$1bn China Development Bank loan can’t be paid?

The Public Interest and Accountability Committee (PIAC) has expressed doubts about the ability of the Ghana National Gas Company (GNGC) to commence the scheduled amortisation of the approximately US$1billion China Development Bank (CDB) loan facility that was contracted by the Government for the construction of the Atuabo Gas Processing Plant.

PIAC said it arrived at this assessment based on the ever-growing indebtedness of state institutions to GNGC.

The fears were expressed in the first half of 2016 report of PIAC.

$340.49m owed Ghana Gas

According to PIAC, total payments owed Ghana Gas had hit $340.49million as at June 30, 2016 with the Volta River Authority (VRA) alone accounting for 89.9% representing $306.10 million of the outstanding balance.

It revealed that the total interest payable by VRA on its outstanding debts amounted to $2.86 million in the first half of 2016. Consequently, PIAC demanded that the VRA, as a matter of urgency, should be prevailed upon by the Ministries of Finance, Power and Petroleum to settle its indebtedness to the GNGC in order to prevent its debts from spiraling to unmanageable proportions, thereby compromising the financial integrity and viability of GNGC.

PIAC also wants the GNGC to fast-track the interconnection of its onshore pipeline to the West African Gas Pipeline to create new market for its lean gas so that in the event that VRA continues to default in honouring its obligations, the lean gas could be channelled to the new markets that would become available by virtue of the interconnection.

The report reiterated its call on Ghana National Petroleum Corporation (GNPC) to desist from financing infrastructure projects with funds allocated to it from petroleum revenues.

It, therefore, proposed that any outstanding payment (s) to be made in respect of the Western Corridor Road project must be paid from the allocations to the Roads and Other Infrastructure priority areas.

PIAC charged the Ghana Revenue Authority (GRA) should ensure that the outstanding surface rental invoice owed by Oranto Energy is paid with interest.

In order to help mitigate the impacts of the volatility of crude oil prices on the world market and following the successful hedging programmes being implemented by the other Jubilee partners, PIAC advised government to consider resuming its hedging programme on crude oil export.

The Committee expressed concern that some key recommendations made in some of its previous reports - such as the suggestion in its 2015 Annual Report urging GNPC to desist from spending portions of its (GNPC’s) allocation on noncore business areas and the urgent need for Ghana to hedge its oil price - have not been implemented by the relevant state institutions.

The report revealed that revenue from the petroleum sector for the first half of last year dropped by 55%.

The figure declined from US$274.47 million in 2015 to US$126.41 million for the same period last year, it added.

This translates to a 55% reduction in revenues when compared to total petroleum receipts during the same period in 2015 (US$274.47 million) but 4% better than revenues received during the second half of 2015, it said.

The report also revealed that the total half year receipts from the petroleum sector represented only 50.35% of the projected half year revenue of US$251.05 million.

Key findings emerging from 2016 Semi-Annual Report

1. Crude oil production from the Jubilee Field declined by 40% from 19.08 million barrels in mid-year 2015 to 11.44 million barrels over the same period in 2016 .The decline in production was caused by a combination of scheduled shutdown of the FPSO for routine maintenance and a faulty turret bearing which led to the suspension of oil production for up to 50 days.

2. The 2016 half year production volumes are the lowest since 2011.

3. There was a 38% decline in the production of raw gas from 27,363 MMscf in the first half of 2015 to 16,904 MMscf during the period under review.

4. There was no production at the Saltpond Field following the suspension of operations in December 2015. The Saltpond Field is currently being decommissioned.

5. The Ghana Group lifted 1.95 million barrels of oil, representing 18.48% of total liftings from the Jubilee Field between January and June 2016.

6. Liftings carried out by the Ghana Group declined by 39% when compared to the liftings done during the same period in 2015.

7. A total of 9,349 MMscf of wet gas was exported to the Atuabo Gas Plant for processing into lean gas, LPG and condensates.

8. Average achieved price for the Jubilee Crude was US$40.21 per barrel compared to benchmark price of US$53.03, representing a negative variance of 24.21%.

9. The price obtained by the Ghana Group compares favourably with global benchmark prices prevailing at the time the cargoes were sold.

10. Although the average sale price achieved by the Ghana Group was similar to those of the other Jubilee Partners, the latter were able to achieve higher prices for their liftings because of successful hedging policies on their part.

11. Revenues from the petroleum sector during the first half of 2016 amounted to US$126.41 million, which translates to a 55% reduction in revenues when compared to total petroleum receipts during the same period in 2015 (US$274.47 million) but 4% better than revenues received during the second half of 2015.

12. Total half year receipts from the petroleum sector represent only 50.35% of the projected half year revenue of US$251.05 million.

13. Ghana Gas was able to collect only 16% (US$17.17million) of expected receivables of US$104.13 million during the period under review.

14. Total payment owed Ghana Gas had hit US$340.49 million as at June 30, 2016 with VRA alone accounting for 89.9% (US$306.10 million) of the outstanding balance.

15. Total interest payable by Volta River Authority (VRA) on its outstanding debts amounted to US$2.86 million in the first half of 2016.

16. Approximately 69% (US$87.15 million) of the total petroleum receipts of US$126.46 million was distributed during the period under review. The undistributed balance of US$48.47 million remains in the PHF awaiting distribution in the second half of the year.

17. Approximately 52% (US$45.07million) of the disbursements was allocated to the Annual Budget Funding Amount (ABFA), 26% (US$22.77 million) to the Ghana National Petroleum Corporation (GNPC), 16% (US$13.52 million) was lodged in the Ghana Stabilisation Fund (GSF), with the remaining US$5.79 million (6%) going into the Ghana Heritage Fund (GHF).

18. Total allocation to GNPC was US$22.77 million while US$64.04 million was spent, representing a net deficit of US$41.27 million (181.9%).

19. For the first time since the allocation of petroleum revenues commenced, the disbursement to GNPC of US$22.77 million could only cover 77% of the Jubilee financing cost of US$29.51 million.

20. An amount of US$3.12 million was expended on the Western Corridor Roads while US$0.32 million was spent as GNPC’s contribution to the decommissioning of the Saltpond Field.

21. An amount of GH¢172.9 million (US$45.07 million) was allocated to the ABFA during the period under review which translates to a 64% shortfall in the projected ABFA of US$126.13 million.

22. 71.29% (GH¢123.25 million) of the allocation to the ABFA went to the Roads and Other Infrastructure priority area, GH¢10.97 million (6.34%) went to Agricultural Modernisation, GH¢38.08 million (22.02%) went into Capacity Building, with 0.6 million (0.35%) going to PIAC.

23. Significantly, no allocation was made to the Expenditure and Amortisation of Loans for Oil and Gas Infrastructure because Ghana National Gas Company (GNGC) has become fully operational and is expected to assume responsibility for the repayment of the China Development Bank (CDB) loan.

24. Approximately 23% (GH¢28.38 million) of the allocation to the Roads and Other Infrastructure priority area was spent on roads and highways, GH¢31.59 million (32%) on energy infrastructure, GH¢23.1 million (19%) on water infrastructure, GH¢2.00 million (2%) on transport infrastructure, with the remaining GH¢30.27 million (24%) going into the Ghana Infrastructure Investment Fund.

25. Amounts of US$13.52 million and US$5.79 million of the total half year petroleum revenue were transferred to the GSF and GHF respectively during the period under review.

26. No transfer was made from the GSF even though there was significant shortfall in the expected quarterly ABFA in view of the fact that, the balance in the GSF was lower than the US$200 million moving cap set in the 2016 Budget Statement.

27. The GPFs earned a combined return on investments of 5.26% (US$3.08 million) between January and June 2016, with GSF contributing US$ 0.438 million (0.33%), and GHF earning US$2.64 million (4.93%). 28. Outstanding balances on the GPFs stood at US$191.35 million for the GSF and US$267.81 for the GHF.