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PIAC wants forensic audit on $4.2b expenditure by Jubilee partners

The Public Interest and Accountability Committee (PIAC) says the government must conduct a forensic audit into the $4.2 billion expenditure supposedly incurred by the Jubilee Partners prior to the start of oil production in 2010.

That, it said, would help ascertain the veracity or otherwise of the figure so as to prevent the companies from ripping the country off her nascent oil revenues in the name of capital gains recovery.

The five Partners of the Jubilee Field, prior to the start of oil production in December 2010, said their investments from 2007 (when wells and field development and appraisals started) to 2010 (when actual production of oil took off) amounted to $4.2 billion.

That investment, which is expenditure to the companies, is, however, classified as recoverable cost per the agreement entered into by the partners and the Government of Ghana (GoG). The law further allows the companies to recover that cost at 20 per cent interest per annum over a five-year period, starting from the first year of oil production.

While declining to say whether or not the committee doubted the $4.2 billion figure put out by the companies as the total amount incurred prior to oil production, Mr Ishmael Edjekumhene, a member of the PIAC, said only a forensic audit could help reveal the cost build-up.

“Who am I to say I doubt that figure? What we are saying is that the Ghana Revenue Authority (GRA) and, maybe the Auditor General’s Department (AGD), should collaborate and conduct a forensic audit into the cost build-up so that we all can be sure of what accounted for that $4.2 billion,” he said.

But however good that may be, the Executive Director of the Centre for Policy Analysis (CEPA), Dr Joe Abbey, said conducting a forensic audit into the figure could amount to “behaving suspiciously towards investors.”

“It is a good thing to do but I would rather advise we talk to the GRA, the Ghana Investment Promotion Council (GIPC) and even the Bank of Ghana (BoG) on how much these companies invested within the period.

“That is something they can easily do because I’m sure they registered their investments with them,” Dr Abbey said.

Given it that Ghana is still in her young days of oil production, the CEPA boss said putting up a suspicious posturing towards investors and their investments in the petroleum sector could send them packing to nearby oil fields.

“It’s not as if investors are at our feet and so we can do whatever we want, no.

“In any case, ours is just small oil and this is just the beginning. See, we are surrounded by giant oil countries such as Nigeria and Cote d’ Ivoire and so I’m not sure it will be good to start behaving as if we don’t trust oil companies,” Dr Abbey said.

A source at the GRA declined to admit on record whether or not the authority would and had the technical expertise to audit the expenditure of the companies except to say the checks and balances in the system would not allow for bloating of the recoverable cost.

Given the fact that Tullow, the operator, prepares its budget for assessment and approval by the other partners, “including our own GNPC (Ghana National Petroleum Corporation)”, the source said it would be surprising to know that the expenditure is overstated.

“Yes, they (the companies) may try to do some hanky-panky with tax but it won’t be too much. Every business person tries to cheat on tax but not that big in our case,” the source said, pleading not to be quoted on record.

Already, the five companies with interest in the Jubilee Field – Tullow, Anadarko, Kosmos, GNPC and Sabre Oil and Gas – have started recovering the $4.2 billion which they said was expended in the country prior to oil production.

As a result, none of them has been in a tax-paying position or declared profit since the start of oil production in December 2010.

That is because every profit made in a year is used to offset the investment accumulated in the run-up to the commencement of production.

That, together with consistent fall in production output as against target among other factors, has limited government’s projected revenues from petroleum. That is because although the government continues to budget for corporate tax, it gets nothing in return.

In 2011, for instance, the government projected in the supplementary budget that it would receive GH¢603.76 million from oil petroleum as corporate tax, a target it did not realise following the companies’ inability to make and declare profits.

The story was not different in 2012. Although the government, in the 2012 budget, projected to receive GH¢384.11 million as corporate tax from petroleum, PIAC’s semi-annual report and data from the Ministry of Finance and Economic Planning (MoFEP) on oil revenues for quarters three and four in 2012 showed that not a pesewa had been received to that effect.

Mr Edjekumhene who doubles as the Director of the Kumasi Institute for Technology (KITE), however, told the Graphic Business that budgeting for corporate tax in itself was “unrealistic”.

“How do you expect them (the oil companies) to make profit and pay tax when you have an agreement that allows them (the oil companies) to recover their cost,” he asked.

Corporate tax in Ghana is 25 per cent of a company’s profit and would, therefore, be nil as is the case with the oil companies, if the company involved does not make profit in that year.

According to Mr Edjekumhene, PIAC wrote to the Finance Ministry after the 2012 budget was presented, asking them to withdraw the projected revenue from corporate tax “because it was evident that the companies won’t be in a tax-paying position, that is, they would not make profit in that year.”

“But we were made to understand that the ministry was speaking to the companies to see if they can get something for the government.

“What that means is that even if the companies had paid any tax in 2012, it would have been out of persuasion or sympathy and not that they were in the position to pay tax,” he added.

Although the government is yet to explain the logic behind the continuous projection for corporate tax from petroleum despite the series of warnings from the GRA and PIAC not to do so, industry watchers and some civil society groups claim it is intentionally done to create an artificial shortfall in projected benchmark revenue from the sector.

“We cannot rule it out (that government was intentionally projecting for corporate tax to create an artificial shortfall),” said Dr Steve Manteau of the Civil Society Platform on Oil and Gas.

“We have heard of it and it can be true. But what I’m saying is that we currently don’t have the evidence to support it,” he added.

Critics say once the overestimation leads to a shortfall in petroleum revenue as was the case in 2011, the government can, in line with section 12 of the petroleum revenue management act (PRMA), 2011, fall on the Ghana Stabilisation Fund (GSF) to cushion the deficit.

The GSF, according to the act, is to serve as a shock absorber to the annual budget funding amount (ABFA) in times of shortage, as well as a surplus bag whenever there are underestimations of petroleum revenue.

Attempts to get the Finance Ministry to comment yielded no results but indications are that the government will again budget for corporate tax in the yet-to-be presented 2013 budget.

Mr Edjekumhene, however, said the 2013 projection could be realistic in that the Jubilee Partners are likely to be in a tax-paying position this year.

“We are likely to expect corporate tax from them this year because remember production was good in the latter part of last year and the trend is likely to continue into 2013,” he added.

Daily output at the Jubilee Field was averaging at 75,000 barrels in a larger part of 2012 but ramped up to 110,000 barrels in the latter part of the last quarter of the year.

That was after the partners had resolved some technical challenges they said was inhibiting the free flow of oil.

Checks at the GRA have meanwhile revealed that the recoverable cost has risen to over $6.2 billion as of December last year.

That followed “new investments and other cost incurred in fixing the Floating, Production, Storage and Offloading (FPSO) and other challenges at the wells,” according to the source at the GRA.

Those costs include the purchase of FPSO vessel by the partners.

The additional recoverable cost would, however, be recovered separately from the initial $4.2 billion incurred between 2007 and 2010, the source added.

 

Source: Graphic Business

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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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