The Petroleum Commission has warned Ghanaian businessmen against fronting for foreign companies for them to engage in businesses meant for local companies.
It has emerged that some local businessmen look for contracts under the guise of undertaking those jobs per regulations spelt out in the Petroleum (Local Content and Local Participation) Regulations, 2013 (L.I. 2204) but end up handing over those indigenous contracts to foreign companies.
A public notice signed by the Chief Executive Officer (CEO) of the Petroleum Commission, Mr Theophilus N. Ahwireng, noted that “the commission has observed an increasing and unfortunate development which, in addition to being worrisome, threatens to undermine the objectives of L.I. 2204”.
“This development appears to be in the form of ‘fronting’, a process where non-indigenous Ghanaian companies connive to make false representations to the commission.
“The public is hereby reminded that such actions constitute offences under L.I. 2204 and the laws of the Republic of Ghana,” the notice said.
Per regulation 46 (2) and (3) of L.I. 2204, “A person (Ghanaian or foreigner) who acts as a front or connives to deceive the commission as representing an indigenous Ghanaian company to achieve the local content requirements commits an offence and is liable to a summary conviction to a fine of not less than 100 penalty units and not more than GH¢1.2 million or a term of imprisonment of not less than one year and not more than two years or to both.”
What is ‘fronting’?
Fronting is defined in Regulation 49 of LI 2204 as “to deceive or behave in a particular manner to conceal the fact that a company is not an indigenous Ghanaian company”.
Mr Ahwireng accordingly warned that directors and authorised representatives of companies who contravened the Local Content Law would be subjected to the penalties and sanctions spelt out in the regulations and other applicable laws of Ghana and would be strictly dealt with.
Local Content Law
The Petroleum (Local Content and Local Participation) Regulations, 2013, (L.I. 2204) came into force on February 18, 2014.
The purpose of the regulation is to, among other things, promote the maximisation of value-addition and job creation through the use of local expertise, goods and services, business and financing in the petroleum industry value chain and their retention in the country.
It is also aimed at developing local capacities in the petroleum industry value chain through education, skills transfer and expertise development; transfer of technology and know-how and active research and development programmes.
L.I. 2204 confers a number of benefits on indigenous Ghanaian companies in the upstream petroleum industry in Ghana.
One of the distinctive features of L.I. 2204 is the mandatory incorporation of a joint venture company by a non-indigenous Ghanaian company with an indigenous Ghanaian company.
Specifically, Regulation 4 (6) of L. I. 2204 provides that “a non-indigenous Ghanaian company which intends to provide goods or services for a contractor, sub-contractor, the corporation or other allied entity within the country shall incorporate a joint venture company with an indigenous Ghanaian company and afford that indigenous Ghanaian company an equity participation of at least 10 per cent.”
Regulation 49 of LI 2204 defines an indigenous Ghanaian company as “a company incorporated under the Companies Act, 1963 (Act 179): that has at least 51 per cent of its equity owned by a citizen of Ghana; and that has Ghanaian citizens holding at least 80 per cent of executive and senior management positions and 100 per cent of non-managerial and other positions”.