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Opinions Mon, 25 Aug 2014

A modern concession. Why Ghana?

Press statement on the petroleum exploration and production bill 2013

A modern concession. Why ghana?

“Africa’s natural resource wealth rights belongs to the continent’s citizens, but the citizens are being robbed of its benefits by revenue diversion, corruption, jobless growth and rising inequity,” Kofi Annan, Africa Progress Panel, 26th September 2013.

The Ghana Institute of Governance and Security (GIGS) deem it necessary to issue this Press Statement on the emerging Upstream Oil and Gas Industry in Ghana in respect of the Petroleum Exploration and Production Bill 2013 which, we learnt, has been approved by Cabinet, but yet to be laid before Parliament for approval into law to regulate the Upstream Oil Industry in Ghana.

We want to put it straight on record that if the President and his Cabinet understood the dire consequences and ramifications of this Draft bill becoming a law to regulate our Upstream Oil Industry, he and his Cabinet would not have approved of it. We have observed serious challenges and implications passing this Bill in its current form which will impose dire, adverse consequences on governance and security, a situation which will eventually lead to insecurity and instability.

We have considered the fiscal provisions and others contained in the Bill and have come to the conclusion that it will never ever make Ghana derive the full maximum benefits from the oil resources God or nature has bestowed upon us. The fiscal provisions we realized are crafted to fall in line with the current prevailing system - a hybrid between the old traditional Concession and Production Sharing Agreement, partially in implementation, but in all essence it is a Concession system described as “Modern Concession”.

This Modern Concession was designed by the World Bank in conjunction with the British and the Americans as an antidote to the Production Sharing Agreement which was started from the East - Indonesia in 1960. The modification of the old Concession to include Carried and Participation interests may be an improvement, but not in any way superior and better than the Production Sharing Agreement. It is a wolf in a sheep-skin. The Modern Concession is equally exploitative as the old Concession. It is the current prevailing system which earned Ghana under US$1.8billion in 3 years while the foreign oil companies, our contractors, made away with US$7.590 billion for their £4bn investment. At the end of 31st March, 2014 Ghana earned US$2.089 billion while the contractors made away with US$8.448 billion in the name of investment.

The total investment of about US$4 billion which Ghana also contributed to have been fully recovered in 3 years. It is our belief that the prevailing system under which the companies are operating, which the Bill seeks to consolidate into law, is the cause of this. And, on careful analysis, it would not be in the best interest of the people of Ghana. We have written to the President, The Speaker of Parliament, Leadership in Parliament, The Minister of Energy and Petroleum drawing their attention to the adverse economic consequences of the passage of this Bill into law to regulate the Upstream Oil Industry.

We have also donated 300 copies of the book “Ghana’s Oil and Gas Discoveries: Towards full Maximum Benefits” a year ago to Parliament to be distributed to members as educational material to enable them appreciate which course Ghana should trod. To our surprise, 200 copies were left on the floor in the Clerk’s office because it is alleged some leaders in Parliament said the contents of the book should not be known to the greater majority in Parliament. I was compelled to collect them on 16th July, 2014.

We have also written to the Council of State, and copied other stakeholders such as TUC, Catholic Bishop’s Conference, National Peace Council and the Christian Council of Ghana. We are grateful to the TUC and the National Catholic Secretariat for the quick response to our request to make a presentation to them on the subject. We pray they join in the effort to rescue this country or we sink together, while few people will be floating and smiling all the way to the bank.

The passage of this Petroleum Exploration and Production Bill in its current form, with the fiscal provisions and other unfavourable sections it contains, into law would amount to surrendering our sovereignty and Constitutional ownership and Birth Rights over our oil and gas resources wealth to the British and Americans and other foreigners once again, in the same manner we treated our gold and other minerals in the name of investment in the past and up to today. If the Bill is passed into law, it would amount to an economic suicide committed by the leaders of Ghana. It is surprising Ghana is about to pass a law to legalize and perpetuate the robbery of her citizens in the name of investment in the manner Kofi Annan complained about.

In a paper titled, “From Concession to Service Contracts” by Ernest E. Smith in Tulsa Law Review, Vol. 27 Issue 4, International Energy Law Symposium 1992, Modern Concession Contracts are alleged to be subject to undue influences and corruption. We have no doubts in our minds that, that is exactly what is happening in Ghana.

It is called Modern Concession because unlike the old traditional concession, only Royalties and Taxes are paid to the host government, but this hybrid system allows the host government, some participating interests for which payment has to be made towards capital development costs, as the practice under Joint Ventures and Production Sharing Agreement. The International practice and standard is, under Joint Ventures and Production Sharing Agreement allocations are made from daily production to take care of daily operating and technical costs. Under this Modern Concession, Ghana is being made to contribute towards daily operating costs which we consider as a rip-off.

Since there is no provision in PNDC Law 84 to back this sort of bizarre arrangement, which defies all International practice, the Draft Bill makes provision to capture this abnormality under Section 10 (b) (II) of the Draft Bill. Ghana, therefore, within the next 10 years would have to pay over US$1.8 Billion to the lead operator Tullow for participating in the project.

Ghana over the last three (3) years paid well over US$140 million as daily operating costs (See Energizing Economic Growth in Ghana, June, 2013).

The financial obligations that this clause would place on Ghana are so huge that the burden on the limited resources available to meet our infrastructural deficits cannot be underestimated if we have to adopt this Hybrid Modern Concession in the Draft Bill. The implication also is, as a Nation, we cannot increase our take from our own resources which belongs to us under our Constitution without having to pay heavily for it. This would create inequalities in sharing the oil revenue.

This Hybrid system also makes provisions for minimal Carried Interest under which a small percentage of production is given for free as owners of the resource, something which does not exist in the old Traditional Concession. This carried interest ranges from 3% to 10% in the old contracts signed, but raised to 15% in the Draft Bill. This carried interest provisions are not found in the Production Sharing Agreement laws; what is found is how the ‘Profit oil’ is shared. Why should we make a law to limit our interests, birth rights and Constitutional ownership in our natural resources, God or nature has bestowed upon us? This is a question our political leaders and the elite technocrats in charge of oil and gas matters of the Nation must answer adequately to the satisfaction of the people of Ghana.

The Modern Concession model is what is contained in the Petroleum Exploration and Production Bill, which the World Bank, IMF, Oxfam America and Revenue Watch Institute are forcing down the throat of Ghanaians with the support of their local surrogates syndicate network of 135CS0 Platform on Oil and Gas and with the collaboration of other NGO‘s and Think Tank Groups in the background.

They are misleading and brainwashing every sector of the Ghanaian public to believe that what Ghana is doing is the best that can be achieved.

Ghana is being used as an experimental guinea pig in Africa because our investigations revealed that newly emerging African countries into oil and gas have wisely resisted the Modern Concession and signed onto Production Sharing Agreement. For example, Kenya, Uganda, Togo, Liberia, Sierra Leone and Tanzania who are also Frontier Nations yet to start producing resisted the Modern Concession and signed onto Production Sharing Agreement. WHY NOT GHANA TOO?

We believe the introduction and application of pure Production Sharing Agreement would be in the best national interest with the Nation fully benefiting from her oil and gas resources. For example, if Ghana was operating under Production Sharing Agreement, the country would have earned over US$4 billion at the end of December 2013 and at the end of 31st March 2014, Ghana should have earned over US$5 billion, compared to the desultory amounts earned so far. Can anyone prove us wrong?

We have observed that, the Spirit and Intent of PNDC Laws 64 and 84, which were the existing laws governing the Upstream Oil Industry before the discovery of oil, are modeled on Production Sharing Agreement. But all agreements and contracts entered into up to date are modeled to suit Modern Concession laws which were not in existence when these contracts and agreements were entered into. These agreements are therefore not compatible and in conformity with the tenets of the existing laws, and even to the extent of violating UN Charters on Natural Resources.

These are sobering observations guiding us in our quest for better oil and gas deal for the people of Ghana through the adoption of the pure Production Sharing Agreement fiscal regime in the Petroleum Exploration Bill law to regulate the Upstream Industry in Ghana. We are also calling for fairness and equity in sharing the oil revenue as being done in other oil producing countries and in consonant with the UN Resolution on Permanent Sovereignty over Natural Resources, General Assembly Resolution 1803 of 1962, reprinted in General Assembly Resolution 3171 of 1963 and the Charter of Economic Rights and Duties of State General Assembly Resolution 3281 0f 1974

The Production Sharing Agreement is a progressive, fairer and equitable fiscal arrangement in sharing oil revenue currently in the world over. Angola, Nigeria, Cote D’Ivoire, Cameroon, Republic of Benin, Liberia, Sierra Leone, Mozambique, Niger, Chad, Togo, Sudan, South Sudan, Tanzania, Kenya, Equatorial Guinea, Gabon, to mention a few in Africa producing under or signed onto PSA; Brazil, Bolivia, Peru, Ecuador in South America; Trinidad and Tobago, Guatemala, Cuba, Belize in Central America and Caribbean, Qatar, Jordan, Syria, Yemen, Bahrain, Iraq and Iran in the Middle East; Indonesia, Malaysia, Philippines, East Timor, Vietnam and China in Asia; Albania, Bulgaria, Georgia, Romania, Azerbaijan, Russia and Ukraine in Eastern Europe are examples of countries operating their Oil and Gas resources under PSA. Currently there are over 75 countries in the world producing oil and gas under this progressive fiscal arrangement. WHY NOT GHANA TOO? Can someone tell us?

Ghana cannot claim to be wiser than all the above mentioned countries, moving away from progressive Production Sharing Agreement law to exploitative Modern Concession Law.

If our political leaders and the technocrats were to throw away their self-interests and be bold enough to adopt the simplest, pure PSA, Ghana, with revenue accruing from the Jubilee Fields alone would experience a great transformation. Ghana would earn over US$50 billion in 20 years as against the US$20 billion and US$19 billion estimated by the IMF and the World Bank respectively.

Note: The conservative estimated value of Oil in the Jubilee Fields which is estimated to hold about 2 billion barrels is over US$160 billion excluding the value of associated gas which is about 5,000 billion cubic feet equivalent to about 500 billion barrels of oil.

We believe adopting pure PSA with its additional revenue accruing to Ghana, government would have enough resources to undertake the massive infrastructural development the country needs. Provision of portable water to every community, construction of all-weather motorable roads, provision of classrooms and educational facilities, affordable rentable accommodations, extensions of health facilities and all other things that would impact on the social wellbeing of the Ghanaian would not be a problem to government.

Government can afford to reduce the level of taxes on all commodities including petroleum products. The multiplier effects of reducing petroleum taxes alone would be tremendous.

However, the reduction in the level of all taxes would enhance the standard of living of Ghanaians, taking us to the promised land of good social and economic wellbeing. All that seems like a MIRAGE now, but it can be real. Let us adopt the Production Sharing Agreement Now!!!

We are prepared to prove and to demonstrate to Ghanaians and the whole world how the US$50 billion could be earned in 20 years under the Production Sharing Agreement.

We have observed that the elite technocrats handling the oil and gas matters on behalf of the people of Ghana are part of the conspiracy to impose this exploitative system on Ghana to back the bad agreements and contracts to fall in line with the new inimical provisions contained in the Petroleum Exploration and Production Bill 2013.

In view of the above observations, we demand the President should withdraw the Bill, and as matter of urgency invite immediately independent International Experts in these matters to review the Draft Bill to fall in line with Production Sharing Agreement, the only way to achieving full maximum benefits from our Oil and Gas Resource - God or nature’s gifts to us.

We also demand a review of all existing Contracts and Agreements so far entered into by the Independent International Experts to reflect Production Sharing Agreement fiscal regime, to uphold and protect the ownership rights of the people of Ghana as enshrined in Article 257, Section 6 of the Constitution of the Republic of Ghana and in consonant with UN Charters and Resolutions on Natural Resources.

Ghana would not be in this mess and crisis if close to US$5 billion had flowed into the economy to date as a result of adoption of the Production Sharing Agreement.

Let us adopt the Production Sharing Agreement.

…………………………………

SOLOMON KWAWUKUME

SENIOR RESEARCH OFFICER

OIL AND GAS, GIGS

Columnist: Kwawukume, Solomon