Ghana faces high investment risk in upstream gas, power sectors

New research and analysis, from one of Ghana’s most reputed specialized public policy think tanks warns that the country presents a high risk environment for upstream investment and the power sector, with the newly proposed agenda to make Ghana National Gas Company, a gas aggregator.

An analysis paper issued by Africa Centre For Energy Policy (ACEP) has raised key concerns on the newly proposed policy changes aimed to make GNGC a gas aggregator for the country’s oil and gas sector.

ACEP said, “Transferring the role of an aggregator to GNGC also introduces significant risks for upstream investment and the power sector. The weak balance sheet of GNGC makes it unattractive to the investor community which has implication for exploration and production.”

Throughout the proposal, GNGC ignored its lack of capacity to assume and manage the obligations that come with being a gas aggregator.

GNGC has proposed a novation of relevant contractual arrangements with both upstream and downstream partners from GNPC to it.

“The proposed novation of contractual obligations within the sector comes with risks and this requires that the company that wants to assume the obligations show how they will manage the risks,” ACEP said.

The coincidence of the policy change with the challenging global oil industry on the back of COVID- 19 further exposes the country to high investment risks.

The Gas Master Plan recommended that GNGC becomes a subsidiary of GNPC, with GNPC performing the role of a gas aggregator. According to the master plan “The decision to appoint GNPC as the aggregator of gas and making GNGC a fully owned subsidiary of GNPC will improve coordination in the sector and facilitate infrastructure investment and financing.”

This in addition to the security requirement by the Off-Shore Cape Three Point (OCTP) partners informed government’s decision in 2015 to make GNGC a subsidiary of GNPC which was subsequently implemented in July 2016. However the consolidation only lasted for five months and was subsequently abandoned after a change of government at the start of 2017.

In view of this, ACEP protests that the proposal to make GNGC the gas aggregator is therefore not in line with the country’s Gas Master Plan, which is a product of institutional and stakeholder consultation with support from USAID.

“This should not be altered at the wish of one party in the value chain. Abandoning the Gas Master Plan deflates the confidence of Development Partners in financing future policy development,” the energy think tank adds.

ACEP recommends that making GNGC a subsidiary of GNPC as a strategy for the implementation of the Gas Master Plan, would be the optimal option for achieving results in the oil and gas sector for Ghana.

In effect, this would be pursuant of the top-down integration model with GNPC at the top as an anchor.

It would allow GNPC to support subsidiaries along the value chain with the strength of its own balance sheet.

“This also requires that GNPC is refocused to invest its money in the core oil and gas business as has been done by other integrated national oil companies,” ACEP says.

ACEP further argues that, although the designation of a national aggregator is a policy decision within the control of government, GNGC’s proposal for relevant gas contracts to be novated from GNPC to GNGC should not be a unilateral decision,

“The OCTP partners agreed with government to make GNPC the gas aggregator as a condition for developing the project because of GNPC’s financial position. Any decision to novate the existing gas agreement has to be agreed to by the upstream investors. In the light of the foregoing, it is not difficult to predict on the basis of GNGC’s financial position that no Exploration and Production (E&P) company will novate their Gas Sales Agreement to GNGC,” the think tank said.