Protocols:

1. FINANCIAL CHALLENGES IN THE OIL AND GAS INDUSTRY-A PAN AFRICAN APPROACHPRESENTER: EMMANUEL QUARTEY - EXECUTIVE MEMBER, GOGSPAVENUE: MOVENPICK AMBASSADOR HOTEL DATE: 4TH JUNE, 2014

2. Protocols: Mr. Chairman, Invited Guests’, the EcobankTeam, 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.

3. 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

4. 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.

5. 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 proceduresandpractices in the petroleum industry. GOGSPA provides: 1. Business Development services 2. The Facilitation of Business Start-Up for both local and foreign companies 3. Capacity Building 4. 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).

6. 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.

7. KEY SERVICES PROVIDED BY MEMBERS • TRANSPORT SERVICES/LOGISTICS • WAREHOUSING • MARINE SERVICES • TRAINING • ENGINEERING • FABRICATION • PROCUREMENT & EQUIPMENT SUPPLIES • MANPOWER/LABOUR MANAGEMENT • BUSINESS CONSULTANCY & • ADVISORY SERVICES • SECURITY • HOUSEKEEPING, CLEANING & • JANITORIAL SERVICES • ELECTRICAL INSTALLATION • WASTE MANAGEMENT • HOSPITALITY • REPAIRS & MAINTENANCE • CATERING • BANKING AND INSURANCE

8. 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

9. 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.

10. KEY CHALLENGES TO RAISING CAPITAL • 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. • The demand for Collateral security by banks before Loans or Overdraft facilities are granted. • 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. • 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.

11. 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. • 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. • Stringent demands by banks for SME’s to provide Financial Statements and cash flow projections before loans or overdraft facilities are granted. • 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.

12. 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. • 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. • 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. • 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. • 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.

13. RECOMMENDATIONS TO ADDRESS THESE CHALLENGES (CONTD) • 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. • Administrative directives should be issued to banks to support Local Oil & Gas Companies. • 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. • Banks should look for foreign partners interested in financing Oil & Gas activitiesin Ghana as a means of reducing the very high interest rates charged on Ghana Cedi denominated Loans and Advances.

14. 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!!!!