The Parliament of Ghana has amidst heated debates approved a commercial agreement among the Government of Ghana, Lonrho Ports Limited and the Atuabo Free Port Ghana Limited for the construction of a six hundred million (US$600 million) US Dollar Oil and Gas Freeport Project.
Parliamentary Correspondent Dominic Hlordzi reports that the commercial agreement is to facilitate the development and operation of a joint venture with the private sector and government to build an oil and gas free port at Atuabo in the Western Region to meet the logistics and support requirements of Ghana’s oil and gas industry and the wider gulf of guinea region.
If followed through, the new Free Port will be Ghana’s third Sea port. The country already has the Tema and Takoradi Ports which are handling major imports and exports, not only from the country but from neighboring countries especially the landlocked countries of Burkina Faso and Mali.
Prior to Cabinet’s endorsement of the commercial agreement, extensive engagements took place among stakeholders to determine the feasibility of the project, the requisite infrastructure and investments needed to develop the only petroleum/hydrocarbon logistics based port in the country. After a review of the existing infrastructure, market demand study, an independent location analysis, site survey, local community consultations, wave analysis, environmental and social impact assessment, master plan and feasibility study, Lonrho confirmed to government of Ghana that the project was viable. This led to the submission of the contract through the Ministry of Finance to the Legislature for consideration and approval in fulfillment of the Constitution.
Presenting the report of the Finance Committee for approval, the Chairman of Committee James Avedzi said the Committee was informed that the Atuabo Free Port Project is a private sector initiative which aims at creating a specialized port dedicated to providing support to the supply chain in the oil and gas services sector.
“The project will deliver a support base for the oil and gas services to maximize the benefits of the country’s oil resources for accelerated development.” He explains. The Minister of Finance Seth Terkpe told the Committee according to the Chairman of the Committee, that the project will provide regional opportunity for companies wishing to provide a platform for service companies in the oil and gas sector to service regional oil industries in Guinea, Nigeria, Cameroun and Cote d’Ivoire among others.
The Freeport well provide a logistics supply base, offshore fabrication yard and shipyard facilities to provide a base in which to undertake Rig and ship repairs and to offer life support services for employees and tenants of the port. The Minister explained that the provision of the facilities to support rig and ship repairs in Ghana are uniquely located to accommodate the sudden growth in deep-water exploration across the West African coastline with an expected increase in about 300 offshore supply vessels over the next five years.
From the terms of the contract, government of Ghana is not required to provide funding for the project or provide guarantee. “The government does not intend adding the cost of the project to the country’s national debt” the Minister of Finance explained to the Committee. The intention of the government, the Minster stressed, is to implement the entire project as private initiative without any financial commitment from government. The Committee was informed that “the capital cost for the project development is approximately six hundred (US$600) US Dollars which will be funded under a non-recourse project finance model with a debt and equity ratio of about 70:30.” According to the Chair of the Finance Committee letters of support had already been received which prove that private sector finance is available for the project.
Local Content and Participation
The Committee, Mr. Avedzi said was briefed on the needed steps Government is taking to ensure greater local participation in the development and implementation of the project. As part of the measures, the project will be subjected to the Local Content and Local Participation Regulations for the Petroleum sector.
“To further promote direct local participation throughout the tenure of the project 35% of the project equity has been made available to Ghanaian institutions and 10% equity has been allocated to the Government of Ghana as a free carried interest, giving Ghana a 45% interest in the equity of the project.” The chairman of the Committee pointed out.
When completed, the project will have a multiplier effect on the delivery of local content in the petroleum sector.
Financial Capabilities of the Companies
The Committee was told that Lonrho has received sufficient expression of interest from various financial institution including Export Credit Agencies and Commercial Banks, namely African Development Bank, Standard Bank and Standard Charted Bank.
Ownership rights and control
The equity in the project will be held through a special project vehicle called Atuabo Free Port Ghana Limited, a Ghanaian incorporated entity. Atuabo Free Port will be a private sector joint venture with the Government referred to as “the Developer” totally funded by the private sector without Government guarantee.
The negotiated ownership and right of all parties in the project shall be as follow: a) Forty five percent (45%), shall be wholly Ghanaian owned. This will include 35% of the initial capital contributions being made by Ghanaian institutions such as SSNIT, GPHA, GNPC, VRA and SIC to acquire equity in the Atuabo Free Port Limited. The Government of Ghana shall be given a 10% stake of the initial share capital of the developer at a per value zero premium.
b) The remaining 55% of the equity will be held by international investors and will include Lonrho Limited, Africa Finance Corporation and China Harbor Engineering Company. Also the Chairman of the Board of Atuabo Free Port Limited shall be nominated and appointed by the government of Ghana.
“The initial terms shall last for a period of twenty five years after which the parties shall enter into a negotiation for another twenty five years.” Mr. Avedzi explained.
Free Zones Board Involvement
The Ghana Free Zones Board has also reviewed the project and declared the land required as a free port under the terms of the Free Zones Act, 1995, Act 504 and granted a free zones developer license to the promoter. After the commercial agreement was reviewed, negotiated and the terms and conditions set out, the government of Ghana agreed to grant the developer, Atuabo Free Port Limited the right to design, engineer, finance, construct, develop, own, manage, operate and maintain the free port project.
Both the Trade Union Congress, TUC and the Maritime and Dock Workers Union who vehemently opposed the deal were of the view that the proposed development of the Freeport for oil and gas at Atuabo violates the provisions of the Ghana Ports and Harbours Authority’s Act,1986 (PNDCL 160). Per their arguments, clause 5(1) of the Law grants the exclusive right to build, construct, manage, control and maintain ports in Ghana to the GPHA in order to protect Ghana’s national security and sovereignty.
They cited high rate of stowaways and some illicit activities that were recorded at a private container terminal in one of the county’s ports due to the unwillingness of the private developer to invest in insecurity to stem the tide.
According to the Chairman of the Committee, the Union was not in favour of the exclusive clause in the commercial agreement because they fear it might not make Takoradi Port competitive in the oil and gas industry.
The TUC and its allies implored Government to rather charge GPHA to raise the needed funds to develop the proposed port as a second oil and gas terminal to maximize Government revenue and safeguard national pride and security.
Chiefs and Elders of the East and West Nzema Traditional Area
The chiefs and elders in the area where the port will be sited have in their engagement with the Finance Committee expressed support for the project. They informed the Committee that they have been consulted and involved at the various stages of the project and were of the conviction that its implementation will be beneficial to the people of the area and the nation.
Background of Lonrho Ports Limited
Lonrho Ports Limited is a 100% subsidiary of Lonrho PLC of London. It was incorporated in 1909 and is headquartered at Cheapside House London. It began operating in Africa in 19909 as the London and Rhodesian Mining Company and at its peak in 1989 Lonrho’s profits were £272 million, up from a mere £158 thousand in 1961. By 19995 Lonrho’s African non-mining businesses had expanded into 15 Sub-Saharan African countries, with approximately 90 operating companies involved in wide range of businesses. Lonrho now has major subsidiaries in many countries including France Spain, Brazil, Singapore, China, South Africa and Malawi.
The Committee told the House that after thorough scrutiny of the contract it is of the conviction that since the oil and gas industry is expected to be the major driver of the Ghana’s economy, it is essential to create the right infrastructure to fast-track the growth in the sector. To this end, Mr. Avedzi stated that the Atuabo Oil and Gas Freeport project is well positioned to deliver the needed infrastructure to propel the growth of the sector to ensure that the country maximizes the benefits of the offshore oil and gas deposits.
Furthermore, the Government is not required to make any direct payment towards the project and the cost of the project would not be added to the national debt stock and the fact that indigenous institutions are heavily involved in the ownership of the project. “The Committee is satisfied that the agreement delivers value for money and it is in the best interest of the country as it will help create jobs and transform the economy of the oil region and the nation as a whole.” Mr. Avedzi told the House.
After heated debates from both sides of the House the Majority had their way and the agreement for the 600 million US Dollar Atuabo Oil and Gas Freeport Project was okayed.
Source: Dominic Hlordzi/ GBC
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