Ghana must demand more favourable terms from future oil contracts now that its vast resource potential has been proven, and with one-and-a-half year’s experience in production, according to Prof. John Asafu-Adjaye, a senior fellow of the Institute of Economic Affairs (IEA).
“Now that we know there is oil, in any future contract we should be able to negotiate more favourable terms — in terms of royalties, taxes, [and] carried interest so that the state can get a bigger take from the resource,” he said at a press briefing in Accra on recommendations over how to “make Ghana’s oil and gas resource count”.
The recommendations were the outcome of an oil and gas industry workshop convened by the IEA in partnership with the US-based Centre for International Private Enterprise and STAR-Ghana, a multi-donor fund that sponsors transparency and accountability initiatives in the public sector.
Commercial oil production began at the offshore Jubilee Field in December 2010 after its discovery in 2007, but the contracts to explore the field were signed two years earlier with the foreign partners when it was not certain if the resource was available in the country in commercial quantities.
“In the earlier contracts that were signed, there was lack of experience. Ghana overnight had become an oil producer, so there were a lot of things that we were learning. We were not negotiating from a position of strength because we didn’t have the expertise, and we didn’t have enough technical knowledge about the extent of our oil resource.
Now, we are in a better negotiating position than in 2005 when those contracts were signed. So we are looking for increased returns in all areas including the windfall tax, capital gains tax and the carried interest as well,” said Prof. Asafu-Adjaye.
Jubilee’s reserves are currently estimated at a minimum of 600 million barrels of oil equivalent (MMBoe), and more oil has been discovered in the West Cape Three Points enclave as well as at onshore sites including the Volta Basin.
The government, through the Ghana National Petroleum Corporation (GNPC), owns a 13.6% stake in the Jubilee project in a partnership involving UK explorer Tullow Oil (35.5%), Texas-based Kosmos (24.1%), and US energy companies Anadarko (24.1%) and Sabre Oil & Gas (2.7%).
The state’s revenues from upstream production are generated chiefly through GNPC’s interest in the partnership, but also through royalties and corporate taxes. In 2011, the government collected US$444million from royalties and the sale of GNPC’s share of oil produced from the field.
“Currently, royalties are at 5%, so what we’re saying is that with future contracts we should try and negotiate for more than that. We’re also saying that at some point the GNPC should become an oil producer in line with the recommendation to see more Ghanaian firms in this area. Then, eventually, we should see private Ghanaian firms also producing oil,” Prof. Asafu-Adjaye said.
He said the government needs to accelerate the passage of the Petroleum Production and Exploration Bill, the Local Content Policy Bill and the Right to Information Legislation to improve accountability and the benefits that accrue to Ghanaians from the industry.
Currently, there are no legal requirements for contracts to be published, he said, worrying that the basis on which exploration rights are awarded to companies is still unclear.
He agreed that local content in the industry ought to be clearly defined in order for its goals to be achieved.
“We’re not talking about Ghanaians fronting for foreign companies. We’re talking of genuine Ghanaian companies who may have partners overseas. But after some time, or if more oil is discovered, we could stipulate how much shares Ghanaians should own in a company before it can qualify for local-content privileges.”
Ghana’s policy on local content and participation in the industry envisages full participation by indigenes in at least 90% of the oil and gas value-chain by 2020.