Business News of Fri, 16 Feb 201814
Gov’t sets aside petroleum law for Exxonmobil
As details of the Exxonmobil deal emerge, civil society actors are expressing alarm at the sweeping tax breaks the government of Ghana has granted the oil major, including a ten-year tax holiday which sets aside the five years allowed by the Petroleum Income Tax Act law.
“The law provided that capital expenditure shall be recovered over a period of five years, not more – recovered at 20 percent a year. Now, we have used the Exxonmobil agreement to rewrite the provisions of the law by extending it to over ten years instead of the five years provided in the law,” Dr. Steve Manteaw of the Public Interest and Accountability Committee (PIAC), told journalists at a workshop that analysed the contract.
According to section 12.5 of the contract, which is subject to ratification by Parliament, “the contractor [Exxonmobil] can carry forward costs for up to ten (10) years instead of the five (5) year limitation allowed by Section 67(6) of the Petroleum Income Tax Law.”
The contract, in respect of the Deepwater Cape Three Point offshore (DWCTP) oilfield, has been clothed in controversy since government announced it was going into direct negotiations with Exxonmobil instead of opening it up for competition.
It is now emerging that the contract also contains far-reaching tax breaks which critics say could lead to siginificant losses to the state should a major oil find be made.
Other tax freebies
Aside the ten-year tax-free incentive, the contract also states that, the “Contractor [Exxonmobil] shall not be subject to withholding tax on dividends as required by Section 115 of the Petroleum Income Tax Law or withholding tax and stamp duty with respect to the Development Loan Agreement and the Default Loan Agreement.”
It also reads that: “Contractor and its Affiliates shall not be liable for any export tax on Petroleum exported from Ghana, and no duty or other charge shall be levied on such exports. Vessels or other means of transport used in the export of Contractor’s Petroleum from Ghana shall not be liable for any tax, duty, or other charge by reason of their use for that purpose.”
In the light of these waivers, Dr. Manteaw questioned the Energy Minister’s assertion that the Exxonmobil agreement represents the best deal the country could get taking into account the experience it has gained from commercial production of oil over the years.
He argued that as far as the terms of the contract are concerned, the country could have got a much better deal.
The deal signed has Exxonmobil controlling 80 percent stake in the Deep-Water Cape Three Points project, with the national oil company, settling for the minimum 15 percent carried interest as required by law, and a yet to be named indigenous oil company expected to take the remaining five percent stake.
Also speaking at the same workshop, sponsored by the German Development Cooperation (GIZ), in partnership with the Institute of Financial and Economic Journalists (IFEJ), at Akosombo in the Eastern Region, Prof. Raymond Atuguba of the University of Ghana urged parliament to do a thorough job on the agreement before ratifying it.
He equally lamented the sweeping tax breaks, saying: “Ghana’s political stability makes her attractive to multinationals who want to exploit the natural resources. It is imperative that we harvest now and invest in sustainable and renewable resources.”
Government’s defense for dolling out the bloc to Exxonmobil has been that it has been relinquished twice by Vanco Energy and Lukoil, thereby increasing its risk profile.
Besides, it says the DWCTP is one of the ultra-deep-water blocks; and that aside from Exxonmobil, not many oil companies have the technological and technical wherewithal to work that deep beneath the ocean.
The block lies in water depths ranging between 2,000 to 4,000 metres, measuring approximately 366,000 acres (1,482 square kilometres), and is located approximately 150 km offshore Ghana.