Saturday, 28 April 2018

Ghana held to ransom… as World Bank wants SGN gas price reduced

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Adnan Adams Mohammed

Information reaching Economy Times from Washington reveals that, the World Bank is holding Ghana to ransom demanding that Ghana accepts to use the savings from the Eni lead OCTP Block development project to reduce the existing Sankofa Gye Nyame (SGN) Gas price of US$9.8/mmBTU.

World Bank is with the proposal that, if no adjustment due to savings made on the SGN Gas project - which will bring the Gas price down from US$9.8/mmBTU to US$7.0/mmBTU - they will not support any new issuances of debt by Ghana.

The Ghana National Petroleum Corporation (GNPC), led by Ministry of Energy and Ministry of Finance met with World Bank last week to discuss GNPCs inability to raise bank debt of approximately US$200m for the 4.5 months cover reserve account as part of the security package for the OCTP SGN Gas Project agreement.

Recollect that the WB supported this OCTP SGN-Fields Gas to power project with a whopping US$700m Guarantee, being the largest ever guarantee support by the World Bank

The total security structure is to support a 12 months of non-payment (this will occur if the power sector thermal generators - VRA and IPPs - miss their payments to GNPC)

It is important to note that, Ghana National Gas Company (GNGC) has not paid GNPC since 2014 for Gas supplied from the Tullow-operated Jubilee and TEN fields and is also owed over US$750m by the power sector thermal generators - VRA and IPPs

The reason for GNPC and the government team going to WB is due to the fact that, there is a US$500m Letter of Credit issued by Standard Chartered Bank (SCB) and HSBC, which is backstopped by the WB Guarantee.

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Again, there is in addition a Reserve Account held by SCB that should hold 4.5 months Gas Sales and this is the amount that needs to be funded by GNPC which it is unable to fund and thereby resorting to discussions with WB to allow GoG to find the reserve account from its future debt issuances.

According the WB, with the savings of US$600-700 million from the project, they expect a price drop of US$3.00-3.50/mmBTU. This making the reserve account drop from US$220 million to US$150 million.

According to our source of information, he revealed that, “It’s my understanding that eniGhana are trying to play a fast one on GNPC in getting MOE to approve the use of this savings to drill more wells, which is not in the approved Plan of Development. This is contrary to the agreement.

He added that, Ghana government would have failed if eniGhana and Vitol get their way;

Meanwhile, GNPCs inability to raise the 160m is apparently due to the fact GNPC raised US$100m to pay off BOST debts and have not had their US$100m released from the Karpower deal mainly because ECG cannot raise the Guarantee theirselves after 2.5 years since the Karpower deal become effective. This is because government is refusing to put in place the much needed power sector revenue cash-waterfall as the Ministry of Energy has been advocating; the inertia is apparently coming from ECG and somehow is supported by the Ministry of Finance.

GNPC raised this much needed $100m using a pre-export financing structure where Litasco advanced the funds to GNPC in exchange of lifting future cargoes of crude oil from the TEN field crude oil for a number of years - the use of funds was as an advance to BOST to pay off its debt to Trafigura/Litasco upon the government’s instruction. Litasco then took over the lucrative HFO supply contract to Karpower which hitherto was supplied by Trafigura’s; there are speculations that Trafigura is not in the good books of GNPC/MOE;

This financing of BOST by GNPC outside its core financial obligation has hampered GNPC’s ability to raise money for the Reserve Account, and also hampering GNPC’s ability to fulfill its work programmer in the long run.

According to information contained in the GNPC 2018 Work Program and addendum presented to Parliament for approval, the Government of Ghana requested GNPC to secure a US$100 million pre-export facility to be used to pay off the outstanding debts.

“Two of the fuel suppliers involved with the karpowership arrangement, Trafigura and Litasco, have at various times supplied petroleum products to BOST and are owed a total amount of about US$100 million, US$60 million to Trafugura and US$40 million to Litasco... The payment of the outstanding debt will signal a positive goodwill on the part of GoG. Against this background, GoG has requested GNPC to secure a US$100 million pre-export facility to be used to pay off the outstanding debt.

“GNPC would put in place the necessary arrangement and agreements to ensure that the loan amount and the interest cost will be fully recovered from BOST. BOST has in stock at Tema Oil Refinery crude oil of about US$54 million (as of Jan 1st 2018) which has not been processed because of the challenges faced by the Refinery. This stock if monetized, reduces the debt exposure to US$46 million. GNPC will ensure that receivables from the sales of the processed products is used to pay off part of the debt. Any balance outstanding would be recovered from BOST.”  

As earlier reported BOST has monetized this crude oil but it is yet to be reported if the $54million realized has been used to offset part of the advance from GNPC

GNPCs 2018 approved work program specifies expenditure in excess of $950m while its revenue falls short of US$360 million; the gap of approximately US$600 million is to be funded by its cash in banks (US$150 million) and the rest through payment of debt from government and by raising bank debt (US$200 million).

With this occurrence, and if nothing positive is realized soon, GNPC’s balance sheet is likely to be impaired by end 2018 as GoG directly through MoF and indirectly through its SOEs(GNGC, TOR, ECG and BOST - owe GNPC over US$300 million, an issue the WB has raised with MoF at the meeting in Washington last week.