Category: News

 

Adnan Adams Mohammed

 

Adnan Adams Mohammed

 

Days after the release of Auditor General’s report on public sector financial management, the Ghana National Petroleum Corporation’s (GNPC) is caught in a web of accusation of financial malpractice for signing some international transactions without parliamentary consent.

 

As GNPC tries to defend itself for such a transaction, the Director-General of the Internal Audit Agency has disagreed with the Corporation’s defense that, the requirement to seek parliamentary approval for some five international transactions, referred to in the 2020 Auditor-General’s report, does not apply to the Corporation.

 

The Auditor-General indicted the GNPC for signing and awarding five international business contracts to five foreign suppliers using the single-source method in four of those transactions and in one instance using restricted tendering method without seeking the necessary parliamentary approval.

 

In a rejoinder to the audit report, GNPC stated that it is a distinct legal entity and did not breach any laws in the matter in question. It insisted that it does not require parliamentary approval before engaging in international transactions. But the IAA boss insisted that the Auditor-General was right in raising red flags over GNPC’s international transactions.

 

“It is clear that the GNPC is a state institution, and they are acting on behalf of government and the state. And the Public Financial Management Regulations (PFMR) and the Public Financial Management Act is clear”, Dr. Eric Oduro Osae said in an interview last week.

 

“It is not for nothing that regulations 192 to 206 of the PFMR provide for state-owned enterprises and public corporations, so I think they fall within the ambit of the PFMR Act and the Auditor-General has a duty and the mandate to audit that institution as well.”

 

The findings relating to the Ghana National Petroleum Corporation are captured in the report of the Auditor-General on the public accounts of Ghana’s public boards, corporations and other statutory institutions for the period ended 31 December 2020.

 

According to paragraph 686 of the report, contrary to provisions in Article 181(5) of the 1992 Constitution, the Auditor-General noted that from the sampled records reviewed, the GNPC signed and awarded five (5) international business contracts to five foreign suppliers or contractors using Single-Source method in four of those transactions and in one instance used the Restricted Tendering method without seeking for the necessary Parliamentary approvals.

 

The five contracts totaled US$34,165,235.15, and £464,963.13. Some of the transactions cover the procurement of a contractor to acquire and process 2D Seismic Data over the Voltarian Basin for GNPC in 2015 for about $33.9 million, the Development of a Brand Architecture for GNPC and Explorco in 2015 for about £417,000 amongst others.

 

According to the Auditor-General’s report, the sourcing of such contracts via single source and restricted tendering without parliamentary approval denies the lawmakers the opportunity to make inputs towards such transactions, which could plunge GNPC into paying for higher contract sums and possible judgment debts.

 

The Auditor-General thus recommended that management of GNPC should be sanctioned in accordance with Section 92 of the Public Procurement Act 2003, (Act 663) as amended for breaching the Public Procurement Law.

 

But in a rejoinder from the GNPC to the report, Article 181 (5) of the 1992 Constitution pertaining to Parliamentary approvals for international business transactions strictly relates to “Government” business and not generally to statutory corporations set up for commercial purposes.

 

The rejoinder stated that the GNPC Act (PNDCL 64) establishes the GNPC as a distinct legal entity and, as such, it is not legally considered to be part of Government.

 

According to the GNPC, the requirement to seek parliamentary approval for the five transactions referred to in the report does not apply to them, and they therefore request that the Auditor-General corrects his findings and conclusions as soon as possible.

 

The GNPC finally urged the Auditor-General and his staff to cultivate extreme diligence in their duties to avoid embarrassing themselves and the state entities they audit.

 

Adnan Adams Mohammed

 

In recent days, there has been a wave of debate over the Ghana National Petroleum Corporation (GNPC) plan to borrow $1.65 billion to buy two stakes in Ghana’s offshore fields.

 

This intent and subsequent approval of the request of GNPC by Parliament, which approved about US1.2 billion instead of the US$1.65 billion, raised a heated debate among Government officials, energy policy think-tanks, Civil Society Organizations and some individual experts.

 

Section of Ghanaians still find it ambiguous how the whole deal affects or impacts on the country’s economic development and fortunes. This has prompted the need to write this article to simplify the terms, impacts and effect of the deal on Ghanaians.

 

We can recall the Energy Minister, Mathew Opoko Prempeh recently submitted a memorandum to the legislature seeking approval to purchase a 70% stake in the South Deep Water Tano (SDWT) operated by AGM Petroleum Ghana Limited and a 37% stake in the Deep Water Tano/Cape Three Points (DWT/CTP) operated by Aker Energy Ghana Limited.

 

Such partnerships, the GNPC noted, were critical, as it explained that, it has become even more imperative as a result of the exit of some major oil companies from Ghana. In the current scheme of things, the GNPC said it has to shore up its capacity and take up a large part of the exploration activities before Ghana’s oil reserves hit a level of terminal decline.

 

GNPC further justified that, with the shift away from investments in oil and gas into renewable energy, Ghana faces the risk of stranded assets and dwindling proven reserves if GNPC is unable to undertake exploration, development, and production alone. Upon these reflections, the parliament approved the request.

 

Implicitly, GNPC, on behalf of Government of Ghana, is buying an interest of an asset in Ghana from a foreign entity that has an imbedded Capital allowance, which the buyer (GNPC) is supposed to be able to claim back from GoG against future taxes derived from production in the future.

 

So, to simplify the above comment: GoG is giving a foreign entity (Aker Energy) up to US$1.2 billion from their coffers and can start collecting that US$1.2 billion back from government, in the future, when production starts and continues.

 

To put this in another way, the deal will be described as a ‘Capital Allowance’ play of US$1.2 billion that Aker needs to monetize this capital allowance “asset” and nothing more; and According some CSOs, the whole energy transitions spin is a ruse and this whole transaction is a rigmarole with a “kakamimi” valuation.

 

Already, the Alliance of Civil Society Organizations (CSOs) working on Extractives, Anti-Corruption and Good Governance have raised questions on the deal as approved by Parliament. In a press statement issued last week, the CSOs doubted the valuation of the South Deep Water Tano (SDWT) by Aker Energy and subsequent endorsed by GNPC. The Alliance of CSOs, numbering over 15, said, they recognised the many questions that can be raised on the transaction as presented to Parliament. However, we focus on six key questions that expose the transaction to be in the opposite trajectory to the interest of the country as follows:

 

“Are the fields really worth US$2 billion? GNPC’s proposal cites valuations from third-party analysts. However, the valuations ignore the possibility that the oil price might not be as high as assumed, that reserves might be less than assumed or that costs might be higher than assumed. Before development, there is very little certainty about these factors.”

 

Also, an energy contract expert has said on anonymity that, “Aker has no intention of developing the field but has been able to pull wool over people’s eyes when it creates the impression that it really intends and wants to develop the field and that it was GNPC that approached it to sell its interest for GNPC to spearhead the development, and where they and GNPC will  form a Joint Venture to operate the fields making it sound credible just to keep the negotiation going on and to give Parliament something to hide behind so that they approve a nonsense transaction”,

 

“So what does Aker Energy really want as it sincerely has no intention of spending money (about US$3 billion initially minimum) to develop the field(s).

 

“The Pecan field is appraised but the likelihood of Aker getting banks to support the investment is slim as the rate of returns (RoR) is low and project has too many risks, including that Aker is not a tested Operator.”

 

The expert further ranked what Aker really wants:

 

    1.    Aker primarily wants to monetize the capital allowances that it’s inherited from Hess and quantifies what it has spent on the two blocks so far which amounts to about $1.2 billion (this requires an audit)

 

    2.    Aker wants to be able to supply equipment and services for the Subsea development and the FPSO to the project which could amount to over $3 billion

 

    3.    Aker wants to also o
perate the FPSO for the life of the field,which is about 20 years, the net value to Aker of this would be about $50 million a year

 

    4.    Aker wants to be the lead in this Co-operatorship of the field with intention of teaching GNPC the ropes of being an Operator,  even though Aker is a partner to BP in the recent Aker-BP joint venture in the North Sea, in which BP is actually the operator and Aker is the apprentice learning the ropes

 

As known already, Aker is an Oil-Services company that supplies subsea equipment, and provides other subsea service to the oil industry. But, it’s not known whether it has got the experience, as being an Operator outside the joint venture it has with BP that operates in the North Sea, where it is a co-operator in name only, while we all know that it is BP that is the real operator.

 

So, inadvertently, one will wonder how Aker can coach GNPC into becoming an Operator in the proposed technology and knowledge transfer joint venture.

 

By Elorm Desewu

As the country’s public debt keeps rising, the International Monetary Fund, (IMF), has stressed that fiscal consolidation is needed to address debt sustainability and rollover risks, as Ghana continues to be classified at high risk of debt distress.

According to the IMF, to protect the most vulnerable, considerations should be given to more progressive revenue measures and a faster return to the pre-pandemic level of spending, with a shift towards social, health, and development spending.

The medium-term prospects remain favorable, driven by opportunities in digitalization, structural transformation, and the expansion of extractive industries. However, the ongoing recovery is threatened by possible new pandemic waves and rising debt vulnerabilities, including large financing needs that leave government exposed to rollover and solvency risks.

A more ambitious fiscal adjustment, centered on progressive revenue measures, a gradual return to pre-pandemic spending levels, and improved expenditure composition, is urgently needed to reduce risks to debt sustainability while protecting vulnerable households. The adjustment path could be explicitly anchored on debt targets.

The government says it would pursue the fiscal consolidation path envisaged in the 2021 budget, implying a 9 percent of GDP primary balance adjustment based on revenue measures in 2021 and expenditure cuts in 2022-24 that would result in a primary surplus by 2024.

Public debt would peak at 87.4 percent of GDP in 2024, and gross financing needs would average 22 percent of GDP. The baseline scenario assumes continued access to international markets and no further recourse to central bank financing, allowing inflation to remain close to target, while gross reserves would gradually decline below three months of imports coverage

An ambitious scenario assumes stronger fiscal consolidation, with additional revenue measures of 2.4 percent of GDP from 2021 to 2023 over the baseline, for an overall fiscal adjustment of 3.4 percent of GDP per year over the period. Public debt would peak at about 85.7 percent of GDP in 2024 and then decline decisively.

Debt-service indicators would improve, but annual gross financing needs would still remain around 20 percent of GDP. A stronger fiscal contraction would have a negative shortterm effect on growth, but would decrease bond spreads and government borrowing costs.

The current account would improve through lower import demand. The consolidation would also allow a shift in the policy mix over the medium-term, with a more relaxed monetary policy stance which would cut domestic debt service costs and spur private-sector credit growth.

In contrast, a downside scenario reflects the baseline revenue projections but assumes that the planned spending cuts would not be implemented, in line with the experience of some countries in similar fiscal situations. Public debt would reach 91 percent of GDP in 2025, with gross financing needs rising to 26 percent of GDP. The expansionary fiscal stance would push growth temporarily above the baseline, but would also lower reserves, weaken the exchange rate, increase borrowing costs, crowd out private-sector credit, and keep inflation above target

The 2021 budget starts fiscal consolidation. The budget law introduces new revenue measures yielding 1.4 percent of GDP, including VAT and NHIS rate hikes, higher fuel excises, a new bank profit levy, and more effective tax administration thanks to large taxpayer audits, especially in mining sector, and the establishment of special courts to speed up case settlements and payment collections.

The budget also reduces COVID-related spending by 1.3 percent of GDP compared to 2020, but these savings are offset by domestic arrears clearance of 0.9 percent of GDP and higher interest payments. Compared to the budget law, staff projects a 0.5 percentage point of GDP lower yield from tax administration measures, in light of the experience of past compliance efforts and the complexity and delays inherent to large taxpayer audits.

As a result, the IMF projects a budget deficit of 13.9 percent of GDP in 2021, including energy and financial sector costs.

 

 

 

By : GODWIN AKO GUNN 

I heard a story about a religious sect who never vote nor promise. They hold their promise in high esteem. Promises are vows, you don’t take them for granted.  

I stood still when I saw a poster on a wall that read one district one factory and  asked, will God take Nana Addo serious? 

I am told the grounds have been broken for the commencement of a 111 district hospitals with the amount equivalent to some clinics without equipments. Fear the man who promises God and shamelessly plays hide and seek with him.

If he has promised a cathedral and has asked God to blame us ; the people he gave him who are not contributing to it !!! I am sorry for you, if you believe there are plans for a 111 hospitals. 

Just last year, he promised the construction of 88 hospitals in a year and delivered nine… sorry *NONE* I mean !!!

It’s obvious Nana Addo doesn’t respect any promise he makes, not even to his wife. He stood before God on his wedding day to promise Rebecca his love that my wealth shall be your wealth, only to turn to Ghanians to share in that burden by giving her a salary so he can use his salary for other things.

He promised Ghanians free water and electricity during the electioneering period only to look into our faces after the elections saying ” *E sweet you E sweet me , so who go pay? “* 

Until we wise up as a people, King promise will come with aluminium chains around his neck to ask us of our gold!!!

Mr. Nobody only comes with slogans, but very hollow and nothing to show for!!! Let’s be wise as the serpent, and see through his schemes of diverting attention from ongoing thievery and corruption. Get focused, there are better days ahead 

 Kun fa Yakun

 

By; Abdul-Wahab Africa Zion 

0244576485

Standing next to me, is my refuse attendant at Agona Swedru, Old Zongo Electoral Area, Madam Antoinette Naadu Lawson.

She’s a very hardworking, selfless and dedicated woman and the reason why my area is tidy and neat these days despite the frequency of refuse being dumped.

I often post pictures of the area whenever, it’s unkempt and there’s refuse on the grounds to press home demands for it to be fixed.

On this occasion, it’s only fair for me to commend this special woman in particular, the Agona West Municipal Assembly, Zoomlion Office, Environmental &Sanitation Office, Driver’s and to all who have been working hard to avoid the negative spectacle of refuse being full and littering the grounds especially in this era of the dreaded COVID-19 pandemic.

Lastly, I wish to appeal to the Govt and or Zoomlion to please pay the 3months salary arrears of their monthly salary  which is a paltry Ghc 180 or the equivalent of $30.

It suffice to add that the monthly minimum wage in Ghana is Ghc 390.

Kudos to all the Selfless, dedicated and hardworking refuse attendants all over Ghana working so hard and receiving peanuts and yet their level of commitment and dedication is unshaken.

 

The demand for accountability, debt transparency and the essence of economic management should be discussed truthfully and with due respect to Ghanaians.

For the avoidance of doubt , the essence of economic management is well documented in Article 36 of the 1992 Constitution. This Article is about economic objectives of any government.  “Among others the national economy should be managed in such a manner to maximize the rate of economic development  and secure the maximum welfare, freedom and happiness of every Ghanaian and provide adequate means of livelihood and suitable employment and public assistance to the needy “

The question that managers of the economy should ask themselves  or their audience is whether or not they are happy with public assistance in this country . Ghanaians want to be asked if they happy about employment and livelihood matters.

Economic development is markedly different from intermittent economic growth and is different from lower inflation generated as a result of changing base period of Consumer Price Index.

An objective observation of the economic management outcomes of the Ghanaian economy especially during the period of high debt, does not deserve any clapping for managers of the economy. This is the time the managers must be humble and assure citizens . Claiming prudence in failure to deliver on the requirements  of the economic objectives for Ghana is dangerous and insulting.

It is advisable if managers of the economy assess their economic management in line with Article 36 and stop forcing people to clap for them for wrong statements.

For the avoidance of doubt debt is to contribute to economic management. Debt whether high or low is not meant to reduce inflation. Debt is not primarily meant to ensure exchange rate stability though there are some relationships. For the avoidance of doubt check the purpose of public borrowing in section 57 and public debt management objectives in section 58 of the Public Financial Management Act, 2016( Act 921). It is  a fact that the management of the international reserve has seen support from borrowing which has some influence on exchange rate development, it is a fact that you borrow primarily to finance the budget deficit , finance development projects and as directed by section 57 as mentioned earlier.

This theory of prudent economic management is rising with rising debt is unfortunate and unsupported by any data. Data from 2019 as captured in the 2021 IMF Article IV Consultation report on Ghana, shows a deficit of 7.5% in 2019 just a year after the celebration of the passage of the Fiscal Responsibility Act which pegged deficit at 5%. In the same report, the debt situation has been described as nearing potential risk of default within the framework of high risk of debt distress. Labour agitation based on firm socioeconomic argument is one of the signs of unmet economic objective.

Prudent economic management has been defeated since 2019.

Let us not forget that in discussing, economic management objectives, Article 36(2)  enjoined the managers of the economy to build a healthy and sound economy with the following underlying principles- guarantee of fair and realistic remuneration for production, affording ample economic opportunities  for all and ensuring even and balanced development. 

If managers of the economy think they have done well the test is bring together only your members and honestly ask them about their satisfaction based on the above. I think it will be unpleasant.

Another measure is  the recognition that our democracy is secured when it assures basic necessities of life  to our people as a key consideration of economic management outcome.

Again in discussing economic management , Article 36 (3) requires particular devotion to agriculture and agricultural led industries. We are importing yellow corn to feed poultry industry.we are not discussing fertilizer access for farmers yet.

The rule for the managers of the economy is that if you don’t read Article 36 don’t  create theories about economic management.

In dealing with debt the answer is very simple , tell the people what the debt has been used to create for Ghana. 

Our economic history should not be distorted . It was NPP that sent Ghana to HIPC. It was NDC that sent Ghana to IMF in April 2015 and it was NPP that extended the exit period from 2017 to 2019. It is NPP that  got GHS1billion from IMF in 2020 for Covid-19 purposes

 

Zaratu Yussif 

The Alliance of Civil Society Organizations (CSOs) working on Extractives, Anti-Corruption and Good Governance have raised questions on the request by the Ghana National Petroleum Corporation (GNPC) to buy stakes in two oil blocks at amount of $1.65 billion.

In a press statement issued last week, the CSOs doubted the valuation of the South Deep Water Tano (SDWT) by Aker Energy and subsequent endorsed by GNPC. This was after the Energy Minister, Mathew Opoko Prempeh submitted a memorandum to the legislature seeking approval to purchase a 70% stake in the South Deep Water Tano (SDWT) operated by AGM Petroleum Ghana Limited and a 37% stake in the Deep Water Tano/Cape Three Points (DWT/CTP) operated by Aker Energy Ghana Limited.

The Alliance of CSOs, numbering over 15, said, they recognised the many questions that can be raised on the transaction as presented to Parliament. However, we focus on six key questions that expose the transaction to be in the opposite trajectory to the interest of the country as follows:

“Are the fields really worth US$2 billion?

GNPC’s proposal cites valuations from third-party analysts. However, the valuations ignore the possibility that the oil price might not be as high as assumed, that reserves might be less than assumed or that costs might be higher than assumed. Before development, there is very little certainty about these factors.”

The CSOs justified their doubt by alluding that, Globally, Ernst & Young found that 65 percent of big upstream projects ran over budget (and) by a hefty 53 percent on average. Another study noted that all successful new oil producers in Africa, Ghana included, netted less revenue than they expected, partly due to higher costs. GNPC should be familiar with this reality, given Ghana’s experience with all three producing fields.

Adding that, all good analysts will present different valuations given different prices and other assumptions. Instead, this proposal ignores this practice. 

Below are sequence of questions asked by the CSOs to emphasize their doubt about the budget and transaction arrangement.

“How much value is assigned to unconfirmed SDWT reserves that may not be developed?

One of the main uncertainties is how much actual oil can commercially be extracted from the field. The proposal provides little information on how these prospects are being valued because a lot more work that is technical remains undone. Why is the GNPC betting on these prospects that have not been appraised?

“The SDWT discoveries risk not being developed if purchased by GNPC. According to the Commission, the water depth is currently between 2700 to 3500 meters with initial discovery information of 127 million barrels of oil equivalent. According to Aker in their Appraisal Program submitted to the Petroleum Commission in 2019, there is currently no qualified technology for such a depth of water and hence will require the development of technology, an independent qualification or approval of such technology before use in SDWT. This will require further investments by GNPC to improve on reserves that have not been estimated as part of this deal. In essence, it may not be commercially viable to develop SDWT, Nyankon discovery, with just an initial estimation of 127 million barrels. Yet, Aker is selling those resources to GNPC as part of the transaction with a promise to fast track the development by 2024.   

“Do Aker’s cost claims add up? Aker claims it has invested about US$800 million so far on the blocks in a document submitted to Parliament. While GNPC claims it has verified the expenditures, it still appears inflated if juxtaposed against the amount of work done by Aker and the value of its acquisition three years ago. 

“Aker Acquired Hess’s interest in the DWT/CTP for US$100m in 2018. Before selling its interest to Aker, Hess had appraised the field with estimated recoverable oil of 450 million barrels. In total, Hess drilled 12 wells (seven exploratory wells and five appraisals well).  With that amount of work done, the highest valuation Hess got was about US$400 million in 2016 when it farmed out 40 percent to Lukoil and Fuel Trade for the entire field. Akers claim it has spent about US$420 million on five well drilled on the two blocks. 

“In another document presented to the country’s Economic Management Team (EMT), the US$420 million relates only to the three wells on DWT/CTP. Given that the DWT/CTP cost is shared among the partners of the block the total expenditure claims for the wells could be in the region of US$600 or US$750 million compared with US$400 million by Hess for 12 wells, depending on which of the documents used. This is very high regardless of which of the information is used. 

“The remaining US$280million must be accounted for properly. GNPC claims that money was used for “certain activities essential for establishing resource in the blocks”. This is overly ambiguous and cannot be accepted as a cost with this kind of description which questions the distinction between that activity and data acquisition and studies done as part of exploration and appraisal. 

“Is Aker getting a great deal at the expense of Ghana?

“It is worth asking why Aker has struggled to find investors to develop these fields. If few others find the fields attractive, why should GNPC? 

“GNPC is providing a better deal to Aker than it could find elsewhere to raise capital to invest and bear risk. This proposal gives Aker the funds to procure an FPSO at US$600 million and lease to the project for risk-free benefits, finance its development cost for the minimal stake at US$140 million and keep US$560 million in the bank. 

“With these high-cost claims, Aker makes a profit of about US$500 million on the proposed acquisition value of US$1.3 billion. If the cost is imposed at US$965 million as presented to the EMT, Aker still makes about US$350 million of profit for selling part of its stake in the blocks.  The gains for Aker increase astronomically when analyzed on additional information we have, which suggest that the cost of US$420 million being pushed on GNPC is the cost available to the Commission for the entire field, and the prorated cost for GNPC should instead be about US$155 million for the stake.

“Whose money is it any way?

One of the main costs that the proposal ignores is the cost of capital. By lending this money, the government is increasing the national debt by 5 per cent and could increase Ghana’s sovereign debt costs while redirecting money that could have benefited other sectors of society. Some of these may have greater long term growth potential and more ability to transform Ghanaian’s everyday lives and economic prospects than
oil and gas, which creates relatively few jobs for citizens and provided the biggest benefit to a relatively small group of people—for instance, those who work for companies that receive “local content” subcontracts on projects.

The government could charge a high interest to GNPC, but the proposal ignores this cost. GNPC is making a risky bet, but betting the public’s money, not their own.

“Is it worthwhile, realistic—or even advisable—for GNPC to pay so much public money for the chance to become an “operator”?

“GNPC is attempting to convince Parliament that it will learn to become a world-class upstream operator through this acquisition. However, the structure of the transaction only makes GNPC Explorco a relatively passive “joint operator”, with limited opportunity to learn by doing. The proposals we have seen don’t accurately detail how Aker would transfer the needed skills, knowledge or technology into Ghanaian hands. Instead, it proposes setting up a Special Purpose Vehicle (SPV), which Aker will control with 60 percent interest, and GNPC Explorco will have 40 per cent. This structure cannot make GNPC the operator it wants to become as the SPV is not the same as Explorco.”

The CSOs in conclusion indicated that, the Memo to Parliament is a significant eye-opener for well-meaning Ghanaians to closely monitor the relationship between Aker and the State. “GNPC has failed to examine the issues in the transaction properly. The decision to support GNPC to become an operator is not a new conversation. Ten years ago the country decided to support GNPC to become an operator by allocating a portion of oil revenue. So far, about US$1 billion has been given to the Corporation, but it has failed to drill one well. The country needs a clear pathway for supporting the national oil company, rather than using billions of dollars of the public’s money in risky bets that might instead go to support Ghana’s health, education and economic development.” 

“Otherwise, the guise of the energy transition will only be a smokescreen to waste more resources and line the pockets of foreign companies and people who may be short-changing the country deliberately. 

“We, therefore, request Parliament to institute a full-scale investigation into the transaction to verify the actual cost incurred by Aker so far on the Blocks, clarify the inconsistencies in the presentations by GNPC and allow for open consultation and hearing to provide opportunities for independent expert opinions. We also urge the media to provide adequate space and time for a thorough examination of the issue in the country’s supreme interest.”

Adnan Adams Mohammed

 

Ghana and other developing countries are set to benefit from a Special Drawing Rights (SDRs) equivalent to US$650 billion.

 

This was after the Board of Governors of the International Monetary Fund (IMF) approved a general allocation of SDRs equivalent to US$650 billion (about SDR 456 billion), last week, to boost global liquidity.

 

“This is a historic decision – the largest SDR allocation in the history of the IMF and a shot in the arm for the global economy at a time of unprecedented crisis”, IMF Managing Director Kristalina Georgieva said.

 

“The SDR allocation will benefit all members, address the long-term global need for reserves, build confidence, and foster the resilience and stability of the global economy”, she added.

 

The IMD MD said: “It will particularly help our most vulnerable countries struggling to cope with the impact of the COVID-19 crisis”.

 

The general allocation of SDRs will become effective on 23 August 2021.

 

The newly-created SDRs will be credited to IMF member countries in proportion to their existing quotas in the Fund.

 

About US$275 billion (about SDR 193 billion) of the new allocation will go to emerging markets and developing countries, including low-income countries.

 

“We will also continue to engage actively with our membership to identify viable options for voluntary channeling of SDRs from wealthier to poorer and more vulnerable member countries to support their pandemic recovery and achieve resilient and sustainable growth”, Ms. Georgieva said.

 

 

One key option is for members that have strong external positions to voluntarily channel part of their SDRs to scale up lending for low-income countries through the IMF’s Poverty Reduction and Growth Trust (PRGT).

 

Concessional support through the PRGT is currently interest-free.

 

The IMF is also exploring other options to help poorer and more vulnerable countries in their recovery efforts.

 

A new Resilience and Sustainability Trust could be considered to facilitate more resilient and sustainable growth in the medium term.

 

 Adnan Adams Mohammed

 

The Alliance of Civil Society Organizations (CSOs) working on Extractives, Anti-Corruption and Good Governance have raised questions on the request by the Ghana National Petroleum Corporation (GNPC) to buy stakes in two oil blocks at amount of $1.65 billion.

 

In a press statement issued last week, the CSOs doubted the valuation of the South Deep Water Tano (SDWT) by Aker Energy and subsequent endorsed by GNPC. This was after the Energy Minister, Mathew Opoko Prempeh submitted a memorandum to the legislature seeking approval to purchase a 70% stake in the South Deep Water Tano (SDWT) operated by AGM Petroleum Ghana Limited and a 37% stake in the Deep Water Tano/Cape Three Points (DWT/CTP) operated by Aker Energy Ghana Limited.

 

The Alliance of CSOs, numbering over 15, said, they recognised the many questions that can be raised on the transaction as presented to Parliament. However, we focus on six key questions that expose the transaction to be in the opposite trajectory to the interest of the country as follows:

 

“Are the fields really worth US$2 billion?

GNPC’s proposal cites valuations from third-party analysts. However, the valuations ignore the possibility that the oil price might not be as high as assumed, that reserves might be less than assumed or that costs might be higher than assumed. Before development, there is very little certainty about these factors.”

 

The CSOs justified their doubt by alluding that, Globally, Ernst & Young found that 65 percent of big upstream projects ran over budget (and) by a hefty 53 percent on average. Another study noted that all successful new oil producers in Africa, Ghana included, netted less revenue than they expected, partly due to higher costs. GNPC should be familiar with this reality, given Ghana’s experience with all three producing fields.

 

Adding that, all good analysts will present different valuations given different prices and other assumptions. Instead, this proposal ignores this practice.

 

Below are sequence of questions asked by the CSOs to emphasize their doubt about the budget and transaction arrangement.

 

“How much value is assigned to unconfirmed SDWT reserves that may not be developed?

One of the main uncertainties is how much actual oil can commercially be extracted from the field. The proposal provides little information on how these prospects are being valued because a lot more work that is technical remains undone. Why is the GNPC betting on these prospects that have not been appraised?

 

“The SDWT discoveries risk not being developed if purchased by GNPC. According to the Commission, the water depth is currently between 2700 to 3500 meters with initial discovery information of 127 million barrels of oil equivalent. According to Aker in their Appraisal Program submitted to the Petroleum Commission in 2019, there is currently no qualified technology for such a depth of water and hence will require the development of technology, an independent qualification or approval of such technology before use in SDWT. This will require further investments by GNPC to improve on reserves that have not been estimated as part of this deal. In essence, it may not be commercially viable to develop SDWT, Nyankon discovery, with just an initial estimation of 127 million barrels. Yet, Aker is selling those resources to GNPC as part of the transaction with a promise to fast track the development by 2024.  

 

“Do Aker’s cost claims add up? Aker claims it has invested about US$800 million so far on the blocks in a document submitted to Parliament. While GNPC claims it has verified the expenditures, it still appears inflated if juxtaposed against the amount of work done by Aker and the value of its acquisition three years ago.

 

“Aker Acquired Hess’s interest in the DWT/CTP for US$100m in 2018. Before selling its interest to Aker, Hess had appraised the field with estimated recoverable oil of 450 million barrels. In total, Hess drilled 12 wells (seven exploratory wells and five appraisals well).  With that amount of work done, the highest valuation Hess got was about US$400 million in 2016 when it farmed out 40 percent to Lukoil and Fuel Trade for the entire field. Akers claim it has spent about US$420 million on five well drilled on the two blocks.

 

“In another document presented to the country’s Economic Management Team (EMT), the US$420 million relates only to the three wells on DWT/CTP. Given that the DWT/CTP cost is shared among the partners of the block the total expenditure claims for the wells could be in the region of US$600 or US$750 million compared with US$400 million by Hess for 12 wells, depending on which of the documents used. This is very high regardless of which of the information is used.

 

“The remaining US$280million must be accounted for properly. GNPC claims that money was used for “certain activities essential for establishing resource in the blocks”. This is overly ambiguous and cannot be accepted as a cost with this kind of description which questions the distinction between that activity and data acquisition and studies done as part of exploration and appraisal.

 

“Is Aker getting a great deal at the expense of Ghana?

 

“It is worth asking why Aker has struggled to find investors to develop these fields. If few others find the fields attractive, why should GNPC?

 

“GNPC is providing a better deal to Aker than it could find elsewhere to raise capital to invest and bear risk. This proposal gives Aker the funds to procure an FPSO at US$600 million and lease to the project for risk-free benefits, finance its development cost for the minimal stake at US$140 million and keep US$560 million in the bank.

 

“With these high-cost claims, Aker makes a profit of about US$500 million on the proposed acquisition value of US$1.3 billion. If the cost is imposed at US$965 million as presented to the EMT, Aker still makes about US$350 million of profit for selling part of its stake in the blocks.  The gains for Aker increase astronomically when analyzed on additional information we have, which suggest that the cost of US$420 million being pushed on GNPC is the cost available to the Commission for the entire field, and the prorated cost for GNPC should instead be about US$155 million for the stake.

 

“Whose money is it any way?

One of the main costs that the proposal ignores is the cost of capital. By lending this money, the government is increasing the national debt by 5 per cent and could increase Ghana’s sovereign debt costs while redirecting money that could have benefited other sectors of society. Some of these may have greater long term growth potential and more ability to transform Ghanaian’s everyday lives and economic prospects than oil and gas, which creates relatively few jobs for citizens and provided the biggest benefit to a relatively small group of people—for instance, those who work for companies that receive “local content” subcontracts on projects.

The government could charge a high interest to GNPC, but the proposal ignores this cost. GNPC is making a risky bet, but betting the public’s money, not their own.

 

“Is it worthwhile, realistic—or even advisable—for GNPC to pay so much public money for the chance to become an “operator”?

 

“GNPC is attempting to convince Parliament that it will learn to become a world-class upstream operator through this acquisition. However, the structure of the transaction only makes GNPC Explorco a relatively passive “joint operator”, with limited opportunity to learn by doing. The proposals we have seen don’t accurately detail how Aker would transfer the needed skills, knowledge or technology into Ghanaian hands. Instead, it proposes setting up a Special Purpose Vehicle (SPV), which Aker will control with 60 percent interest, and GNPC Explorco will have 40 per cent. This structure cannot make GNPC the operator it wants to become as the SPV is not the same as Explorco.”

 

The CSOs in conclusion indicated that, the Memo to Parliament is a significant eye-opener for well-meaning Ghanaians to closely monitor the relationship between Aker and the State. “GNPC has failed to examine the issues in the transaction properly. The decision to support GNPC to become an operator is not a new conversation. Ten years ago the country decided to support GNPC to become an operator by allocating a portion of oil revenue. So far, about US$1 billion has been given to the Corporation, but it has failed to drill one well. The country needs a clear pathway for supporting the national oil company, rather than using billions of dollars of the public’s money in risky bets that might instead go to support Ghana’s health, education and economic development.”

 

“Otherwise, the guise of the energy transition will only be a smokescreen to waste more resources and line the pockets of foreign companies and people who may be short-changing the country deliberately.

 

“We, therefore, request Parliament to institute a full-scale investigation into the transaction to verify the actual cost incurred by Aker so far on the Blocks, clarify the inconsistencies in the presentations by GNPC and allow for open consultation and hearing to provide opportunities for independent expert opinions. We also urge the media to provide adequate space and time for a thorough examination of the issue in the country’s supreme interest.”