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Dark clouds hang over Ghana’s Gas

One of the major problems hampering the rapid development of Ghana’s economy is the lack of adequate energy to power industries. Currently, the country produces a little over 2,000 megawatts of power, which is woefully inadequate to meet the ever- increasing demand of the market. It was based on this that the government decided to spend $850 million out of the $3 billion loan sourced from china to develop the gas infrastructure in the Western Region to get thermal plants and those that are yet to be set up.

Though the development of this gas infrastructure is progressing steadily, it might not, at the end of the day, meet the target the industry players are expecting. A senior research fellow at the African research for energy policy, Mohamed Amin Anta, is warning that if the capital expenditure of the jubilee partners was factored into the price build- up, gas produced by the Ghana Gas Company (GGC) would not be competitive on the world market. This means that retiring the Chinese loan would be problematic, because investors would always go in for gas that has competitive prices in the sub region.

Speaking on the topic, “Oil and Gas Revenue Management, A Pan African Overview” at a retreat organised by the International Institute for ICT Journalism, in collaboration with the Ghana Journalists Association (GJA), for editors at Koforidua over the weekend, Anta noted that the pricing formula for the gas industry has two main components. They are the Energy Price (EP) and the World Held Price (WHP). The EP also has two main components – the capacity price or charge, which is payment in respect of the capacity of the infrastructure to produce the gas. The other component is transportation, which is the cost of pipelines that would wheel the gas from the Floating Production Storage and Offloading (FPSO) vessel to the final destination at Aboadze, plus the cost of the processing plant.

According to Anta, if the cost of the pipelines is divided by the capacity of the gas that would go through them, it would produce the unit cost. Again, if the cost of the processing plant is divided by the capacity of the gas, which is about 150 million British Terminal Units (BTU) that would also produce the unit processing charge. If the WHP is added to the capacity charge, it would produce the price of the delivered gas to the aboadze plant.

According to him, a research his outfit conducted revealed that the gas plant was sited at Bonyere in the Jomoro District of the Western Region, the capacity price would be $4.3 per million BTU. In the case of Atuabo, where the plant has permanently been sited, the capacity price would be $3.9 per million BTU. The price variation has risen because the decision to site the plant at Atuabo has reduced the distance of the pipeline from the FPSO by 20 kilometres.

Mohammed Anta argued that if the world held price of $2 per the BTU, which is standard across the globe, is added to the capacity price of $4.3, if the gas was produced at Bonyere, it would result in $6.3 per million BTU as delivered price of the product. Again, if the WHP of $2 is added to $3.9 per million BTU, if the gas produced at atuabo, the final delivered price would be $5.9 per million BTU.

The capacity price of the West African gas pipeline (WAGPL), which is currently supplying gas to the thermal plants at Aboadze, is $4.2 per million BTU. If the WHP of $2 per million BTU is added to it, the final price would be $6.2 per million BTU. This is the price Ghana is at the moment, paying for the supply of the commodity form Nigeria. It, therefore, means that based on the above analysis, the $5.9 per million BTU, which is delivered price of the gas from the plant at Atuabo, is within the world competitive price.

Mohammed Anta, however noted that the price build- up he had already analysed did not include the capital expenditure of the jubilee partners, where the gas is being extracted from. Since the issues had not come up for discussion, it is zero. He however, warned that if the government failed to negotiate with the partners to exclude the charge of capital expenditure, the delivered price, and this could result in disastrous consequences. Mr Edward Bawa, head of Communications at the Ministry of Energy, who was present at the forum, would neither accept nor dismiss the figures put out by Mr Anta, because he did not know the source.

The Jubilee Partners have already agreed to supply 200 billion cubic feet of the gas free of charge to the Ghana Gas Company (GGC). Based on a daily supply of 150 million cubic feet per day, the 200 billion free gas would exhaust in no time. The GGC would, therefore, be left with no option than to buy the gas from the partners, and this is where the danger lies if the capital expenditure is added to the price build- up. Anta further told the editors that though some of the wells in the jubilee field produce both gas and oil, others could only produce gas, and mentioned the Sankofa well as a typical example. He noted that it would be very difficult for the partners to sell gas to the GGC from the Sankofa well without adding the capital expenditure, since the latter could only produce gas.

With the bleak picture about the price of our gas, would it still be necessary for Ghana to borrow from the capital market with the attendant huge interest, to develop our own gas infrastructure when we could have relied on the gas supplied from Nigeria at cheaper prices, that was the question this reporter posed to Mr Amin Anta in a follow up interview after his presentation. In response, he noted that with the security problem in Nigeria, especially in Niger Delta, it would be suicidal for Ghana to always rely on gas infrastructure, which would also create employment in the country.

The caveat would be the non –competiveness of the price, which would scare away investors. He however, argued that if the government provides the needed incentives, investors would still be interested in coming to invest in the country. He called on the government to break the monopoly of the GGC, which, per the petroleum management act, is both the producer and distributor of the gas. Anta argued that if investors who would come and invest in the gas sector would have to rely on the GGC for the supply of the gas they would produce, the latter could sabotage them.

According to him, the decision to break the monopoly of the Volta River Authority (VRA), which was then the producer and distributor of electric power, was based on this principle. The government realised that if VRA was allowed to transport the power for onward sale to the Electricity Company of Ghana (ECG), after the sector have been liberalised to bring in private power producers, the VRA could have sabotaged their operations. He warned that if the breaking of the VRA monopoly was not stresses in the gas sector attracting private investors would become problematic.

Anta, who held the editors spellbound with dexterity of his delivery, was also not happy with the way funds from the Heritage Fund must be spent. According to him, the petroleum management law allows the government after obtaining a simple majority votes in parliament, to spend the interest that would be accruing on the fund after 15 years of its existence. To him, the votes should have been two thirds majority and not a simple majority which could be abused by the executives.

According to him, the Republic of Chad also had similar law which stated that fund in the heritage fund could only be used after the oil reserves had been depleted, but the government used its majority in Parliament to amend the law and then used the funds from their Heritage Fund to buy weapons for military. Similarly, he also disagreed with the non- disclosure clauses in the contracts the government had signed with the oil companies. To him, all the contracts must be published for the public to scrutinise them. It is only in doing so, that the public could protest against provisions that are injurious to the interest of the country.

The former Minister of Energy and Chairman of the Public Accounts Committee of Parliament, mr Albert  Kan Dapaah, who presented a paper on “parliament’s role in oil and gas revenue management, global trends and example,” agreed with Anta’s suggestion, but explained that the non- disclosure clauses in the contract were to protect their commercial interests. Kan Dapaah, who is also the Member of Parliament for Afigya Sekyere West in the Ashanti region, however, regretted that despite the existence of the clauses in the oil contracts, the contract the government signed with Kosmos Energy was known to the partners in the industry, before theirs with the government was signed.

With this development, the MP does not think it was still necessary to maintain those clauses. He noted that whilst in office as the minister of energy, the agitations over the non- disclosure clauses did not come up, but now that the issue had been raised, it must be looked at by the relevant bodies. The former Energy Minister, who also hinted the editors about his intention to retire from politics, lamented over the way the wealth of the country was being administered. According to him, though the world was acknowledging the enormous wealth god had bequeathed this nation, it had failed to meet domestic expectations. This development, he noted, had resulted in conflicts in some of the African countries.

He noted that the National Development Planning Commission (NDPC), for instance, was set to chart the development course of the country, but politicians always put the vision of the NDCP aside, and based the development of the country on their manifestoes, which was meant to win an election an election, but not to ensure the growth and development of the country. According to the MP, the budget statement, which is the most important document that is submitted to parliament for scrutiny, is always debated on party lines. The minority would try to punch holes in it, but the majority would vote en bloc for it.

He attributed this development to the fact that the majority of the Minsters were appointed from Parliament, and since it was the ambition of every politician to climb the political ladder no MP would try to vote against the budget to scupper his political ambition in future. He, however, argued that unless this negative development is halted, this country would be treading on wrong path towards the development of the country.

The MP, who constantly received applause from the editors over the objective way he was discussing issues of national concern pointed to another canker which must be addressed. According to him, the report of the Public Accounts Committee of Parliament, of which he is the chairman, is usually dumped because the very people who are supposed to take action on the report. How this can be possible, he asked.

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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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