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Opinions of Wednesday, 17 March 2021

Columnist: JohnPauls Eyiram

How Ghana's Oil and Gas sector is influencing construction in the country?

Ghana’s hydrocarbons industry is a relatively new one, and oil reserve data changes rapidly as fresh discoveries are made. At the start of 2018 proven oil reserves stood at 660m barrels, with subsequent new discoveries pointing to a significantly greater resource: some 1.5bn barrels were found in offshore fields in late 2019, but the recoverable amount is yet to be determined.

From January to June 2019 over 34m barrels of crude oil were produced from Ghana’s offshore oil and gas fields, namely the Jubilee field; the Tweneboa, Enyenra, Ntomme (TEN) fields; and the Sankofa field. This represents an 18.4% increase over the same period in 2018, and the highest half-year crude oil production in the country’s history.

The decade from 2009 to 2019 was highly transformative for the Ghanaian energy sector. When the nation made its first discovery of deepwater oil and gas in 2007, biomass was the largest component in its total energy consumption. The subsequent exploitation of this new hydrocarbons resource, combined with a national drive towards electrification, saw a significant reduction in the importance of biomass – mostly firewood that was historically used to heat.

homes and small businesses – as an energy input, and by 2016 it accounted for just 39% of all energy consumed, compared to 49% in 2006.

Conversely, the use of petrochemicals has risen; hence, accounting for nearly half of energy consumed in 2016 and gaining ground as both upstream and midstream oil and gas infrastructure continues to develop. Crude oil is one of Ghana’s most valuable exports and is an important contributor to GDP. According to the Bank of Ghana, in 2018 the value of crude shipped overseas reached $4.57bn, up from $3.12bn the previous year and second only to the country’s sizeable gold exports.

Demand for construction is propelled by the oil and gas sector. In 2016, Ghana inaugurated construction of the Offshore Cape Three Points (OCTP) integrated oil and gas project. The OCTP project, which is being developed by Italian oil company Eni in partnership with Vitol Group and Ghana National Petroleum Corporation, is set to cost $7bn, representing the single-largest foreign investment in Ghana to date.

The project includes the combined development of the Sankofa Main, Sankofa East, Gye Nyame, Sankofa East Cenomanian and Sankofa East Campanian fields. Together, the fields hold an estimated 1.5trn cu feet of gas and 500m barrels of oil. The fields are located 60 km from the coast of Ghana in the Tano Basin. Receiving facilities for the gas, expected to come on-line in 2018, will be built in Sanzuley and connected to the Ghana Gas Pipeline to transport output to Aboadze and Tema power plants. The project is expected to create 2000 jobs and received a partial risk guarantee from the World Bank.

Work has also begun on Ghana’s $1.5bn coal plant, which is to be located at Ekumfi Aboano in Ghana’s Central Region. Construction, funded by the China-Africa Development Fund and built


by China’s Shenzhen Energy Group, began in April 2016 and is expected to last three years. Phase one of this project will install two 350-MW plants. The government hopes to expand its generation capacity to 5000. According to local media, Ghana has recorded a 7% annual growth rate of demand for electricity.

As well, in the downstream, the Oil and Gas industry has given a big push to construction of state owned and private refineries, gas stations, and fuel depots across Ghana. To throw more lights on the activities in the downstream; firstly, with the refinery: we have Tema Oil Refinery Akwaaba Oil Refinery Ltd, Platon Gas Ltd.

Secondly, we have gas or filling stations referred to as OMCs, that is, Oil Marketing Companies such - Total, Shell, Goil, Sky Oil, Champion and many others. Third , we talk of The Bulk Oil Storage and Transportation companies (BOST) State owned, is set to launch a new system to help end challenges Bulk Oil Distributing Companies (BDCs) (owned by private individuals) poses to them.

Challenges

While the construction sector has experienced significant growth in the last few years, especially relative to other parts of the economy, it still faces a number of challenges, including unfavourable foreign exchange rates, issues of land tenure, high interest rates and the rising costs of utilities and building materials.

One symptom of its growth is that the industry is now highly competitive. “Although the construction sector is small in Ghana, it has already become very competitive, with major players


and several market entrants from Benin, Togo, Chad, Nigeria and Mali,” Edward Afenya, CEO of Trust Group.
Access to land is a hurdle for construction companies in Ghana. Roughly 80% of land in the country belongs to traditional local authorities or individual families, and the current land registration system is expensive, complicated and often drags out through lengthy litigation.

Construction companies and developers are often concerned about buying land only to have it challenged by another titleholder claiming it was illegally sold. Furthermore, it is also constitutionally prohibited for foreign companies to own land, rather, they are allowed to lease land for 50-year renewable contracts.

According to the GIPC, leasing land over a 49-year contract for industrial development costs anywhere from $30,000 to $150,000 per acre (0.4 ha) while farmland costs $35 to $50 per month. However, as Abi-Nader told OBG, “It isn’t the cost of the land but the legality of the land that is a problem.”

Despite these challenges, according to the Centre for Affordable Housing Finance in Africa (CAHF), Ghana outperforms neighbouring countries like Togo, Benin, Burkina Faso and Nigeria in the procedures necessary to register a property. The CAHF reported that there are five steps to register a property in Ghana.

The process takes around 46 days, and it costs 1.1% of the property value. However, the rising cost of utilities and building materials is contributing to higher construction costs. At the end of 2015, electricity prices increased by 59.2% and water increased by 69-89%. Additionally, since most of Ghana’s construction materials and equipment are imported, the devaluation of the cedi has had a profound effect on prices.

Economic impact

Notwithstanding the foregoing, the construction industry is projecting nearly 118,800 jobs to be added by May 2023. Construction generates over $360 billion in revenue and has a share of 9% in the total GDP of the country.

We thank God for endowing Ghana with this rich oil and gas resource.

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