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Ghana And The Energy Security.

Fri, 6 Mar 2009 Source: Bonna, P.K. Opoku

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By P.K Opoku Bonna

INTRODUCTION

Sooner or later, mother Ghana may be able to join the Organization of Petroleum Exporting Countries (OPEC), which was formed to coordinates and unify petroleum policies of the member countries and to also determine the best means for safeguarding their interests, individually and collectively. As Ghana prepares for her ‘Oil boom’ from next year, one of the ‘noble’ questions that come to mind is: how Ghana would be able to meet and maintain her energy security? This article has critically discussed this challenge and has also provided fantastic recommendations concerning how Ghana would be able to meet this challenge. Let me start by defining energy security.

Energy security can be defined in terms of demand for producing nations or in terms of supply for consuming nations, for both producing and the consuming nations, energy security is very important, it is needed for economic development, stability, and security. Energy security has been defined as the continuous availability of energy in different forms, in sufficient quantities and at affordable prices [1]. It has also been defined as “a condition in which a nation and all, or most of its citizens and businesses have access to sufficient energy resources at reasonable prices for the foreseeable future, free from serious risk of major disruption of service [2].

It is important to note that what constitutes energy security varies, depending on circumstances and time. Recently at the G8 Summit [3], world leaders identified among other things, high and volatile oil prices, increasing import dependence in many countries, enormous investment requirements, the need to protect the environment and to tackle climate change, political instability, and natural disasters etc, as challenges to energy security.

Energy is a very important economic resource for every nation, for nations that produce energy, it is one of the resources that generates revenue for the country and for nations that consume it is a means to an end, as energy is used to inter alia power industries which in turn generate revenue for them. The importance of energy for both the consumer and the producer cannot be understated, and during the energy crisis in 1973[4], (the Arab embargo) nations were presented with the challenge of ensuring energy security. The oil crisis demonstrated how important energy security was to the world. Energy security therefore became a matter of both national and international concern [5]. The issue of energy security is not a new concern [6] nevertheless; the current energy security arrangement came about in response to the Arab oil embargo in 1973. In the 1970’s energy insecurity basically had to do with shortage of supply, and high oil prices, today energy insecurity is more than just shortage of supply and prices, it covers issues of geopolitical instability, natural disasters, terrorism etc.]7] It has been argued that the concept of energy security needs to be expanded to include the entire energy supply chain and infrastructure [8].

CONTRIBUTIONS OF THE ENERGY CHARTER TREATY (ECT) TO ENERGY SECURITY Having its political foundation first laid in 1975,[9] the Energy Charter Treaty is deemed to be the first of its kind in the energy sector, and has been described as the only multilateral instrument aimed at promoting and protecting investment, security of supply and transit in the energy sector[10]. Article 2 sums up the purpose of the treaty, thus “[t]his treaty establishes a legal framework in order to promote long term cooperation in the energy field based on complementarities and mutual benefits in accordance with the objectives and principles of the Charter.” It fulfils this purpose by promoting cooperation in the energy sector, and tackling specifically and extensively five important areas of the energy sector; trade, transit, investment, energy efficiency, environment and dispute resolution.

DISPUTE RESOLUTION- investors are exposed to all kinds of risks in host states, change in governments and laws could affect their investments, and international arbitration is the proper place to settle disputes, should any arise, to ensure fairness. ECT makes provision for the resolution of disputes in the area of trade, transit, investment, environment etc, and encourages amicable settlement of disputes. Provision is made for settlement of disputes between a contracting party and an investor [11], and between contracting parties.[12] With regards to trade disputes, the ECT provides a mechanism which is based on the WTO model,[13] for investment dispute the treaty provides a mechanism based on the model of bilateral investment treaties,[14] for transit disputes the ECT recommends conciliation as the mechanism for the settlement of the disputes

TRADE- the ECT applies provisions of the World Trade Organization (WTO)[15], to members and non members of the world trade organization, by so doing the ECT encourages non discrimination, transparency and commitment to the progressive liberalization of international trade[16].

TRANSIT- transportation in the oil and gas industry is very important, there have been times where transportation of oil through a country have been interrupted for one reason or the other, the transit provision of the ECT is therefore one of the most important provisions in the ECT[17], Contracting Parties are to facilitate the transit of energy materials and products without any distinction whatsoever, Contracting Parties are not to discriminate in terms of pricing and are to avoid unreasonable delays, restriction etc. Notwithstanding these obligations, the ECT recognizes the sovereignty of Contacting Parties, in the area of environmental protection, safety, land use etc. Contracting parties in the event of a dispute are not to disrupt, interrupt or reduce supply. This provision offers a great protection against risks associated with transportation of oil

INVESTMENT- the ECT provides for the legal protection of investment,[18] it provides for existing investment as well as the making of investment, and encourages contracting parties to accord a fair and equitable treatment to investors of other contracting parties as they would to their own investors. Foreign investors are protected against discrimination expropriation, nationalization, breach of individual investment contract etc; this creates a very good investment climate for investors. The ECT makes provision for payment of compensation for among other things losses owing to war, state of national emergency, civil disturbance [19]. Host countries are obliged under the ECT to ensure that transfer for payments are not delayed. ENERGY EFFICIENCY AND ENVIRONMENT- the ECT makes it necessary for Contracting Parties to minimize in an economically efficient manner, harmful environmental impact resulting from their energy related activities either within or outside the area of operation [20]. Parties in accordance with the Protocol on Energy Efficiency and Related Environmental Aspects (PEEREA) are to act in a cost effective manner and to take precautionary measures to prevent or minimize environmental degradation. Contracting Parties are to ensure energy efficiency by continuing with the same output without reducing the quality but at the same time minimizing the amount of energy required to produce that output [21].

CHALLENGES WHICH MAY AFFECT GHANA IN THE INDUSTRY

Energy security for energy producing nations means the security of demand [22], for consuming countries it means the security of supply. Ghana’s Jubilee Field has proven reserves of more than 600 million barrels of oil along with natural gas. The International Monetary Fund (IMF) predicts that this field alone could earn Ghana as much as $20 billion by the year 2030 (general news of Wednesday, 25 Feb. 2009). Ghana as a result would NOT be a consuming state anymore but rather an oil producing nation probably from next year 2010. As mother Ghana prepares for the production potential of the nation’s major offshore oil field next year, there is no doubt, Ghana may face one of the following problems as associated with the oil producing nations which ranges from physical security of personnel and of installations, secure transport by land or by sea, to securing a stable legal and political climate for energy investments [23].

ATTACK: Energy security concerns are exacerbated in times of armed conflicts, threat of terrorism attack and in times of national turmoil. In Nigeria, Militant rebels have been attacking the country’s oil pipelines, calling into questions the political stability of Nigeria which represent America’s fifth largest source of oil imports. In Saudi Arabia, Al Qaeda has been attempting attacks on that country’s poorly defended oil refineries for years. In 2006, they almost succeeded as a track full of explosive was detonated by the shots of the security guards just before it entered the refinery.

INTRASTRACTURE SECURITY: A number of security issues are raised for example, when pipeline and cables pass through a third state to consumers. A security of Ghana’s trans-boarder pipelines and cables if crossing the land and marine zones of another state(s) must be properly monitored to prevent trespassors and encroachment as such situations are very common. Ghana as a coastal state has the right to establish conditions for submarine cables and pipelines entering the territorial sea. Beyond the territorial sea and the territory of the coast of Ghana, a general right of immersion exist for all states at international law. But the laying of cables and pipelines on the continental shelf is subject to a degree of the coastal state’s control, including the right to prevent, reduce and control pollution from pipelines: Article 79 of the 1982 United Nations Convention on the Law of the Sea (UNCLOS). TANKERS: Under UNCLOS 1982, tankers exercise freedom of navigation on the high sea but regulated passages through the exclusive economic zone. Coastal states may not exercise jurisdiction over foreign flagged tankers on the high seas, but once such vessels come within their 200 nautical miles exclusive economic zones, legislative and enforcement jurisdiction may be exercised in respect of pollution matters. There is a threat to tankers by piracy or hijacking. However, arrest and detention of the vessels are limited to circumstances where a discharge causing major damage or threat of major damage has occurred: Article 220 (6) UNCLOS 1982.

OFFSHORE INSTALLATION: Article 56 UNCLOS 1982 and Customary International Law recognize the coastal state’s sovereign rights over the resources of the Continental Shelf and EEZ and its jurisdiction over the establishment and use of the installations and structures there. Ghana as a coastal state has exclusive jurisdiction and control over installations with regard to customs, fiscal, health, safety, regulations and immigration laws: Article 60 UNCLOS 1982. However, unexceptional risks to offshore installations are normally posed by routine fishing and navigation activities.

CLIMATIC CHANGE: This has become necessary for Ghana to think about as countries like America and Japan are now creating more jobs and slowing consumption of oil by churning out and buying millions of fuel-efficient cars. American President Obama’s new energy proposal would for example, reduce American oil imports by 4.5 million barrels per day by 2025. America which imports about 70 per cent of Nigeria’s oil is now planning to use other alternatives like biofuels and corn-based ethanol. It is hoping to blend about 65 billion gallons of alternative fuels per year into her petroleum supply by 2025. This may no doubt affect Ghana’s expectations in the oil and gas industry.

HOW CAN GHANA ACHIEVE ENERGY SECURITY THEN?

Energy security is both a national and international issue. Law, specifically international law’s contribution to energy security is very crucial under this circumstance. The United Nations Convention on the Law of the Sea (UNCLOS) 1982, the Organization of Petroleum Exporting Countries (OPEC) Statute 1961, the International Energy Agency Charter 1980, and the Energy Charter Treaty 1994, are all legal instruments which deal with energy security directly or indirectly.

RECOMMENDATIONS

The following recommendations may proof very useful if Ghana would like to work towards achieving her energy security.

FOREIGN POLICY: Ghana should have to strengthen her security and control of her foreign policies and offer no less a commitment to energy independence by looking for more market elsewhere and must not depend so much on countries like America and Japan. Countries like Russia, North Korea and Iran are using energy as an instrument for their foreign policies like oil for infrastructure (i.e. first class roads, hospitals of international standards, ect). Ghana can do same. The navy and the military should also be properly equipped to deal with any unforeseen foreign attacks on the country’s oil plat forms, reservoirs and refineries. The relationship between Ghana and the neighbouring countries -Togo, Code Devoir, and Burkina Faso should also be intensified. NATIONAL COMMITMENT: Ghana needs a national commitment to energy security of supply and to emphasize this commitment, Ghana should install a ‘Director of Energy Security’ to oversee all the efforts. This person may be an advisor to the National Security Council and have the full authority to coordinate Ghana’s energy policies across all the levels of government. This person must not be the Minister of Energy or the GNPC boss. He or she should be politically neutral to serve the state for a term of five years, renewable for a second term of another five years and no more because the longer s/he serves the more probability of becoming corrupt. This person must have the necessary Oil and Gas Law qualification or must be a very competent Navy officer . REGULATIONS: Ghana must put in place new regulatory structures to ensure proper health and safety rules to avoid any future disaster in the oil and gas industry. The Ministry of Energy must make sure that operators abide by these regulatory measures. The Piper Alpha disaster which occurred in the United Kingdom offshore killing 167 personnel in July 1988 as a result of poor health and safety regulatory measures and management [24] by then must not be repeated in Ghana. It is on record that this disaster alone resulted a loss of about £1.3 billion for lost of property and compensations.

EXPERIENCE: Ghana must also learn from the experience of the failure to make meaningful developments out of the country’s abundance mineral and other natural resources in the past and make significant changes towards guaranteeing that this oil did not go the same path.

FOREIGN DOMINATION: Ghana should not leave everything to the destiny of the International Oil Companies / Foreign Oil Companies. Active local participation and management of these hydrocarbon resources must be encouraged to get more Ghanaians involve reflecting the benefits that must be accrued to Ghana.

NEGOTIATIONS: There is a saying that “he who draft wins”. Therefore, rather than negotiating many deals at one time, Ghana can learn from her experience and negotiate better deals over time as Ghana/GNPC may develop improved negotiation skills overtime as she learns to draft her own contract agreements for the best interest of the nation. TIME TABLE: Speed may not be Ghana’s best friend over here. Ghana must set its own time table for the further development of her Petroleum Sector. By moving quickly, mistakes can be made that could decrease Ghana’s take from the sector and undermine accountable management of the hydrocarbon resources. There should be no ‘rush’ at all.

CORRUPTION: This has been a significant mechanism of the natural resources curse on our sister nation – Nigeria, which has worked through deterioration in the country’s institutional quality. Ghana must encourage proper transparency and accountability procedures to allow access to oil and gas revenue information accessible to opinion leaders and the general public. By so doing, our politicians may not be improperly accused of plundering the country’s oil wealth for their own benefits. They would also be mindful and cautious of their dealings concerning this oil wealth.

CONCLUSION

Energy is essential for improving the quality of live and opportunities in both developed and developing nations. Therefore, ensuring sufficient, reliable and environmentally responsible supply of energy at price reflecting market fundamentals is a bigger challenge for Ghana.

Ghana must be opened and transparent. More so, equitable, stable and effective legal and regulatory frameworks including the obligation to uphold contracts irrespective of change of governments must be in place to generate sufficient sustainable international investments. There must also be coordinated planning emergency response, including coordinated planning of strategic stocks. For example, the Kumasi inland port can be developed faster to serve as a strategic stock for domestic use.

As major consuming state like America which spends about $18 million on foreign oil every hour is now planning to reduce its oil imports by 4.5 million barrels per day by 2025 by focusing on the car they drive and other alternative fuels like corn based-ethanol, Ghana should not depend so much on America like Nigeria as a major importing state for the oil and or gas and must start looking for market in the other parts of the world as the G8 has predicted in 2006 however that, there would be still an estimated rise by more than 50 per cent by the year 2030 for demand for global energy (oil, gas ect) Above all, Ghana must promote transparency and good governance in the energy sector to discourage corruption and create more jobs opportunities for Ghanaians.

LONG LIVE GHANA!

Author: PK OPOKU BONNA, LLB

The author is pursuing Master of Laws Degree (LLM) in OIL AND GAS LAW

Email; opokubonnap@yahoo.co.uk

REFERENCES

1. H Khatib, World Energy Assessment: Energy and the Challenge of Sustainability (2000) chapter.4

2. Barton et al, (eds) Energy Security: Managing Risk in a Dynamic Legal and Regulatory Environment (Oxford University Press) 2005 pg.5

3. G8 summit St Petersburg, 2006, http://eng8russia.ru/docs/11.html accessed 10/11/08

4. Arab Oil Embargo, 1973-1974, accessed 4/11/08

5. B. Barton, C. Redgwell, A.Rønne and D.N.Zillman, (eds) Energy Security Managing Risk in a Dynamic Legal and Regulatory Environment (Oxford University Press) 2005

6. D. Yergin, “Ensuring Energy Security”, Foreign Affairs,(2006) 85:2, 69 pg 75,

www.un.org/ga/61/second/daniel_yergin_energysecurity.pdf>accessed 17/10/08 7. Joint Statement on Energy Supply and Hydrogen, IEA Communiqué by the Energy Ministers of IEA Member Countries, IEA/Press (03) 11, Paris 29 April 2003 cited in C. Redgwell, Barton et al, (eds), Energy Security: Managing Risk in a Dynamic Legal and Regulatory Environment, Oxford University Press. pg.17

8. Yergin, pg 78 9. A. Konoplyanik (fn.8) pg.89 10. D. Doeh, S.Nappert, A. Popov Russia and the Energy Charter Treaty: Common Interests or Irreconcilable Differences? (2006), 7 IETLR 189-191 11. Article 26, ECT 12. Article 27, EC 13. Article 29(7), ECT 14. Article 26 15. Articles (4) and (5), ECT (Energy Charter Treaty) 1994 http://www,encharter.org/fileadmin/user upload/document/ EN.pdf assessed 1 9/10/08

16. ECT Reader’s Guide http://www,encharter.org/fileadmin/user upload/document/ECT Guide ENG.pdf assessed 14/10/08 17. Article (7), ECT 18. Article (10), ECT 19. Article (12), ECT 20. Article (19), ECT 21. ECT Reader’s guide (fn. 16) 22. Yergin, pg.71

23. B. Barton, C. Redgwell, A.Rønne and D.N.Zillman, (eds) Energy Security Managing Risk in a Dynamic Legal and Regulatory Environment (Oxford University Press) 2005

24. .Gordon and Paterson,(eds) , Oil and Gas Law, Current Practice and Emerging Trends, Dundee University Press, 2007,p.132

Columnist: Bonna, P.K. Opoku