessive discretionary powers’ to the Minister for Energy and Petroleum and the Petroleum Commission to determine the persons qualified to enter into petroleum agreement or a petroleum licence. “The forum raised concerns about an alleged protectionist approach adopted in the regulations which is incompatible with World Trade Organisation (WTO) agreements and other bilateral investment treaties to which Ghana is a signatory,” stated the government portal. “It indicated that Article III: 4 of the WTO agreement on trade-related investment measures provides that ‘the products of the territory of any contracting party imported into the territory of any other contracting party shall be accorded treatment no less favourable than that accorded to like products of national origin in respect of all laws, regulations and requirements affecting their internal sale, offering for sale, purchase, transportation, distribution or use,” it continued. Dr Jemima Nelson, Member, Steering Committee, Civil Society Platform on Oil and Gas argued in favour of the legislation. She told a news conference in Accra last month that she was concerned about attempts by the international oil companies to undermine Ghana’s oil and gas local content regulations. She said the Civil Society Platform on oil and gas was alarmed at what appeared to be ‘subtle attempts’ by corporate lobbyists to undermine the passage of the Local Content Legislative Instrument that had been laid before parliament once before, but has had to be re-laid because it did not mature during the tenure of the last parliament. The Ghana government portal stated: “Dr Nelson said intelligence information gathered by the Oil & Gas Platform indicated that international oil companies operating in Ghana were seeking to dilute the content of the bill in a way that would deprive Ghanaians of the opportunity it offered.” Dr Nelson reportedly urged parliament, the Minister for Energy and the President of Ghana to resist any attempt by international oil companies to ‘kill or dilute’ the new rules. “Diluting the law would roll back the progress so far made towards ensuring that Ghana was able to escape the resource curse trap that had befallen many an oil producing nation,” reported the Ghana government portal on her position. Ghana has already been working hard to upgrade its legal, accounting, finance and insurance infrastructure in order to ensure that the development of its oil reserves works for the local economy. In October, for example, the Chief Justice, Mrs Justice Georgina Wood, announced the establishment of maritime courts in Accra, Tema and Takoradi to handle maritime cases. The Ghana government said that the offshore discovery and the exploitation of Ghana’s oil and gas resources coupled with increased international trade means that it is now imperative to establish these courts. Mrs Justice Wood was speaking at the 9th Maritime Law Seminar for Judges of the Superior courts of Ghana in Accra. She said there was the urgent need for judges and lawyers to understand the principle of technical legal subjects such as intellectual property, complex contracts, insurance law, regulatory and tax laws, new customs and international practices and commerce as well as various areas of which were hitherto unchartered. Mrs Marrietta Brew Appiah-Oppong, Minister of Justice and Attorney General, reportedly told the same conference that the business community and citizens would enjoy far greater trust in the system if judges had: “In-depth and diversity of knowledge which extend into the intricate and technical fields of law governing commercial matters and especially international trade and transport issues.” The Ghana insurance market is small but growing in size and expertise, according to the NIC. The NIC currently supervises 25 non-life insurance companies, 18 life insurance companies, two reinsurance companies, one reinsurance broker, 54 insurance broking companies, one loss adjuster and about 4,000 insurance agents. “The NIC’s ultimate objective is to establish an efficient, fair, safe and stable insurance market, which promotes healthy competition and growth in the interest of policyholders for the benefit of all. “When that state of affairs is attained in the Ghana insurance market, it could be said that insurance service delivery in Ghana has reached a level where it can be easily integrated into the Global Financial Services Sector,” explained the NIC. To achieve this objective, the NIC has recently taken a number of initiatives designed to strengthen the human resource base of the industry, improve the financial strength and governance of insurance companies based on International Association of Insurance Supervisors (IAIS) principles and ensure that policyholders are fairly treated. One major project is the proposal for a new insurance bill that will hopefully bring the way the Ghana insurance market is regulated up to international standards. In September the NIC organised a two-day workshop at Akosombo to seek input from insurance industry stakeholders about the bill. “The draft bill will address certain limitations in the existing Insurance Act 724 (2006) and will incorporate new developments in the Insurance Core Principles (ICPs), which were issued by the International Association of Insurance Supervisors (IAISs) in October 2011,” explained the NIC. The NIC said during the meeting that 10 ‘key industry players with the relevant knowledge and experience’ reviewed the draft bill and will make recommendations to the Commission as requested by the Cabinet. The Commission said that after the bill has been passed it will give priority to the licensing of insurance companies that specialise in micro-insurance and agricultural insurance. “Micro-insurance holds the key to the future growth of the insurance industry, having proven in some African countries to be one of the best models for insurance penetration in developing markets,” stated the NIC. “Through micro-insurance, insurers in South Africa, Namibia, Kenya and Uganda have succeeded in extending their services to small-scale businesses in commerce as well as in agriculture,” it added. Serious work is needed to develop the Ghana insurance industry. The current penetration rate is estimated at 1.5% of the population of about 26 million. The NIC added that this is not rare in Africa. Outside of South Africa only seven countries have insurance penetration above 2%, it stated. “The general consensus is that if insurers in Ghana stepped out of their comfort zone and dared to cover risks associated with doing business in non-traditional sectors, it could mark the beginning of massive insurance penetration in the country,” added the NIC. It is currently not clear, however, how the NIC will tackle the problem presented to it by the new content law as to how to rapidly develop significant local commercial insurance capacity for the rapidly growing energy industry. The companies—both local and international—who are busy developing this lucrative business will have to work closely with the NIC and the Ghana government to ensure they do not break the new rules when attempting to cover their large and complex risks.

Ghana content rules: Risk managers must tread carefully when transferring risk overseas

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