The upstream petroleum industry in Ghana: What the existing laws say.

Fri, 3 Apr 2015 Source: Kwawukume, Solomon

The framework for managing the Upstream Petroleum Industry in Ghana before the discovery of oil was established and given legal backing by two main statutes, PNDC Law 64 and the Petroleum Exploration and the Production Law 84.

Law 64 established GNPC with the mandate to undertake the exploration, development, production and disposal of petroleum (Sec 2 clause 1).

Section 2 (2) (a) says GNPC shall promote the exploration and the orderly and planned development of the petroleum resources of Ghana.

Section 2 (2) (b) of law 64 says that GNPC shall ensure that Ghana obtains the greatest possible benefits from the development of its petroleum resources.

Sec 2 (2)(c) mandates GNPC to obtain the effective transfer to Ghana of the appropriate technology relating to the petroleum operations.

Sec. 2(2) (d) states that GNPC shall ensure the training of citizens of Ghana and the development of national capabilities in all aspects of petroleum operations.

Sec. 2(3) (b) of Law 64 gave GNPC the sole rights to engage in petroleum operations alone or in association with others.

Sec. 2(3) (c) also gave GNPC the power to enter into petroleum exploration, production agreements and other petroleum contracts for the assistance, participation or cooperation of contractors in connection with petroleum operations if it cannot do it alone.

Sec. 2(3) (d) says GNPC either alone or in association with others buy, sell, trade, store, exchange, import or export petroleum and for this purpose acquire or operate any installations, facilities or means of transportation.

Sec. 3(g) of Law 64 says where expedient, GNPC shall employ agents or contractors to carry out petroleum operations on its behalf.

Law 84 sec. 1(1) vests all petroleum existing in its natural state within the jurisdiction of Ghana in the Republic of Ghana, that is, is the property of Ghana.

Law 84 Sec. 2(1) conferred on GNPC the sole rights of exploration, development and production of petroleum in Ghana, except in accordance with the terms of petroleum agreement entered into between that person, the Republic of Ghana and GNPC.

Law 84 Sec. 5(1) gave GNPC right over all oil blocks declared as open for petroleum operations where no petroleum agreement exists.

Sec. 5(4) says where the exploration, development and production of petroleum is carried out by GNPC in association with a contractor, such a contractor shall first enter into a petroleum agreement in accordance with sub section (1) of section 2 of the law with the Republic and GNPC to specify the terms and conditions under which such petroleum operation shall be carried out. Any such petroleum agreement shall include such provisions as may be required by Part II of Law 84.

Some relevant sections of Part II of Law 84 to be included in the petroleum agreement are:

1. Sec. 12 (1) deals with the period of validity of the petroleum agreement – not exceeding 30 years.

2. Sec. 13 Review of terms and conditions. “A petroleum agreement shall provide for a review of it terms at any time any significant change occurs in the circumstances prevailing at the time of the entry into the agreement or last review of the agreement”.

3. Sec. 17 Participating Interest. “A petroleum agreement shall provide that GNPC shall, within a specified period of time from the date of discovery is declared to be commercial, have the option to acquire up to said percentage of the interest in the rights and obligations of such petroleum operations on such terms as may be agreed between GNPC and the contractor in the petroleum agreement” The period is 60 days. This means that it is not compulsory for GNPC who is representing the State interests to participate in the project.

4. Sections 18 and 19 deal with rental and tax payment.

5. Section 20 deals with payment of royalties. Section 20 (3) makes GNPC liable for the payment of royalty due in respect of petroleum produced under a petroleum agreement.

6. Section 21, Contractor to transfer assets to GNPC. Section 21 makes it mandatory for all petroleum agreement to provide for the transfer to GNPC of all physical assets purchased, installed and constructed by the contractor for petroleum operations and the cost of which has been included in Exploration Expenditures.

The State through GNPC becomes the owner of such assets and installation. However, the contractor shall have the use of such assets for the purpose of operations under a Petroleum Agreement and shall remain liable for the maintenance, insurance and other costs associated with such use. The contractor is allowed to lift an agreed percentage of daily production to cater for these expenses.

Part III of Law 84 spells out the duties and obligations of the contractor or sub-contractor, and among the numerous obligations are:

1. Section 22 forbids a contractor or sub-contractor from assigning in whole or in part his rights to a third party without the prior written consent of the Secretary (Minister).

2. Section 23 (2) says all data and information obtained by a contractor or sub-contractor shall be the property of GNPC. Such data and information include all geological, geophysical, technical, financial and economic reports, studies, interpretations and analysis prepared by or on behalf of a contractor or sub-contractor in connection with such petroleum operations.

3. Section 23 (3) says a contractor or sub-contractor shall not retain or export or permit the retention or export of any such data or document without the prior approval in writing by GNPC.

4. Section 23 (10) says a contractor or sub-contractor shall ensure that opportunities are given as far as possible for the employment of Ghanaians having the requisite expertise or qualification in the various levels of the operations.

5. Sections 23 (11) says a contractor or sub-contractor shall not engage in discriminatory practices on grounds of race, nationality or sex in the conditions of service provided for personnel.

6. Section 23 (12) also says a contractor or sub-contractor shall as far as practicable use goods and services produced or provided in Ghana for his operations in preference to foreign goods and services.

7. Section 23 (13) says a contractor or sub-contractor shall in consultation with GNPC prepare and implement plans and programmes for training Ghanaians in all job classifications and in all aspects of petroleum operations.

8. Section 23 (14) makes it mandatory for a contractor or sub-contractor while carrying out petroleum operations to prepare and implement plans for the transfer to GNPC of advanced technological know-how and skills relating to petroleum operations.

9. Section 30 (b) of Law 84 limits the management control of the contractor or sub-contractor in the petroleum operations with GNPC. They are agents and only assisting.

These two laws were crafted and modeled to suit the most progressive, equitable and fairer fiscal regime or arrangement in sharing petroleum revenue in the world - The Production Sharing Agreement. The laws have all the relevant features that go into Production Sharing Agreements.

Records available at Oxford Institute of Energy Studies indicated that earlier agreements entered into by Ghana in the 1990’s based on these laws were Production Sharing Agreements.

But all agreements and contracts entered into from the NPP administration to the current NDC administration and approved by Parliament - our Lawmakers - are modeled to suit Modern Concession Laws which were not in existence in our statute books at the time of signing these agreements and contracts.

These agreements and contracts are therefore not compatible and in conformity with the tenets of the existing two Laws. In our layman, legal opinion, these agreements and contracts are illegal and ultra vires because they are at variance with the existing PNDC Laws.

What is happening now is an attempt to give retrospective legal backing to these agreements and contracts by introducing into this Petroleum Exploration and Production Bill, Modern Concession fiscal provisions to consolidate and give legal effects to these obnoxious and exploitative agreements and contracts signed up to date.

The Bill has been cunningly designed to look like a “contract for work law” which governs Production Sharing Agreement, but it is not.

The Bill is essentially in all respect the Royalty Tax system which includes some aspects of loose Joint Ventures and Production Sharing Agreement, partially in implementation to conform and fall in line with the current prevailing system which GNPC and the Ministry of Petroleum referred to as a Hybrid system - a system progressive and forward looking countries would not adopt to regulate oil and gas discoveries in this 21st Century.

The implication of passing this Bill into Law will mean taking away all the sole rights and controls granted GNPC under Law 64 and 84 and place the ownership of all the Oil blocks in private hands contrary to Sec 1 (1) of Law 84, Article 257, Section 6 of the Constitution of the Republic of Ghana and 1962 General Assembly Resolution on Permanent Sovereignty over Natural Resources (GRA 1803).

GNPC would have to compete with the foreign oil companies for oil blocks declared open by the Minister of Petroleum if it has the resources to do so. Ghanaians would eventually lose ownership rights and permanent sovereignty over their oil and gas riches to foreigners, rendering Article 257, Section 6 of the Constitution a Paper Tiger and a farce.

Ghana’s Oil and Gas Technical Committee headed by a Professor who claims the responsibility for the introduction of the hybrid system – the Modern Concession upon which the fiscal provisions have been drawn and incorporated into the Petroleum Exploration and Production Bill now under discussion - has dealt the greatest collateral damages to Ghana’s economic independence and emancipation since our flag independence.

“When the Truth appears every form of error or discord must necessarily disappear,” Charles Haanel.

Solomon Kwawukume

Senior Research Officer

Oil and Gas

Ghana Institute of Governance and Security

1st April, 2015

Columnist: Kwawukume, Solomon