Library Photo
The new Petroleum Exploration and Production (E&P) bill is set to see major changes after the Parliamentary Select Committee on Energy ended its study tour of selected countries to learn international best practices last week -- success stories and pitfalls that need to be avoided in Ghana’s petroleum sector.
The bill, which when passed into law will provide the framework for exploration and production in the oil and gas sector, is also expected to chart a clear direction in the operation of a national oil company, Ghana National Petroleum Corporation (GNPC), and how to adequately strengthen it to play its role in national development.
Currently, no definite decision has been made on which aspects of the Petroleum Exploration and Production bill to amend, but B&FT can report that the committee is seriously considering making major changes to it after visits to Norway, Trinidad & Tobago and Malaysia.
The chair of the Parliamentary Select Committee on Energy, Cletus Avoka, explained to a select section of the Ghanaian media that accompanied the delegation to Malaysia that significant changes will be considered to the bill -- even though there will not be wholesale cut-and-paste amendments due to differences in the national governance systems.
He said a number of challenges and grey areas have been identified in the E&P bill that need careful consideration and possible amendment.
“We have certain issues about the bill, and after visiting some jurisdictions on a study tour we have tried to let them (host national companies) explain the grey areas and other issues we are not too sure about.
“From this trip (to Malaysia), what we have observed is that it is a complete departure from the provisions we have in the bill.
“I must say we have learnt a lot. After this trip, we will start looking at provisions in the bill clause by clause,” he said.
The rationale for introduction of the petroleum E&P bill is to address financial matters in the petroleum sector in order to avoid losing control of natural resources, enhancement of health and safety measures, imposition of stricter penalties for non-compliance and decommissioning requirements, and boosting local content requirement.
Additionally, the bill is to provide an enabling environment for increased private participation and investment in the oil and gas sector, provide a shorter petroleum contract regime, and also recognise the role of the Petroleum Commission and other relevant institutions such as the Environmental Protection Agency, Maritime Authority.
Following completion of the study tours, among the observations flagged in the bill by the Parliamentary Select Committee on Energy for careful consideration is role of the minister in awarding contracts.
According to the current E&P bill, notwithstanding competitive bidding, the minister in his good judgment can decide to give the contract to a different entity -- a provision that the Committee noted is of concern.
Mr. Avoka said: “Does he have residual power? That is a challenging area and a grey area that we are exploring and need to look at”.
Another grey area identified by the Committee is what GNPC says is the tying of its hands and control systems, such that it cannot operate competitively -- and so needs to be given leverage to enable it compete favourably with other oil companies across the world.
The troubles GNPC goes through to secure resources for its operations in a fast-paced business have been noted as a hindrance, a concern observed to be in contrast with national oil companies in other countries such as Petronas of Malaysia.
Mr. Avoka further added: “For instance, GNPC cannot contract a loan without approval from Parliament while with Petronas that is not the case, which makes business faster. In our case, it has to go through a lot of structures before it can be approved.
“If GNPC wants to raise GH¢700million and there is a tug of war all over, then it cannot be competitive and diversify. The law must be liberalised so it can operate if we want it to be competitive in the oil industry, which is capital intensive.”
The issue of local content and duration of petroleum contract are also on the consideration-table of the Parliamentary Select Committee on Energy.
“We also have local content challenges: we have passed a law on local content, but it is our conviction that Ghanaians must not just understudy but also participate to a limited extent and gradually build their capacity -- and if possible compete with the foreign businesses.
“Another area is contract duration -- in the bill they have provided about 20-25 years. Elsewhere, they say it takes a longer period to explore and produce and people say the duration must be up to 50 years, while others contend it must be between 15 to 25 years. So that is also another area in which we need to reach a compromise.
“So, these are some of the issues that we think are worth considering,” Mr. Avoka said.
The new Petroleum E&P bill before Parliament has been put forward to replace the existing Petroleum E&P law of 1984 (PNDCL 84), which has been identified to be limited in scope and does not adequately address current legal challenges in the petroleum sector.
However, GNPC is concerned some provisions in the bill could weaken its balance sheet and operations.
The Corporation believes the PNDCL 84 and the Model Petroleum Agreement empowered the GNPC to strengthen its balance sheet by allowing it to own the initial 10 percent and additional participating interest in a petroleum agreement as a corporate asset that can be used for GNPC’s business, a provision the new bill seeks to amend.
According to the new E&P bill, GNPC will instead hold the initial and additional participating interest making the asset state-owned -- which the Corporation is not legally entitled to utilise or manage on a day-to-day basis.
“The participating interests are necessary for GNPC to perform its commercial role -- they enhance its ability to raise financing to expand operations,” the corporation has argued.
The GNPC thus wants the new law to reflect government’s policy direction, which is to see GNPC develop into a strong national oil company capable of conducting its own operations domestically and internationally.
