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Review ENI gas price, energy think tanks advise gov’t

  • SOURCE: goldstreetbusiness.com | Goldstreet Business
  • Some energy think tanks have described a gas sale contract between Ghana and ENI, in 2015, as bad and have asked President Akuffo-Addo to review it.

    Analysts say the ENI gas has become expensive as it is being sold to government at US$9.8 per British Thermal Unit (Btu) when the market price is around US$ 3.028 per Btu.

    “The prices were not properly fixed; they are very high compared to the cost of the same commodity on the open market. I can tell you that Ghana cannot operate with such a high price. Government must do something about it. There is a need to review the price to save all of us, a source at Ghana Gas; name withheld told this journalist in an interview.

    Gas from the Tullow-operated Jubilee and TEN (Tweneboa,  Enyenra, Ntomme)  fields is free because it is an associated gas, a term associated with the product that comes as a by-product from crude oil production and is also not flared but transported for processing.

    According to the analysis by The Africa Centre for Energy Policy (ACEP) the terms and conditions of the agreements and term sheets show that the deal is fraught with badly negotiated terms, and at most, serving the interest of the contractors rather than Ghana’s.

    The findings showed that government offered over-generous terms to the contractors just to satisfy Ghana’s thirst for gas, exceeding what pertains in international transactions of similar nature.

    ACEP noted that government’s fiscal support package, which included an exempt debt-to-equity ratio of 2:1 at 7 percent interest on the commercial loans of the contractors, would lead to significant revenue losses to the state over the project life of 20 years, since interest expenses are tax deductible. The state must guarantee that, at any time, the free fiscal support to the contractors remain US$125 million to make the initial gas price of US$9.8 per mm/Btu. This could run into several millions of dollars when gas prices fall. In the event that the contractors source the loans from their affiliates, the gains to the Contractors could increase at Ghana’s expense.

    A policy Analyst and Executive Director of the Integrated Social Development Centre, ISODEC, Dr Steve Manteaw corroborated the call for the review of the contract as it will have negative consequences on power generation in Ghana.

    He said the contract was signed in a manner that only Ghana National Petroleum Corporation (GNPC) has the right to buy the processed gas from ENI and it dared not fail to buy else government would be cited for judgment debt. He regards this clause in the contract as awkward and called for the review of the contract.

    Dr Manteaw also reiterated the need for the country to build its capacity in contract negotiations to be able to get the best of the deal from the oil and gas sector.

    He said the country had weak negotiation capacity and should therefore tie the rules of negotiation into the laws of the country governing the sector.

    He further explained that if the procedures on negotiations were present in the laws of the country, it would make the rules mandatory which would prevent public officers from giving too much away and manipulating the terms of negotiation.

    “We are not known to be great negotiators so if you have a law that actually stipulates how an investor should acquire a concession in the oil sector, let that law work for you,” he said.

    Concerns have been raised about the price negotiated for the commencement of oil and gas production at the Sankofa Gye-Nyame field (SGN) operated by ENI and several other related contracts.

    Dr Manteaw said the price for ENI’s gas was not very competitive and would be dangerous for the country’s economy adding that the negotiated price was higher than that from the Jubilee and Ten fields while a clause in the contract commits the country to buying the ENI gas at the negotiated price even when cheaper options are available.

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