Ghana: a long road to managing petroleum resources
Uganda plans to create a Petroleum Authority to regulate the oil industry and a National Oil Company to partner with international oil companies in extracting and marketing the resources. In a second report from Ghana, Oil in Uganda staff writer, Chris Musiime, describes the role and evolution of similar institutions in that country. Whilst at first sight Ghana appears to have followed a ‘fast track’ from oil discovery to oil production, this report shows that in fact the country has a long history both of oil exploration and of efforts to develop an institutional framework to manage the industry.
Ghana’s search for oil began in 1879, under the British colonial rule. Oil seepages around the Tano Basin in the Western Region had been observed around that time. The first discovery was made around 1969, in the Salt Pond area. It was a modest discovery, and no more than 3.47 million barrels of oil were produced from the field between 1978 and 1985, when production was suspended.
The Rawlings revolutionary regime of the early 1980s was determined to resume the search for oil. Laws were put in place to make the environment more conducive for investors and to facilitate oil exploration and discovery. These were the Exploration and Production Law, the Ghana National Petroleum Corporation Law—establishing a national oil company—and the Petroleum Income Tax Law.
A Model Petroleum Agreement, based on these laws, was then drawn up as a template for oil exploration and production licensing between the government and international oil companies. It covers issues such as contract scope, exploration period, minimum exploration requirements, joint management, contractor rights and obligations, commerciality, sole risk accounts, oil sharing, measuring and pricing, taxation, domestic supply requirements, inspection and environmental protection, as well as accounting and auditing.
National Petroleum Corporation
The Ghana National Petroleum Corporation (GNPC) was established in 1983/84, mainly to partner with the international petroleum industry in finding and developing Ghana’s oil and gas resources. Before the GNPC’s establishment, this role was performed by Petroleum and Geological Survey departments within the then Ministry of Fuel and Power.
The Corporation is headquartered in Tema, Ghana’s largest seaport and the location of its only refinery, about 25 kilometres from Accra.
GNPC at first tried to explore for oil with its own resources but had no success. It then attempted to solicit the support of international partners with more experience and money, but also with little success.
“Consequently, it diversified its commercial activities and ventured into farming, soap and cocoa production, etc”, observes Amporfo Twumasi, the Member of Parliament for Nkoranza South, who was the Deputy Minister for Energy at the time.
“In 2001 when President John Kufuor assumed office, he decided that GNPC should regain its focus. Some staff were retrenched and redeployed in a bid to streamline its operations,” adds Twumasi.
The former head of the Corporation, Tsatsu Tsikata, was charged with causing the states financial loss of 230,000 Ghanaian cedis (US$ 230,000). The trial lasted for six years, and he was pronounced guilty on June 18, 2008.
In 2003, meanwhile, the Ministry for Energy had organised an international workshop which made some important resolutions.
“First, it emerged that concentrating on the onshore shallow waters would not discover oil. Second, if efforts were made to go deeper offshore, then the terms and conditions for attracting investors had to vary or be modified. It was after this meeting that the Minister then went out looking for investors,” says Twumasi.
At the same time, efforts were made to build capacity in order for the country to properly understand its sedimentary basin.
“We trained geologists and geophysicists, so that they could understand the environment where we were going to look for oil,” according to a senior official at GNPC who prefers not to be named.
Confident that Ghana had great potential for oil, the country then packaged the information it had obtained and embarked on extensive promotion of its potential. “We were always at international oil and gas fora in Europe marketing Ghana. We told them how good our geology was, and invited them to come and invest in Ghana,” recalls the GNPC official.
This soon started paying off as some multi-national companies seemed interested in confirming the information they were receiving on Ghana’s sedimentary basin.
“They came and took away our data for further studying. They also studied our agreements. We were convinced that we had a good petroleum,” says the official.
“The practice in the oil industry is that the interested oil companies study the data with their technical people. If they are convinced that the data has good potential, they write officially to GNPC applying to buy the data, not to own it, but to further process it under strict confidentiality, guided by a data licence agreement. Eventually when they are much more convinced, they apply for [exploration licences in] the area. This is when the model petroleum agreement comes in. GNPC will negotiate with the company, basing on the model agreement until an agreement is reached. This agreement is then sent to cabinet by the line Minister for approval, and later to parliament for ratification, making it binding.”
All this paid off in 2007, with Tullow Oil and partners announcing that they had struck commercial quantities of oil in the Jubilee field, 60 kilometres off the coast, between the Deepwater Tano and West Cape Three Points blocks.
Division of responsibilities
Largely due to the lack of technical manpower, GNPC has been playing the role of partner with the oil companies, owning about 10% interest in the various Ghanaian offshore blocks, while also overseeing the implementation of the various contracts between the oil companies and government, as well as monitoring the oil companies’ activities on behalf of the Minister.
“GNPC is a regulator and partner. Inevitably, GNPC personnel are involved in all the stages enumerated above hence they receive the relevant technical skills over the length of the process-about seven years. This has helped us to build capacity over time,” points out the senior GNPC official.
Some critics argued, however, that GNPC was taking on too many roles and had no one closely supervising it.
Responding to these concerns, the government recently created a Petroleum Commission. Among its tasks, this Commission oversees the activities of GNPC. The GNPC is also now accountable to Parliament by law, providing another check on its activities.
GNPC now concentrates on geological and geophysical data management, promotion of further exploitation, as well as monitoring the oil companies operating in Ghana.
The Petroleum Commission Act was passed by Parliament on July 14, 2011, creating a Commission with the overall role of regulating and managing the use of Ghana’s petroleum resources and coordinating policies in relation to them.
Other important tasks of the commission will include receiving and storing petroleum data, managing a national petroleum repository, and undertaking reconnaissance exploration at the request of the Minister. The Commission will also receive applications and issue permits for specific petroleum activities, assess and approve appraisal programmes and advise the Minister on a range of petroleum activities.
The Commission’s governing body consists of a Chairperson, a Chief Executive Officer, a representative from the Environmental Protection Agency not below the rank of Director, a representative from the Institute of Geoscientists and three other persons, at least one of whom must be a woman.
All these people are appointed by the President.
The formation of the Commission was only completed in May, 2012, and it is not yet fully operational, but there appears to be significant optimism that it will function smoothly under its Chief Executive, Dr. Kwabena Donkor.
When asked how independent the Commission will be, considering that it is appointed by the head of state, opposition MP Kwabena Appiah-Pinkrah expressed confidence that the Commission would put Ghana’s interests first.
“I have looked at the profile of the young man (Dr. Donkor) and I am confident he will do a good and professional job. He seems like a person interested in protecting his name and record,” Appiah-Pinkrah said.
Chair of the Board is Professor Ivan Addae-Mensah, formerly the Vice Chancellor of the University of Ghana. Other Board members include Alhaji Salifu Mahama, a member of the Ghana’s Civil Society Platform on Oil and Gas.
Local capacity is key
The senior GNPC official interviewed by Oil in Uganda, who has more than 15 years’ experience in the industry, was at pains to emphasise the critical importance of local capacity in securing national interests.
“The oil industry is a different industry altogether. It has a certain international mafia: these big countries are interested in this oil. The country has to build capacity to be able to read between the lines of these so-called investors. It is important that you have strong institutions of state to protect our resources, and this comes with capacity building.”
Africans, says this seasoned industry expert, would have been better off exploiting these resources by themselves, but the huge investment required remains a challenge to many African governments. This challenge is exploited by international oil and gas companies to skew negotiations in their favour.
“We would have wished that we had money as a country, so that we don’t have to invite foreigners. These people bring all the money, so we can’t share profits with them 50-50. You start by negotiating from a weaker position. You have not put in anything. Therefore, the investor will put measures in place to protect his huge investment.”
He explains that capacity building should be emphasised along the entire value chain of the oil industry, beyond the production sharing agreements. For example, a country must have capacity to determine the veracity of some of the claims made by the oil companies in relation to the amounts of recoverable oil. “As a country, we need to have the capacity to verify and ascertain that anything the oil companies bring as a discovery is accurate. Here at GNPC, that is the role of the Reservoir Team.”
Amporfo Twumasi, MP, echoes this message.
“Africa must be careful, we don’t have the money and technical capacity as yet to manage the oil industry. We have some competent people but they are scattered all over, they have not come together to make companies as Africans. As a result we have National Oil Companies in Africa playing second fiddle to the International oil companies. The benefits to us are what we derive from taxes, and other revenues from the oil industry. We are not shareholders of these oil companies, so what we get is minimum.”
He argues that, now that most of the African oil producing countries are certain of their oil reserves, they should use that to their advantage to get better deals.
“Because we were so desperate to ensure that we have the resource, we needed these companies to come into our territory, but now we have some level of certainty. Uganda has it, so does Ghana, Angola, Namibia, Liberia, Ivory Coast, Kenya and others. This gives us the strength to bargain or enhance our bargaining power. If we are not able to get the National Oil Companies to do it on their own, let us use the certainty clause to enhance our bargaining power.”
Kojo Agbenor-Efunam, the Deputy Director for Oil and Gas at Ghana’s Environmental Protection Agency also points out that it is easier for any regulator to oversee the activities of the oil and gas companies if they are knowledgeable about the industry. He adds that when the operator knows that the regulator is technically knowledgeable, then they will stick to the best industry practices. “For the operators to do the best [practices], the regulator must be seen to know what the industry requires. If the regulator is weak in terms of knowledge, they [operators] will circumvent a lot of things because of [the associated] cost. In Ghana, they know that we are watching and also understand the industry.”
Report by CM