Italian PM must review ENI-Sankofa deal - NPP

Ghana’s opposition New Patriotic Party (NPP) wants the visiting Italian Prime Minister Matteo Renzi to “review” some of the terms in the ENI-Sankofi deal “to maximise our mutual benefits from this project.”

“The Government of Ghana’s provision of financial terms to ENI and its partners of 20% return on investment, instead of the normal 12.5%, is an unusually high rate for commercial transactions of this nature, especially as GNPC assumes all the risk in the project,” the NPP said in a statement.

Below is the full statement from the NPP:

The New Patriotic Party joins the Government and people of Ghana to welcome His Excellency Mr. Matteo Renzi, Prime Minister of Italy, to Ghana today. The NPP appreciates the enormous assistance of Italy to Ghana over the years and the excellent state of our relationship.

On this auspicious occasion of the Prime Minister’s visit, however, the NPP is constrained to highlight for the consideration of His Excellency and, indeed, all Ghanaians aspects of Ghana’s contractual relationship with ENI, a state-owned Italian oil conglomerate, and its partners over the exploitation of the Offshore Cape Three Points Block (OCTP).

Our worries, which have also been expressed by some Civil Society Organisations in the oil sector, include:

i. The Government of Ghana’s provision of financial terms to ENI and its partners of 20% return on investment, instead of the normal 12.5%, is an unusually high rate for commercial transactions of this nature, especially as GNPC assumes all the risk in the project.

ii. The negotiated gas price of $9.8/MMBtu for gas from the Sankofa fields is too high by world standards, of between $5-7/MMBtu. It is even higher than the price of gas sold to Ghana from Nigeria, which stands at $8.3/MMBtu, delivered at Takoradi. It is even more expensive than our own Atuabo Gas price of $8.8/MMBtu delivered at Takoradi. At the negotiated gas price of $9.8/MMBtu, it puts to great risk Ghana’s potential of becoming the Petrochemical hub of the region to Nigeria, due to that country’s lower gas prices.

iii. This agreement compels GNPC to buy up to 90% of ENI produced gas at a higher negotiated price of $9.8/MMBtu for 20 solid years. This gas sales same agreement is further guaranteed against default by three guarantees – the government of Ghana, the World Bank and GNPC – amounting to some $750 million.

Furthermore, GNPC, after buying the gas from ENI at a guaranteed price stands the risk of losing its market (VRA, IPPs, petrochemical industries) to other cheap gas suppliers. iv. Ghana also guarantees additional free cash flows to the company by allowing them to write-off 7% interest on all commercial loans from project revenues, when the normal provision is between 2-3%. This also reduces Ghana’s potential tax revenues from this project by over $160 million. No other companies, whether from Jubilee or TEN, have been given this same rate of 7%.

v. The cost of the development of the Jubilee Fields, with more reserves of oil equivalence and with a water depth of 3,630 ft, came to $4 billion. The cost of development of the TEN oil fields, also with more oil reserves of oil equivalence, came to $4.9 billion. The cost of development of ENI’s Sankofa is $7 billion, with less reserves of oil equivalence and at relatively lower water depths of 2,706 ft. We wonder the quality of due diligence done, if any.

We ask, what possible motives could drive the government of Ghana to bend backwards and grant all these unprecedented incentives, which are not even available to the original developers of Cape Three Points?

We are highlighting these issues, as this is potentially the largest single investment in Ghana, which will bind the Ghanaian people for the next 20 years. It is, therefore, important that the benefits of this project are not so one-sided as they seem today.

We hope the Italian Prime Minister will use his good offices to prevail on ENI and the Government of Ghana to review some of these terms, in order to maximise our mutual benefits from this project. We believe this will further strengthen the Ghanaian-Italian relationship and North-South co-operation.

……signed……

Nana Akomea

Director of Communications