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

23^RD 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: 

1. amendments to the Cape Three Points – Deep Water Tano(CTP-DWT) (“AKER”) Petroleum Agreement; and
2. 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:

1. impose certain critical obligations on the  Minister which are regulatory in nature;
2. 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;

3. 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.
4. 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:

1. billions of dollars lost to the nation; and
2. 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.

1. 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.
2. 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%.
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:

1. an increase in the GNPC additional interest entitlement from 3% (as proposed by the Ministers) up to 10%; and
2. 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. 

1. 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. 

1. 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.

2. 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