The State, Petroleum Exploration and Production Law (Act 919), FOCs and the Rest of Us

Does the law guarantees Ghana a fair share of her oil revenue and protect the interest of the state?

The controversial Petroleum Exploration and Production Law (Act 919) 2016 which was passed under a certificate of urgency at almost midnight on August 4, 2016 without proper debate and analysis needs to be revisited again five years after its passage.

This was the summation of Mr Solomon Kwawukume, then Senior Research Officer of Ghana Institute of Governance and Security (GIGS), now the Executive Director of Centre for Natural Resources and Environmental Management (CNREM) on August 19, 2016 when he was invited to Joy FM and Joy TV alongside with Dr. Mohammed Adam Amin, Deputy Minister of Mines and Energy, Mr Samuel Bekoe of Natural Resource Governance Institute and Mr Mutawakilu then Deputy Chairman of the Select Committee on Mines and Energy; later a Ranking Member and now a former Member of Parliament, to debate whether the Petroleum Exploration and Production Law guarantees Ghana a fair share of the Oil Revenue and protects the interest of Ghana on the program, “Ghana Connect”.

After the program, GIGS and its partners in the campaign to adopt and consolidate the Production Sharing Agreement (PSA) which then existing PNDC laws 64 and 84 supported, published their full observations on the new Ghana Hybrid System Law. Act 919.

For the record, we publish below unedited their submissions.

PART 1: General observations, implications

The law is in all respect the Royalty Tax System under the concessionary system – a system progressive and forward looking leaders would not adopt to regulate oil and gas discoveries using a law cunningly and subtly clothed in some provisions of the Production Sharing Agreement (PSA) to conform and fall in line with the exploitative agreements entered into by both the New Patriotic Party, NPP, and the National Democratic Congress, NDC, governments. These regulations unanimously approved by Parliament eventually metamorphosed into the Modern Concession Agreement, the Ghana Hybrid System.

Simply, this was an attempt to give legal backing to these agreements and contracts all tainted with corruption, as stated categorically by Dr. Adam Amin in a presentation he made to the United States House of Representatives Sub-Committee on Africa, Global Health, Global Human Rights and International Organisations on July 18, 2013. Hear him:

‘’In conclusion I have already mentioned the issue of bad deals in the oil and mining industries. Some of these bad deals have already been producing resources and the United States like other importing countries is consuming oil from some of these bad contracts. This places an important responsibility on the United States to lead by example in ensuring that oil and minerals from countries that promote questionable contracts tainted with corruption are not patronized.’’

The question one may ask is, if Dr. Adam Amin knew about these things, why is he supporting an obnoxious and exploitative law to legitimise these contracts that would go a long way to impoverish his own country? What are his motives and incentives? And that of others charged with overseeing our oil boom?

GIGS and its partners and supporters are opposed to the Modern Concession because it is equally exploitative as the Traditional Concession despite its modification to include Carried and Participation Interests and Additional Oil Entitlement (AOE).

We were and still are irrevocably and unabashedly in support of consolidating the PSA which the previous PNDC Laws 64 and 84 support, which even Tullow Oil in one of its website links acknowledged but dishonestly and mischievously claimed Ghana had adopted to regulate its Upstream Oil Industry in order to derive optimum benefit, a claim since then edited out from that link. http://www.tullowoil.com/sustainability/shared-prosperity/transparency/ghana-psa

The new law enables the foreign oil companies to swindle Ghana by taking advantage of certain incentives that go with the adoption of the PSA, such as waiver of import and export duties.

The Bill takes away all the sole rights and controls granted the National Oil Company, GNPC, under the PNDC Laws 64 and 84, thus placing ownership and control of the oil and gas resources of Ghana into private hands contrary to Article 257 Section 6 of the Constitution of the Republic of Ghana.

‘The semantic interpretation given by Mr Mutawakilu, Deputy Chairman, during the debate was very absurd to me and Dr. Adam Amin remarked if I wasn’t satisfied I could go to the Supreme Court for proper interpretation, according to the writer who was leading the GIGS team at the debate.

According to Mr. Mutawakilu, natural resources only belong to Ghana while they are still underground. They become the property and asset of any investor who gets access to it and brings them out to the surface.

The Bill also reduces GNPC to an independent commercial operator and therefore has to compete with the foreign oil companies for oil blocks declared open by the Minister of Petroleum even if it has the resources to do so, otherwise the Minister would have to exercise the numerous discretionary powers conferred on him to allocate a block to it.

The Bill also contravenes the following rights, conventions and resolutions of member countries:

1. UN Resolution on Permanent Sovereignty over Natural Resources GAR 1803 of 1963 reprinted in GAR 3171 of 1963
2. The Charter of Economic Rights and Duties of State GAR 3181 of 1974.

Ghana surprisingly is a signatory to all these UN Conventions and Resolutions. Ghanaians would eventually lose ownership rights and permanent sovereignty over their oil and gas riches to foreigners as happened to gold and other minerals.

The above observations and implications are not written in black and white in the Bill for one to see, but are inherent in it. One needs to understand the principles underlying the various fiscal arrangement or regime to be able to understand and decipher these effects.

Unfortunately, the Petroleum Minister and other panel members do not seem to realise these ills inherent in the Bill that do not protect the interest of the people of Ghana. They are rather focused on how the foreigners’ interests are well protected.

Part Two: Fiscal regime and specific comments

The fiscal Regime or Arrangement determines the type of contract the government enters into with the foreign oil companies (FOC) on behalf of the citizens to exploit their oil and gas resources.

The fiscal provisions therefore become the heart of any Petroleum Exploration and Production Law because they determine the type of contract signed and how the oil revenue is shared between the resource owners, that is, the citizen and the FOC.

In this Part we shall refer to specific clauses in the Bill and how they directly impact on Ghana, whether fairly and adequately.

Clauses 3-4

These clauses are awkward. Ghana, a novice in the Upstream Oil Industry, is inventing a new wheel by vesting management and control of oil and gas resources in the State, i.e., the Minister of Petroleum, contrary to established global standard and practice. Oil and Gas resources being strategic national assets, management and control are vested in the National Oil Companies (NOC) of host countries. In PNDC Laws 64 and 84, GNPC was fully vested with the management and control. The Bill now seeks to take away these powers and vest them in the Minister of Petroleum.

Clause 5

No progressive country in the 21^st Century in the developing world is conducting petroleum activities under licence with the implication of transferring ownership of petroleum resources to private individuals and foreigners in the name of attracting investments into the sector, contrary to global standards and practice. Ghana, the 35^th country into oil and gas in Africa, is moving in the opposite direction – the Black Star of Africa indeed!

Clause 10 sub-14 (a)

This sub-clause contravenes the UN Resolution on Permanent sovereignty over Natural Resources. The sub-clause also places a cap to limit our 100% ownership of our property under the Constitution.

Clause 10 Sub 14 (b) (i) (ii)

The financial obligations that these sub-clauses would place on Ghana are so huge that the burden on the limited resources available to meet our infrastructural deficits cannot be under-estimated if we have to adopt this Hybrid System. Due to limited resources available to the State, the State cannot take up large shares in the projects which will result into loss of huge oil revenues to the foreign oil companies. Ghana under the Jubilee Agreement would have to pay the lead operator Tullow over US$2 Billion for participating in the project within the next 10 years. Understandably, PETRONAS, the Malaysian Oil Company in 1974 shied away from this system and chose PSA.

Clause 20

This clause waters down clause 13 of PNDC law 84 and is contrary to current international practice which makes review in Petroleum Agreements mandatory every five or seven years. The wording of the clause does not make review mandatory.

Clauses 85-89

The fiscal provisions in essence are skewed towards collection of taxes which in practice are difficult to collect from multinationals. The foreign oil companies earned US$13.329 Billion gross revenue in five years of operations at the Jubilee Fields which should attract US$3.553 billion in taxes but ended up paying under US$500 million for both taxes and surface rentals. They did not pay any tax over the last two years because they claimed they were making losses.  As pointed out in the Auditor General’s Report, the required oversights had so far not even been activated. A PSA avoids much of those hassles.

To say the Ghana Hybrid System can achieve the same or better results than the time tested PSA which the existing Laws support is a deceit and preposterous.

To back our position that the PSA is by far rather superior to the Ghana Hybrid System, GIGS used the meticulous analysis of the official Quarterly Petroleum Receipts and Distribution Reports released by the Ministry of Finance from 2011-2015, under the so-called Ghana Hybrid System which is without any legal framework backing it, Ghana the sovereign owner of the oil resources received 28,117,764 barrels valued at US$2,650,352,317, representing 16.59% of total production revenue.

With taxes and surface rentals paid by the FOC added, Ghana earned a total of US$3,111,613,783 representing 19.40% of total production revenue of US$15,980,235,948 as ‘’ Government Take’’.

During the same period, the FOC received 144,417,622 barrels, worth gross value of US$13,329,883,363 representing 83.41% of total production revenue.

After payment of taxes and surface rentals, they had a net gross of US$12,868,622,165 representing 80.60% of total production revenue.

If Ghana had adopted the world standard PSA which existing Laws PNDCL 64 & PNDCL 84 support, adopted by even South Sudan, the newest country in the world, Niger, Chad, Gabon, Equatorial Guinea, Libya, Nigeria, Angola, Malaysia, Cameroun, Indonesia and more than 80 other countries, Ghanaians as sovereign owners of the oil should have received 101,941,628 barrels valued at US$9,608,909,293 representing 60.10% of total production revenue as ‘’Government Take’’.

Even if Ghana had adopted PSA and opted for ‘’ Profit Oil’’ only, without Royalties, Surface Rentals and Corporate Taxes and Participating Interests, Ghana would have lifted 81,207,449 barrels valued US$7.662 billion in the first five years representing 47.70% of total production revenue as ‘’Government Take’’.

The argument by Mr. Mutawakilu that we did not know the cost of exploration, development and production of Jubilee Fields is laughable. What Ghanaians did not know but we know from Day (1), when the Jubilee partners entered the field, to the last day in 30 years when the field is supposed to be exhausted, about US$10 billion will be spent on the entire project. Approximately about US$6 billion for exploration and development of Phase-1 and Phase-2 and about US$4 billion as operating and technical costs would have been spent.

However, from our analysis and computation a net gross of US$12.868 billion was earned representing 80.60% of total production revenue in five years while Ghanaians, sovereign owners of the oil, earned US$3,111,613,783, i.e., 19.40%, as Government Take representing Royalties, Carried and Participating Interests, Corporate Taxes and Surface rentals.

The unsupported claim by Dr. Amin that Ghana is currently earning 54% as Government Take from the Jubilee Fields and the new agreements signed under NDC would generate 75% as Government Take under the Ghana Hybrid System is a public intellectual deceit to the highest order. Our analyses do not support his claim; both Jubilee and TEN are likely to yield between 20%-30% as Total Production Revenue each as Government Take.

This is the system the Ministry of Petroleum, Petroleum Commission, Energy Commission, GNPC and our Representatives in Parliament say is good for Ghana even though they are aware the Ghana Hybrid System would make Ghana earn less than 25% of Total production Revenue as Government Take. And this is supported strongly by ACEP, NRGI, CSO PLATFORM on Oil and Gas, IEA, IMANI, PIAC and others who are heavily funded by the World Bank, Oxfam America, Star Ghana, DFID and the Oil Companies through their so-called Corporate Social Responsibility Fund to deceive and brainwash all sectors of the Ghanaian public, including the seat of Government and Parliament, to believe that what Ghana is doing is the best and modern system. From the analysis above, the two (2) systems cannot produce same results.

In conclusion, the Ghana Institute of Governance and Security (GIGS) joined by the Fair-Trade Oil Share-GH PSA Campaign Team are opposed to the fiscal provisions and other related provisions contained in the Bill/Law which we have considered very inimical to the interest of the people of Ghana, both the present generation and future ones yet unborn.

The statement and claim by the Minister of Petroleum that the Bill or the Law will be robust to protect the interest of Ghana is false and a public deceit to the highest order. The whole Petroleum Ministry and others who were in charge of handling this issue from the NPP administration to the current NDC administration should be charged with the offence of causing financial loss to the State, representing Ghanaians.

Solomon Kwawukume

Senior Research Officer (Oil & Gas) GIGS

National Coordinator – FTOS-GH PSA Campaign