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How Ghana lost US$902.45m in oil royalties, taxes between 2011 and 2016

  • SOURCE: Goldstreet Business | Editor
  • The Centre for Natural Resources and Environmental Management, CNREM, has lodged a ‘formal complaint of impropriety against the contractor party for under-payment of royalties and corporate taxes due Ghana in the sum of US$902.45 million in their six years of operations at the Jubilee Fields.’

    The complaint filed under the Whistleblowers Act 2006, Act 720 at the Ghana Revenue Authority, GRA, and copied to the Chairman, Council of State and the Chairman of its ESDI Committee said that the ‘under payment was discovered after analysis of a document ‘Overview: Ghana’s Oil and Gas Fiscal Regime’ made available to the PSA Campaign which has been campaigning for an amendment to the country’s petroleum laws.

    In the document currently before the Council of State, the group pointed out that Ghana is being shortchanged by the foreign oil companies, FOCs, operating in Ghana.

    According to that document dated March 23, 2018 and addressed to the chairman of the ESDI Committee of the Council said after ‘subjecting the Petroleum Commission’s presentation to the terms in the Jubilee Agreement, Accounting and Taxation Principles, we have discovered the Contractor Party has underpaid Ghana a total of US$902.45 million. The under payment is made of US$136.30million in Royalties and US$766.15 million in taxes over the period of six years.

    ‘The recalculated Government take is US$3961million and not US$3059,’ the document added.

    Added to the inability of the country to reap the full benefits from the oil find is the kind of contracts the country has signed with the FOCs which are clearly not to the country’s advantage. The group therefore suggested that the state must adopt the Production Sharing Contracts, PSC, which is in use in Nigeria, Congo, Angola and many other countries where oil is being produced offshore as Ghana is doing.

    According to the CNREM, the tax-royalty model the country chose has resulted in a situation under which the country has given away her resources as example has shown that earnings from tax would materialise only when the companies declared profits which they hardly do.

    Ghana, they pointed out stands to lose over US$30billion under the Modern Concession Agreement, MCA, or the hybrid system as contained in the 2016 Petroleum Exploration and Production Law Act 919 would make it difficult for her to derive the full maximum benefits.

    According to Mr. Solomon Kwawukumey, the CEO and executive director of CNREM, the production sharing agreement is the best form of oil agreement that Ghana should have adopted because if the country had chosen that option, Ghana should have earned over US$11billion representing 60 per cent of total production revenue in the seven years of Jubilee Field operations instead of the under US$4billion if PNDC Law 84 were not jettisoned when oil was discovered in the early 2000s under President John Kufuor.

    The group pointed out that subsequent governments have also failed to reverse this situation which is taking a toll on the country’s oil resource and the economy.

    The think tank further went on to present a simulation of variant PSA models to demonstrate what Ghana’s earnings would be over the period that the Jubilee Field will be in operation under the various models using the Jubilee Field data published by the Ghana National Petroleum Corporation, GNPC in the local papers in July 2008.

    Using a long term base price of US$60 per barrel over the production life of the field which is expected to be exhausted in 2036, the third option which conforms to the spirit and intent of PNDC Law 84, Ghana would earn US$72 billion, 60% of total production revenue at no cost as against the US$20billion and US$19billion estimated by the International Monetary Fund, IMF and the World Bank respectively under the Royalty Tax/Hybrid System at a cost to Ghana. Ghana is expected to pay Tullow, the lead operator almost US$2billion for participating in the project.

    ‘This is the fiscal regime the Ministry of Mines and Energy and Petroleum Commission supported by the World Bank, Oxfam America and DFiD funded CSO Platform on Oil and Gas, ACEP, PIAC, Institute of Economic Affairs, IEA, Natural Resources and Governance Institute (NRGI) IMANI Ghana, ISODEC and others say is superior to the Production Sharing Agreement,’ Mr. Kwawukumey explained.

    The CEO said former Deputy Minister of Energy Mr. Ben Dagadu admitted that the concessionary system under which the Royalty Tax/Hybrid System operates, a host country gets less than 25% of total production revenue whereas the PSA would inure more than 50% of total production revenue to the host nation

    The think tank pointed that many countries with offshore oil give liberal concessions including the foreign oil companies FOCs bring in their equipment duty free, drill and export without the state taking part in the production process. This therefore entitles them to a larger share of the revenue.

    The Libyans are making as much as 81 per cent revenue from their oil find while countries like Angola, Philippines, Gabon and Equatorial Guinea among other countries are taking at least 70% of total production revenue and CNREM believes that this formula is what Ghana should adopt.

    Throwing more light on the subject, the CEO pointed out that the hybrid system Ghana has adopted will eventually make the country lose billions of dollars most especially when the country is yet to exploit her richest offshore oil reserves. These fields lie in the deep waters where ExxonMobil and the Paradise Field owned by Hess over which Ghana and Cote d’Ivoire recently went into arbitration over.

    Concluding, the think tank is proposing that the country stops leasing out new acreages for exploration in addition to renegotiating all existing contracts and adopt the production sharing formula which will guarantee at least 70 per cent returns for the country just as Congo and Nigeria are enjoying.

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