Energy experts and minority raises RED-FLAGS on amended Aker and AGM agreements

Adnan Adams Mohammed
Energy experts and the minority in Parliament have described
Aker Energy and
AGM amended
Petroleum Agreement as ‘most radical political attack on Ghana’s
upstream petroleum sector’ as well as illegal and inimical to Ghanaians
interest.
The direct beneficiary of these ‘giveaways’ (proposed amendments
will be the Norwegian Multinational, AKER which owns and controls both Aker
Ghana and AGM. “The
direct loser is Ghana”, the minority in a press release statement
issued, last week said
Also, some experts have expressed their worry that, the
proposed amendments laid in Parliament and currently being discussed by the
Mines and Energy Committee of Parliament seeks to amend the Petroleum
Exploration and Production Act, 2016, (Act 919) and its regulations L.I 2359
(2018). The experts who spoke on anonymity on the new development on the Aker
deal further argued that a Petroleum Agreement cannot amend an Act of Parliament
because it is the Act that dictates the terms and conditions of a Petroleum
Agreement and not otherwise.
“This “Christmas (government) present” represents the most
radical political attack on Ghana’s upstream petroleum sector since the
commencement of the fourth Republic. The immediate impact of the proposed
amendments will be to emasculate state policymaking, state regulation, and
state commercial participation in the upstream oil and gas (O&G) Sector and
collapse local content
development”, the minority statement signed by Hon Adam Mutawakilu, Ranking
Member of Committee On Mines And Energy alarmed.
The
minority further stated that these
amendments have far-reaching consequences and serious implication for Ghana
upstream petroleum industry beyond AKER.
These amendments will lead to demands from Contractors across the board
for review of their current Contract terms in order to achieve parity of
treatment.
Below
is the full statement of the minority:
PRESS RELEASE
23RD DECEMBER, 2019
POSITION OF THE MINORITY ON THE AMENDMENTS TO AKER AND AGM
AGREEMENTS
The Government of Ghana has worked in a rush in the
last few days before Christmas to rush through Parliament significant changes
to the upstream petroleum sector regime. Government requested Parliament to
ratify within 9 days and 25 December:
- amendments
to the Cape Three Points – Deep Water Tano(CTP-DWT) (“AKER”) Petroleum
Agreement; and
- Amendments to the South Deep Water
Tano(SDWT) (“AGM”) Petroleum Agreement.
This “Christmas present” represents the most
radical political attack on Ghana’s upstream petroleum sector since the
commencement of the fourth republic. The immediate impact of the proposed
amendments will be to emasculate state policymaking, state regulation, and
state commercial participation in the upstream oil and gas (O&G) Sector and
collapse local content development.
It will:
- impose
certain critical obligations on the
Minister which are regulatory in nature;
- limit the Minister’s discretion in approving
Plans of Development contrary to Act 919 for example by:
●
compelling the Minister to accept use of FPSO
technology as the only option for producing the resources of the AGM Block -
even before the appraisal of the field in which the technology must be
deployed;
●
compelling the Minister to accept the
contractor’s delineation of the area to be included within a “Development and
Production Area” in the Aker Block;
- Allow Aker within a year of its Final Investment
Decision to unilaterally vary the approved development plan without reference
to the Minister contrary to Section 27(12) of Act 919.
- Give
Contractors unfettered discretion over oilfield procurement without
recourse to petroleum commission or any other governmental authority -
also weakening the role of GNPC in Joint Management Committees.
The direct beneficiary of these giveaways will be
the Norwegian Multinational, AKER which owns and controls both Aker Ghana and
AGM. The direct loser in is Ghana. The cumulative the medium to long term
effect of all these giveaways will be a loss of national control over our
precious petroleum resources which will lead among other things to:
- billions of dollars lost to the nation; and
- loss of Job creation
These amendments have far reaching consequences
and serious implication for Ghana upstream petroleum industry beyond AKER. These amendments will lead to demands from
Contractors across the board for review of their current Contract terms in
order to achieve parity of treatment.
It will be recalled that in April this year the
Ministries of Finance and Energy submitted another joint memorandum to
Parliament requesting radical changes to the AGM PA.
- They
demanded the transfer of the 24% participating interest in the PA held by
the GNPC Exploration and Production Company (Explorco) (for which GNPC had
paid US$ 30 million to acquire the necessary Seismic data in 2010).
Explorco was the cornerstone of GNPCs strategy to build national operating
capacity such that the benefits that currently derive exclusively to
foreign Oil Block operators including the capacity to promote local
service providers would now stay in the national economy.
- The two Ministers also demanded that a
GNPC’s entitlement to take a (paid) additional stake in the AGM PA upon
declaration of Commercial Discovery be reduced from 15% to 3%.
- The Ministries of Finance and Energy argued
disingenuously (and against the advice of industry professionals within
the State sector) that these handouts to Aker were justified by the
high-cost, high- risk nature of the SDWT Block which made the Project
unattractive to investors (and the same material adverse change that they
are repeating today). The truth of course is that in terms of drilling
targets the SDWT Block is by far Ghana’s most prolific and if anything the
Block had become much more attractive geologically over the last 6 years
than at the time the PA was entered into.
Parliament, in its wisdom, imposed conditions on
the ratification of the PA amendments (which conditions Government does not
appear to have met). And as fate would have it, AGM made a significant
discovery within 2 months of Government’s attempt to give away these important
resources. A government with the national interest in mind would have demanded
a review of the concessions so recklessly offered in April. Rather, just 6
months later the same ministers that worked to assist Aker in its plunder of
national resources have the temerity to come back to Parliament demanding more
concessions for Aker and making arguments about unfair “economic balance”.
The Minister of Energy purported to have procured
a legal opinion on the constitutional and legal implications of the proposed
amendment of petroleum agreements. Whilst it is correct to state that the
effect of the stabilization provisions of the PAs is to prevent legal and
regulatory changes from adversely affecting the operations of the upstream
operator, it is absolutely not correct to state that there is a constitutional
and contractual obligation not to effect changes to laws, regulations and rules
that have bearing on the operations of international oil companies. The State’s obligation is to restore the
economic balance of the agreement.
In achieving economic balancing, it is not enough
to indicate that laws have changed. The Parties must be able to identify the
economic balance that existed at the inception of the investment. They must
demonstrate quantitatively how the new legislation has upset this balance and
materially disadvantaged it. This then
becomes the basis for negotiating a set of appropriate compensatory measures.
Certainly, where Parliamentary ratification is
required the Executive must facilitate the exercise of Parliament’s supervisory
role by concretely demonstrating all of these elements and the appropriateness
and timeliness of the compensatory measures proposed. The Executive has not
been able to do that. All they expect is for Parliament to take their word for
it.
Curiously the memorandum asserts that a first
amendment to the SDWT PA was ratified on 3 May 2019. The Hansard shows that
Parliament explicitly made ratification of the SDWT PA conditional upon:
- an
increase in the GNPC additional interest entitlement from 3% (as proposed
by the Ministers) up to 10%; and
- resolution of the dispute surrounding the
interest of the original Ghanaian stakeholder (MSD) in the project (which
interest was a critical factor in Parliament’s original ratification of
the original PA) and which Aker claimed to have acquired.
Parliament tasked the Minister for Energy to
address these issues and report back to it within 6 months i.e. by 3 November
2019. The Minister has not reported back to Parliament. In those circumstances
for the Executive (and much more the Company) to represent to the world that
the PA was ratified is grossly disrespectful to Parliament and contemptuous of
this National Institution.
- Minister’s Reasonable
Assistance
This provision obligates the Minister to provide
“reasonable assistance” to ensure that Contractor obtains all licenses,
consents and/or authorisations” required for its work and to reduce the costs
due to delays in obtaining such permissions. We do not have a copy of the
actual language proposed for the AGM PA; however we assume it is the same as
that proposed for the HESS PA. The proposed Article 7.8 of that HESS PA
provides that the Minister must provide “reasonable assistance” to the
Contractor (i.e. not to do so would be a breach of the PA) and that where the
Contractor considers that the Minister is not delivering “reasonable
assistance” it can by notice compel the Minister to deliver the relevant
“licenses, consents and/or authorisations within 30 days”.
This most unusual amendment makes the Minister
the errand-boy for Contractors and undermines the autonomy of regulators and
permit givers who are not necessarily under the authority or jurisdiction of
the Minister.
- Commerciality
This provision says that the Minister has no
longer has authority in approving or rejecting a Plan of Development to
determine what technologies will be used in developing and producing Ghana’s
hydrocarbon resources. The Minister is obliged to accept today that AGM will
utilize FPSO technology regardless of what conditions might be found to prevail
in a Discovery Area and regardless of what technological advances in
development and production technology in the next few years. To make such a
determination of development and production technology before the Contractor
has even appraised its first discovery is, to say the least, unwise from an
economic, safety, and technological development perspective; and is certainly
not “Industry Best Practice”.
Recent developments with regard to the condition
of FPSO’s operating (the Tullow Turret Incident etc.) in our Offshore Areas and
the adverse impact recorded on production and therefore on state revenues must
alert us to the dangers of such carte blanche concessions.
- Taxation and other Imports
Sadly, these amendments provide a sweeping tax
exemption for Aker and AGM, its sub-contractors and sub-contractors. No
withholding taxes in the case of AGM and a reduced withholding tax rate of 5%
instead of the 15% withholding tax for any work or services or supply or use of
goods, both to domestic and international transactions
It is reckless for exempting Withholding tax for
international transactions as it is like surrendering taxing right to foreign
state because the foreign state will apply tax on its worldwide income.
Secondly, not Withholding tax on international transactions would result in
permanent revenue loss for Ghana. However, not having Withholding tax on
domestic transactions may lead to tax evasion as the trail is lost. In the
longer run, it will result in large scale tax loss due to avoidance.
The non-resident companies having established a
Permanent Establishment (PE) status for tax purposes would be liable for full
corporate tax. Sadly, the amendments make it possible for non-residence
Permanent Establishment (PE) to be exempted from the payment of tax at the
domestic rate. This will cause a substantial tax loss as the tax exemption is
for 7 years.
Transaction
between Sub-contractor to sub-contractor is also not
subjected to Withholding tax in the case of AGM and a reduced withholding tax
rate of 5% instead of the 15% withholding tax for any work or services or
supply or use of goods, both to domestic and international transaction.
The amendments to exempt Transaction between Sub-contractor
to sub-contractor are unacceptable as it would have similar consequences as
said above. Aker and AGM will be exempted from import duty, VAT and all sorts
of other taxes. However, the indirect taxes are not a cost to the Aker and AGM
as it avails input credit.
Conclusion
●
Ladies and Gentlemen of the Media, a lot has gone wrong and continues to go wrong in Ghana’s
energy sector under President Akufo-Addo.
It has gotten to the point that whenever we see a joint memorandum from
the Honourable Ministers of Finance and Energy we are filled with
trepidation. Ghanaians have not yet
recovered from the PDS scandal.
●
Today massive historical damage has been done to our oil and gas
sector and our economy today – damage that at least in financial terms far
exceeds the damage of the PDS scandal.
●
Though rumours are rife we are yet to understand in whose interest
this damage has been caused. We will not cast unfounded aspersions. However, as a Minority we will continue to probe and investigate what
can only be a described as a betrayal of our people by our government acting in
concert with foreign interests.
●
In matters of such great weight and consequence for the Ghanaian
people we believe our colleagues on the Majority side must be willing to
putpartisan loyalty behind them and act in the supreme long-term national
interest.
●
Where our institutions fail us then the people themselves that
must act and act decisively. We have
come to you the media today to help you inform the public in the hope that
citizens will join us to protest and reverse these unconscionable
measures. You will hear from us on these
matters in the weeks and months to come.
HON ADAM MUTAWAKILU
RANKING MEMBER,
COMMITTEE ON MINES AND ENERGY
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