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Chinese cheat in gas project

…Pipelines to cost $1.6m more than GNPC’s deep sea pipes
…Ghana to lose more than $180m as Sinopec is cited in overpricing

…But Sipa Yankey calls bluff of Petroleum Commission

The corridor of power is quaking over suspected underhand dealings in the gas sub-sector, where China’s Sinopec International Petroleum Services Corporation (SIPSC) has allegedly succeeded in short-changing Ghana by at least $140 million.

The amount represents how much SIPSC (a subsidiary of the Sinopec Group) is believed to have overpriced the Liquefied Petroleum Gas (LPG) processing plant it is purchasing to install at Atuabo for processing of gas from the Jubilee Field and losses from the first year of production.

The SIPSC is delivering a processing plant that is costing $40 million more than another plant which is considered superior by virtue of having five additional features including specifications that are favourable to the Volta River Authority (VRA).

Various simulations indicate, for instance, that the “superior” plant would yield additional revenues in excess of $100 million every year, translating to about $360,000 per day. This plant would also run at a lower operating cost than the one SIPSC is purchasing, according to deep-seated sources and Ghana National Gas Company (Ghana Gas) internal documents chanced upon by our team.

In addition, the 45-kilometer shallow water pipelines to be installed by SIPSC will cost about $1.6 million more per kilometre than the deep water pipeline installed by the Ghana National Petroleum Corporation (GNPC) despite the shallow water pipelines not meeting the technical requirement of having internal coating.

It is suspected that SIPSC has overpriced the materials – both the power plant and pipes – by building hidden costs purportedly occasioned by an arrangement with SIPSC’s special purpose subsidiary offshore firm called SAF Petroleum Investments (FZE), which is registered in Dubai.

Under the arrangement, SAF will make the initial procurement and resell the items to SIPSC. Meanwhile, the same person – Ms Yang Hua – serves as Project Director for both SIPSC and SAF.

When SIPSC was contacted on telephone last Friday about the suspicions of overpricing through a subsidiary (transfer pricing manipulation), an officer from its Human Resource (HR) office, Edward Humado, referred this reporter to Ghana Gas.

He stated: “Ghana Gas has every information about Sinopec so if you need any information go to them…We can’t help you, please.”

But a day before (Thursday), Dr. George Sipa-Adjah Yankey, Chief Executive Officer of Ghana Gas, had told journalists at a press conference that the arrangement between SIPSC and SAF were entirely up to the two firms.

He resolutely defended the integrity of the project, insisting that it will be implemented “on budget and on schedule.”

Concerns over potential transfer pricing manipulation are heightened by the fact that Ghana loses an estimated 36 million dollars annually in tax revenue from transfer pricing irregularities in the mining sector alone. And, according to finance sector documents, the influx of Multinational Enterprises (MNEs) into the country since 2007 when commercial quantities of oil were discovered in the west coast give more reason for caution.

Checkmating

It appears that last Thursday’s press conference was organised to indirectly respond to behind-the-scene calls from high level officials for accountability from Ghana Gas and SIPSC.
Our sources indicate that last Tuesday, the Ministry of Energy, the Petroleum Commission and Ghana Gas officials were locked in a meeting for a long period, trying to untie a lot of knots around the deal between Ghana Gas and SIPSC.

The meeting, according to other sources close to the presidency, was occasioned by a directive by short-term president, John Dramani Mahama, who upon detecting the full details of the deal became uncomfortable.

It is understood that the meeting ended with Ghana Gas challenging the authority of the Ministry and the Commission to hold it in check.
This is in spite of the provisions of the Petroleum Commission Act, 2011 (Act 821) which gives the Commission the mandate to regulate the petroleum sector and its activities. The Commission in turn is accountable to the Ministry.

A call was placed to Dr. Kwabena Donkor, Chief Executive Officer, Petroleum Commission but he indicated he was out of town and would not comment until he was back.

Arguments

At Thursday’s press conference, Ghana Gas indicated that the LPG processing power plant is being fabricated by Canada’s Thermo Design Engineering (TDE) and is considered very strategic for the Western Corridor Gas Infrastructure Project which would have enormous benefits to Ghana. In particular, initial gas deliveries are expected to shore up electricity generation by the VRA.

But it is argued that, per the specifications made available by SIPSC, the TDE power plant may not deliver optimum benefits to Ghana.

Among criticisms against the plant are that it has a low 46 per cent liquid recovery capacity while others which have 85 per cent liquid recovery levels cost $40 million less than the TDE.

Nonetheless, the TDE plant, which our sources indicated was ordered last week, would be delivered faster (239 days) than other plants (280 days) considered. The delivery schedule is said to be favourable for Ghana Gas which is determined to meet the deadline required to avoid full-scale flaring of gas at the Jubilee field.

The Jubilee partners, led by Tullow Oil, have been re-injecting the larger amounts of gas from the field in anticipation of the completion of the plant. There are indications that re-injection may be impossible after December this year if oil wells are to be saved from collapse.

 

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Reporting Oil and Gas project was launched on 4th June 2009atTakoradi, Western Region, Ghana by Penplusbytes (PPB – www.penplusbytes.org) with the vision of providing a one stop online information and knowledge about Ghana’s oil and gas sector
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