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Opinions of Saturday, 22 August 2015

Columnist: Andy K

Petroleum bill a very bad deal for Ghana

The Petroleum Exploration And Production Bill 2014:
Cluelessness Or A Conspiracy To Perpetuate Fraud And Robbery Of Ghanaians?

On 6th July, 2015, the Ghana Institute of Governance and Security (GIGS) was invited alongside with the World Bank, Oxfam America founded Civil Society Organizations and other NGOs by the Select Committee on Mines and Energy of Parliament to make a 30 minutes presentation on the Petroleum Exploration and Production Bill and to justify our positions.
The CSOs and the other NGOs praised the Bill and concluded that it would promote investment; except for the numerous powers granted the Minister of Petroleum and other minor issues such as beneficiary ownership’s disclosures they had issues with.
GIGS, on the other hand, dealt with the Fiscal provisions and other unfavorable sections which we consider inimical to the interest of Ghanaians and concluded with an appeal for the adoption of Production Sharing Agreement to maximize Ghana’s potentials from the oil resources. GIGS hold the firm opinion supported by cogent calculations that the present Bill in its present form is simply either a clueless giving away of Ghana’s petroleum resources on a silver platter or a conspiracy to perpetuate fraud and robbery of the mass of Ghanaians and deny them a fair and equitable share of her oil resources in the name of attracting foreign investment, which is just a hollow trope in a Ghana with proven oil reserves. PSA or Hybrid, the investors in oil and gas will flock in, as they are doing in other African countries with PSA.
GIGS was invited in the early hours of the evening of 14th July, 2015 to appear before the Select Committee again at 11:00am on the 15th July, 2015. In attendance this time were the top officials of the Ministry of Petroleum led by the Deputy Minister of Petroleum and top officers of the Petroleum Commission and others. We found what transpired alarming and owe it as our patriotic duty as Ghanaians to inform and alert the public.
When all were set the Chairman declared the meeting opened and announced to us, to our surprise, that GIGS was invited the second time to justify why GIGS felt Ghana should adopt PSA. We had provided several pages of scientific and empirical data and evidence to members of the Select Committee, sufficient enough on 6th July, 2015, to that effect, to enable them arrive at that decision of ours on their own if they had read the materials we left.
Before we could say a word, Hon. K. T. Hammond and the Deputy Minister of Petroleum launched an attack on the Snr. Research Officer to show them where in the PNDC Law 84 it was stated that Ghana should adopt PSA.
The Snr. Research Officer drew the attention of Hon. K. T. Hammond to the fact that though PNDC Law 84 did not state “PSA” in words in any section, both PNDC Laws 64 and 84 when taken together show clearly that the Drafters of the Law had PSA in mind and that the Laws have all the relevant features and principles that are contained in PSA. That, the Model Production Sharing Agreement of 1995 between the Ghana Government, the GNPC and the Contractor was based on these two Laws. Records available at Oxford Institute of Energy Studies and Barrow Company Inc. indicated earlier agreements entered into by Ghana based on these Laws were Production Sharing Agreements (Contracts). If our appropriate Ministry and GNPC had lost Ghana’s copies of those contracts and K.T. Hammond and the present powers-that-be did not have the opportunity to read them and therefore are woefully ignorant of the facts, others have them and had commented on them.
The Snr. Research Officer also demanded from Hon. K. T. Hammond to show which sections of PNDC Law 84 contained Carried Interests and Additional Oil Entitlements which he failed to answer. This resulted into exchanges between the Executive Director of GIGS and Hon. K. T. Hammond for a while until the Chairman called for a halt and said he did not want a situation where we would leave and felt being intimidated.
We justified our position for adoption of PSA indicating the financial and economic gains that would accrue to Ghana and provided them with a list of 81 countries in the world, 34 in Africa, producing under PSA or signed unto it to prove the popularity of the system.
The Petroleum Commission made a presentation on behalf of the Ministry of Petroleum and others to discredit the Snr. Research Officer in person and his call for the adoption of PSA by Ghana. The Petroleum Commission justified what is being called Ghana Hybrid System as being superior to the Production Sharing Agreement without any scientific calculation to back that claim but concluded that it would yield 57% of Total Production Revenue from the Jubilee fields over its entire production life, with applause from the Chairman and some Members of the Select Committee, to our utter surprise.
We were then discharged and asked to go without being allowed to ask questions or issue a rebuttal, a procedure we found totally unacceptable and a strange way to do due diligence on a matter as serious as this.
In our Press Statement of 28th July, 2014 at the Teachers’ Hall in Accra, “we observed that the elite technocrats handling the Oil and Gas matters on behalf of the people of Ghana are part of the conspiracy to impose this exploitative system on Ghana to back the bad agreements and contracts to fall in line with the new inimical provisions contained in the Petroleum Exploration and Production Bill”. It is seemingly becoming clear our representatives in Parliament, who are clearly not experts on the subject, are most likely to become by default part of this conspiracy to deny Ghanaians a fair and equitable share of the Oil and Gas Resources nature has given us.
It would be recalled in the Press Statement that the Snr. Research Officer recounted how he donated to Parliament in July 2013 300 copies of the book, “Ghana’s Oil and Gas Discoveries: Towards Full Maximum Benefits,” a book in which he detailed the benefits of Production Sharing Agreement, to be distributed to Members of Parliament. He was compelled to retrieve on 16th July, 2014 200 copies which were left on the office floor of the Clerk to Parliament because it was alleged some leaders in Parliament prevented the distribution, saying the contents of the book should not be known to the greater majority in Parliament. We are not even certain that all the 100 copies not retrieved went to MPs. Shadowy dark hands are clearly at work to continue to rob Ghanaians of their wealth and some are cluelessly following them. Ghanaians deserve far better!
We are, accordingly, publishing what would have been our full response to the false claims of 57% Total Production Revenue being carried around by the Ministry of Petroleum, Petroleum Commission, GNPC, the World Bank and Oxfam America funded CSOs and NGOs to deceive Government, Parliament and every sector of the Ghanaian public to believe that the Ghana Hybrid System is superior to the Production Sharing Agreement which is currently the most popular and equitable fiscal regime applicable in the Upstream Oil Industry in the World. The question is, what experience has Ghanaians at the helm of affairs got in the Upstream Oil Industry to model a system better than the Production Sharing Agreement? Where are their calculations to back that claim? We had thrown an open challenge to them a long time ago to justify their claims but, so far, they have failed woefully and in front of the Select Committee too.
Below is the response of GIGS to the claims of the Petroleum Commission on 15th July, 2015, in answer to their unsupported claims made against the adoption of Production Sharing Agreement.
• We want to reiterate that the hybrid physical provisions contained in the Bill, that the Petroleum Commission and others are claiming is superior to PSA, are completely deceptive and have no empirical and scientific proof.
• How many newly emerging Oil Producing Countries in the developing world are adopting it? When this question was put, they were unable to mention a single country.
• If the Hybrid system was a good one, why was it that the old oil producing countries did not adopt it, but migrated from Concession and Joint Ventures to Production Sharing Agreement and now to Service Agreements?
• If the system was better than PSA and that it could achieve better results, why is Senegal, Mauritania, Tanzanian, Sierra Leone, Liberia, Chad, Niger, Kenya, Cote d’Ivore and other African countries newly into Oil and Gas are not adopting it?
• The porous argument that each country adopts its own system to suit their political conditions is not completely true. Besides, Ghana is now an attractive country proven to have substantial oil and gas reserves.
• That, Malaysia adopted the Indonesian PSA in 1974 and had since been operating with it, but with slight changes made. Recent changes made include the abolition of Signature Bonus.
• The attempt made to undermine our position by false claims made in the presentation showed lack of understanding of the National Issues which bother on National Security and Stability we have raising.
• Their computation of the correct Government Take is totally flawed.
• Ghana under the current Hybrid System is lifting 17% of total Production while the contractors are taking 83% of it.
• By implication the Contractors are taking 83% of total Gross Production Revenue and Ghana taking 17% of it.
• How can this situation change into 57% of total revenue accruing to Ghana in the long run?
• What magical mathematical formula was used to increase Ghana’s 17% to achieve this figure of 57%?
• This clearly shows that the State Institutions do not understand how the computation of Government Take is arrived at.
• Adding up various rates of percentages such as Royalty, Carried and Participation Interests and Profit Tax in an Agreement to say the total is Government Take is not correct and grossly misleading.
• The World Bank and IMF have projected US$20 billion and US$ 19billion respectively over the entire life of the Jubilee Field.
• GIGS have also projected almost US$60 Billion by adopting the Production Sharing Agreement.
• The State Institutions should also be able to tell Ghanaians what and where the 57% total revenue is derived from, in absolute figures, and not quoting percentages which lack justification and evidence of calculation.
• Is the 57% total revenue due Ghana higher than the World Bank and IMF projections and the almost US $60 Billion projected by GIGS?
• Attached is a simulation of Ghana’s Projected Revenue positions from the Jubilee Fields at the request of the Director of Legal at the Ministry of Petroleum which clearly exposes the falsity of their claims.
• It is assumed under PSA Ghana is not participating and the Contractors are not paying Profit Taxes to depict clearly the Superiority of PSA over the Modern Concession.
• In Table A, under the Modern Concession at 10% Royalty, 15% Carried Interest, 3.75% Participation Interest and 35% Profit Tax, Government Take would be US$52,231,120,000 representing 43.526% of total estimated revenue, if Jubilee Field was operating under these Optimum Rates which have not been included in any Contract.
• That, the 43.526% is far below the 57% being attributed to current lower operating rates of 5% Royalty and 10% Carried Interest at Jubilee.
• In Table B under PSA at 10% Royalty total Government Take would be US$62,040,000,000 excluding Profit Taxes and Participating Interest representing 51.70% of Total Estimated Revenue, an evidence of Superiority of PSA over Modern Concession.
• In Table C under PSA at 5% Royalty, total Government Take would be US$59,640,000,000 representing 49.70% of Total Revenue, also excluding Profit Taxes and Participating Interest.
• Government Take of US$59,640,000,000 in Table C at 5% Royalty under PSA excluding Participating Interest and Profit Taxes is greater than US$52,231,120,000 Government Take under Modern Concession in Table
A with Optimum Rates of 10% Royalty, 15% Carried Interest, 3.75% Participating Interest and 35% Profit Tax.
• In conclusion the Superiority of PSA over Modern Concession is clearly evident in these simulations.
• The 57% Government Take attributed to Jubilee currently operating at lower rates of 5% Royalty and 10% Carried Interest is a falsification of numbers to justify their wrong decisions and policies which are affecting Ghana today. Unfortunately, some dominant NGOs without the necessary competence have been giving them misguided credence.
• The 57% can never be factual, but is being projected to convince Government, Parliament and every Sector of the Ghanaian public to justify their wrong policies and decisions. Nobody should believe them.
• The State Institutions handling the whole Petroleum Industry in Ghana are not taking the best of decisions for the benefits of all, thus creating tension, anxiety and uncertainty in the country, which if not properly handled would create instability and insecurity, leading to agitation not too long in the distance future, by our prediction.
• It is our fervent hope that, the Select Committee on Mines and Energy recommend to Government to use its diplomatic channels to get an independent expert to come and assist Government, which to a larger extent would help us make very prudent decisions rather than the over reliance on the embryonic State Institutions with leaders who we believe are struggling to understand the best practices in the emerging Upstream Petroleum Industry in the Country. They often appear not to have a clue, a situation we find very baffling and alarming!
• We are ever ready and our doors are open for further discussion on these very important national issues which bother on the economic destiny of our dear country country.
• Please note that, we are doing all this from our sincerest hearts and undivided allegiance to the Constitution of Ghana, not for any private profit motive but for the good of all generations present and future.
Solomon Kwawukume
Snr. Research Officer
GIGS






TABLE A

WHAT THE PROJECTED POSITION OF GHANA WOULD BE UNDER THE CURRENT HYBRID SYSTEM – MODERN CONCESSION AT 10% ROYALTIES, 15% CARRIED INTEREST, 3.75% ADDITIONAL INTEREST, 35% PROFIT TAX AND AT US $ 60 PER BARREL COMPARED TO WORLD BANK AND IMF ESTIMATES
US$ US$

Total Estimated Revenue 120,000,000,000
Ghana 43.526% 52,231,120,000
Production Cost 10% 12,000,000,000
Capital Cost Recovery 10.50% 12,600,000,000
Total Direct Cost Of Production 76,831,120,000
Profit Due FOC’S 43,168,800,000

Due Ghana 52,231,120,000 43,526% Government Take

Due FOC’s US$
Production Cost 12,000,000,000
Capital Cost Recovery 12,600,000,000
Profit 43,168,800,000

Total 67,768,800,000 56.474%

Estimated Revenue Due Ghana by IMF WORLD BANK
Us$20,269,000,000 US$19,390,000,000
Percentage of Total Revenue
As Government Take 16.89% 16.16%

The World Bank and IMF Estimates were based on Long Term Price of US$ 75.00 Per Barrel and Earnings Include Royalties, Carried and Participation Interests and Profit Taxes













Table B
PROJECTED POSITION OF GHANA UNDER PRODUCTION SHARING AGREEMENT AT 10 % ROYALTY AT US$ 60 PER BARREL COMPARED TO WORLD BANK AND IMF ESTIMATES
BARRELS US$
Estimated Value 2,000,000,000 120,000,000,000

Royalties 10% 200,000,000 12,000,000,000
Production Cost 10% 200,000,000 12,000,000,000
Capital Cost 10.50% 210,000,000 12,600,000,000
Direct Cost 610,000,000 36,600,000,000
Profit Oil 1,390,000.00 83,400,000,000

PROFIT OIL SHARING BARRELS US$
Ghana 60% 834,000.000 50,040,000,000
FOC 40% 556,000,000 33,360,000,000
1,390,000,000 83,400,000,000
DUE GHANA BARRELS US$
Royalty 200,000,000 12,000,000,000
Profit Oil 834,000,000 50,040,000,000
1,034,000,000 62,040,000,000

DUE FOC BARRELS US$
Production Cost 200,000,000 12,000,000,000
Capital Cost Recovery 210,000,000 12,600,000,000
Profit Oil 556,000,000 33,360,000,000
966,000,000 57,960,000,000

Estimated Revenue Due Ghana By IMF WORLD BANK
US$ 20,269,000,000 US$19,390,000,000
Percentage of Total Revenue
As Government Take 16.86% 16.16%

The World Bank and IMF Estimates were based on Long Term Price of US$ 75.00 Per Barrel and Earnings Include Royalties, Carried and Participation Interests and Profit Taxes








TABLE C

PROJECTED POSITION OF GHANA UNDER PRODUCTION SHARING AGREEMENT AT 5% ROYALTY COMPARED TO WORLD BANK AND THE IMF ESTIMATES UNDER THE CURRENT HYBRID SYSTEM – MODERN CONCESSION OVER THE 20 YEARS PRODUCTION
LIFE OF THE JUBILEE FIELDS AT US$60 PER BARREL

BARRELS US$ US$
Estimated values 2,000,000,000 120,000,000,000
Royalty 5% 100,000,000 6,000,000,000
Production cost 10% 200,000,000 12,000,000,000
Capital cost recovery
10.50% 210,000,000 12,000,000,000
Direct cost of
Production 510,000,000 30,600,000,000

Profit oil 1,490,000,000 89,400,000,000

Profit Oil Sharing BARRELS US$
Ghana 60% 894,000,000 23,640,000,000
FOC 40% 596,000,000 35,760,000,000
1,490,000,000 89,400,000,000

DUE GHANA BARRELS US$
Royalty 100,000,000 6,000,000,000
Profit Oil 894,000,000 53,640,000,000
994,000,000 59,640,000,000 49.70%

DUE FOC BARRELS US$
Production Cost 200,000,000 12,000,000,000
Capital Cost Recovery 210,000,000 12,600,000,000
Profit Oil 596,000,000 35,760,000,000
1,006,000,000 60,360,000,000 50.30%

Estimated Revenue Due Ghana by IMF WORLD BANK
US$20,269,000,000 US$19,390,000,000
Percentage total revenue
As Government Take 16.89% 16.16%


The World Bank And IMF Estimates Were Based On Long Term Price Of US$ 75.00 Per Barrel And Earnings Include Royalties, Carried And Participation Interests And Profit Taxes.