Ghana Government blamed for delay in gas infrastructure development
Story by Gilbert Boyefio
Announcement by the Ghana National Gas Company that Ghana should have a functioning gas processing plant and infrastructure, linking the FPSO to the processing plant and to Aboadze and Prestea, through Esiama by December 2012 has received mixed reaction from experts and analysts of the industry.
According to the GNGC construction work is expected to commence early next year on the country’s first gas infrastructure, including a gas processing plant. This will represent a major boost to government’s plan of accelerated infrastructure development in 2012.
However, some believed that one year of commercial production of oil is enough time for government to have put in place the necessary infrastructure to harness the vast natural gas resource find for the benefit of the country.
They opined that government could have develop the natural gas industry in tandem with the oil industry, insisting that government has failed to take full advantage of the huge gas potential of the Jubilee field and other related fields such as Dzata, Tweneboa, Sankofa and Gye Nyame, which holds the key to the country’s economic success.
One of the proponents of this view is Hon Kwame Amporfo Twumasi, Member of Parliament for Nkoranza South and a member of the Mines and Energy Committee of Parliament. He was also a former Deputy Minister of Energy in the erstwhile New Patriotic Party Government.
Currently, with regards to the Jubilee field, government and the Jubilee field partners are yet to strike an agreement on the price of gas, which means that the gas will continue to be re-injected into the wells and the rest flared off despite government’s stand against gas flaring.
Perhaps, the country’s stand that it has no immediate plans to export it gas and that all of its gas resources would be exploited for the domestic market, which has a huge demand for it, could be attributed as part of the problem.
The linkages of natural gas to the electricity sector, industrial and agricultural sectors present the single most important opportunity for rapidly accelerating the nation’s industrial development.
“What as a nation we have not done, which to me is a very great loss and unacceptable is the under utilization of the natural gas. The government for some time now has been talking about gas infrastructure and developing the sector. If we could fast track the construction of the FPSO in record time to enable the commercial production of oil, why can’t we do the same to the gas,” Hon Twumasi bemoaned.
He indicated that the gas when process will drastically reduce the cost of electricity in the country. Ghana currently uses about 123 million standard cubic feet (MMscf) per day of natural gas, which comes from Nigeria via the West Africa Gas Pipeline. That still leaves Ghana with a deficit of over 100MMscf per day in 2011.
The Volta River Authority says Ghana will require up to 1,000 MMscf per day of natural gas in the next ten years meeting the 10% annual increase in the demand for electricity. Additional 280 MMscf per day of gas is required to power projects meant to provide electricity for neighbouring countries under the West Africa Power Pool initiative. Current sources of gas supply, both from Nigeria and Ghana, appear inadequate to meet Ghana’s need.
It is estimated that Ghana has 1.2 tcf of gas in the Jubilee field alone, which could meet the requirement of 15,000 barrels of crude oil needed to operate the Aboadze Thermal Plant.
According to Kweku Awotwi, Chief Executive Officer of the Volta River Authority “The natural gas will help Ghana greatly but it has first to be developed. The infrastructure, pricing and regulations have to be put in place to create the right environment for the utility sector to also thrive.”
Another issue of concern raised by Hon Twumasi is government’s refusal to sell the Jubilee Oil to TOR. To him after the discovery of oil the major thing government should have done is to add value to the Jubilee crude to fetch more money for the country. This can be done by selling it to TOR to refine it. “It is difficult to comprehend that Ghana exports oil and TOR imports oil from outside. I don’t want to accept that TOR cannot refine the Jubilee oil. Even if so we could have retooled TOR to do so,” he said.
However, industry sources have indicated that Ghana’s crude quality is even easier to refine than the light, sweet crude found in Nigeria. The question of when TOR can start receiving crude supplies from the Jubilee field has and will always continue to be featured in public discuss. As things stand now, the country does not even have any arrangement with the Jubilee partners to provide a discount rate for its local refinery for crude produced at the Jubilee field. Consequently, even if the Jubilee crude is made available to the local market, TOR will have to pay the same amount as other buyers on the international oil market.
“As a patriot I wish everything belongs to Ghana, now that we have hit the jackpot we can decide not to give out any new blocks and develop them ourselves,” he advocated.
For very obvious reasons, the announcement of oil find in Ghana was good news to all Ghanaians. However information flow to the general public on operations, quantities and revenue accrued from operating the wells has been very sketchy. “All this time we have been given indefinite figures on the operational costs and revenues accrued from the Jubilee field crude,” Hon Twumasi pointed out.
He attributed the lack of information on the industry to the lackadaisical implementation of the Petroleum Revenue Management Act, 2011 (Act 815). According to him the Public Interest and Accountability Committee (PIAC) provided for by Clause 53 of the Petroleum Revenue Management Acts, should have been more proactive since it inauguration in September this year but are not doing so.
The PIAC has the unique role of exercising public oversight in the management of petroleum revenues. Clause 4 of the Petroleum Revenue Management Act states the objectives of the Committee as: “to monitor and evaluate compliance with this Act by government and other relevant institutions in the discharge of their duties in relation to the use and management of petroleum revenues and resources as required by law; to provide a formal active voice in the use and management of petroleum revenues, by providing space and the platform for the public to debate whether spending prospects and management of revenues adhered to developments priorities; to provide independent assessments on the use and management of petroleum revenues and resources to assist parliament and the executive in the oversight of and performance of related functions; and to ensure that petroleum revenue is used for the benefit of current and future generations of citizens”.
He noted that the PIAC is an important tool for building public trust in the oil and gas industry and therefore it would be better for the Committee to be seen discharging it duties to forestall suspicion and mistrust.
Government is also required by the Revenue Management Act for the purpose of transparency and accountability, to publish records of petroleum receipts in whatever form in the Gazette and at least two state owned daily newspapers within thirty calendar days after the end of the applicable quarter. The information required to be made public shall also be published online on the website of the ministry and presented to Parliament on the date of the Gazette publication. The Minister shall publish the total petroleum output lifted and the reference price in the same manner.
However, this Hon Twumasi observed is not being complied with religiously.
Already there has been reported disparity in the petroleum revenue in the 2012 budget presented to parliament. According to a report titled “Oil And the 2012 Budget Statement” by Mohammed Amin Adam, Ibis Ghana, “There have been some reported disparities in oil receipts for 2011. In the Supplementary Budget for the year, Government projected to receive GH¢1.2 billion from oil including corporate taxes of about GH¢600 million. This is by far more than the GH¢506 million actually received according to the 2012 Budget Statement.
The shortfall is due to non-payment of corporate taxes. Government has explained in the Budget statement that the non-payment of corporate taxes by oil companies resulted from ‘the impact of carry-forward losses’. Whiles it is appreciated that oil companies do not pay corporate taxes if they do not declare profits according to Ghana’s income tax laws, this particular case needs further explanation. The Supplementary Budget was submitted to Parliament in July, 2011, seven clear months from the first export of oil, at which time Government should have known if the companies were making profits. Moreover, the Oil Companies filed their quarterly tax returns with the Ghana Revenue Authority which did not show any declaration of profits. One wonders what informed the projections for corporate taxes in the Supplementary Budget. This clearly raises problems in budget planning, revenue forecasting and lack of understanding of the petroleum contracts.”
To Hon Twumasi the only way Ghana can fully benefit from its oil and gas finds in the years to come depend on how as a nation our governments takes accountability and transparency in the industry seriously.
Announcement by the Ghana National Gas Company that Ghana should have a functioning gas processing plant and infrastructure, linking the FPSO to the processing plant and to Aboadze and Prestea, through Esiama by December 2012 has received mixed reaction from experts and analysts of the industry.
According to the GNGC construction work is expected to commence early next year on the country’s first gas infrastructure, including a gas processing plant. This will represent a major boost to government’s plan of accelerated infrastructure development in 2012.
However, some believed that one year of commercial production of oil is enough time for government to have put in place the necessary infrastructure to harness the vast natural gas resource find for the benefit of the country.
They opined that government could have develop the natural gas industry in tandem with the oil industry, insisting that government has failed to take full advantage of the huge gas potential of the Jubilee field and other related fields such as Dzata, Tweneboa, Sankofa and Gye Nyame, which holds the key to the country’s economic success.
One of the proponents of this view is Hon Kwame Amporfo Twumasi, Member of Parliament for Nkoranza South and a member of the Mines and Energy Committee of Parliament. He was also a former Deputy Minister of Energy in the erstwhile New Patriotic Party Government.
Currently, with regards to the Jubilee field, government and the Jubilee field partners are yet to strike an agreement on the price of gas, which means that the gas will continue to be re-injected into the wells and the rest flared off despite government’s stand against gas flaring.
Perhaps, the country’s stand that it has no immediate plans to export it gas and that all of its gas resources would be exploited for the domestic market, which has a huge demand for it, could be attributed as part of the problem.
The linkages of natural gas to the electricity sector, industrial and agricultural sectors present the single most important opportunity for rapidly accelerating the nation’s industrial development.
“What as a nation we have not done, which to me is a very great loss and unacceptable is the under utilization of the natural gas. The government for some time now has been talking about gas infrastructure and developing the sector. If we could fast track the construction of the FPSO in record time to enable the commercial production of oil, why can’t we do the same to the gas,” Hon Twumasi bemoaned.
He indicated that the gas when process will drastically reduce the cost of electricity in the country. Ghana currently uses about 123 million standard cubic feet (MMscf) per day of natural gas, which comes from Nigeria via the West Africa Gas Pipeline. That still leaves Ghana with a deficit of over 100MMscf per day in 2011.
The Volta River Authority says Ghana will require up to 1,000 MMscf per day of natural gas in the next ten years meeting the 10% annual increase in the demand for electricity. Additional 280 MMscf per day of gas is required to power projects meant to provide electricity for neighbouring countries under the West Africa Power Pool initiative. Current sources of gas supply, both from Nigeria and Ghana, appear inadequate to meet Ghana’s need.
It is estimated that Ghana has 1.2 tcf of gas in the Jubilee field alone, which could meet the requirement of 15,000 barrels of crude oil needed to operate the Aboadze Thermal Plant.
According to Kweku Awotwi, Chief Executive Officer of the Volta River Authority “The natural gas will help Ghana greatly but it has first to be developed. The infrastructure, pricing and regulations have to be put in place to create the right environment for the utility sector to also thrive.”
Another issue of concern raised by Hon Twumasi is government’s refusal to sell the Jubilee Oil to TOR. To him after the discovery of oil the major thing government should have done is to add value to the Jubilee crude to fetch more money for the country. This can be done by selling it to TOR to refine it. “It is difficult to comprehend that Ghana exports oil and TOR imports oil from outside. I don’t want to accept that TOR cannot refine the Jubilee oil. Even if so we could have retooled TOR to do so,” he said.
However, industry sources have indicated that Ghana’s crude quality is even easier to refine than the light, sweet crude found in Nigeria. The question of when TOR can start receiving crude supplies from the Jubilee field has and will always continue to be featured in public discuss. As things stand now, the country does not even have any arrangement with the Jubilee partners to provide a discount rate for its local refinery for crude produced at the Jubilee field. Consequently, even if the Jubilee crude is made available to the local market, TOR will have to pay the same amount as other buyers on the international oil market.
“As a patriot I wish everything belongs to Ghana, now that we have hit the jackpot we can decide not to give out any new blocks and develop them ourselves,” he advocated.
For very obvious reasons, the announcement of oil find in Ghana was good news to all Ghanaians. However information flow to the general public on operations, quantities and revenue accrued from operating the wells has been very sketchy. “All this time we have been given indefinite figures on the operational costs and revenues accrued from the Jubilee field crude,” Hon Twumasi pointed out.
He attributed the lack of information on the industry to the lackadaisical implementation of the Petroleum Revenue Management Act, 2011 (Act 815). According to him the Public Interest and Accountability Committee (PIAC) provided for by Clause 53 of the Petroleum Revenue Management Acts, should have been more proactive since it inauguration in September this year but are not doing so.
The PIAC has the unique role of exercising public oversight in the management of petroleum revenues. Clause 4 of the Petroleum Revenue Management Act states the objectives of the Committee as: “to monitor and evaluate compliance with this Act by government and other relevant institutions in the discharge of their duties in relation to the use and management of petroleum revenues and resources as required by law; to provide a formal active voice in the use and management of petroleum revenues, by providing space and the platform for the public to debate whether spending prospects and management of revenues adhered to developments priorities; to provide independent assessments on the use and management of petroleum revenues and resources to assist parliament and the executive in the oversight of and performance of related functions; and to ensure that petroleum revenue is used for the benefit of current and future generations of citizens”.
He noted that the PIAC is an important tool for building public trust in the oil and gas industry and therefore it would be better for the Committee to be seen discharging it duties to forestall suspicion and mistrust.
Government is also required by the Revenue Management Act for the purpose of transparency and accountability, to publish records of petroleum receipts in whatever form in the Gazette and at least two state owned daily newspapers within thirty calendar days after the end of the applicable quarter. The information required to be made public shall also be published online on the website of the ministry and presented to Parliament on the date of the Gazette publication. The Minister shall publish the total petroleum output lifted and the reference price in the same manner.
However, this Hon Twumasi observed is not being complied with religiously.
Already there has been reported disparity in the petroleum revenue in the 2012 budget presented to parliament. According to a report titled “Oil And the 2012 Budget Statement” by Mohammed Amin Adam, Ibis Ghana, “There have been some reported disparities in oil receipts for 2011. In the Supplementary Budget for the year, Government projected to receive GH¢1.2 billion from oil including corporate taxes of about GH¢600 million. This is by far more than the GH¢506 million actually received according to the 2012 Budget Statement.
The shortfall is due to non-payment of corporate taxes. Government has explained in the Budget statement that the non-payment of corporate taxes by oil companies resulted from ‘the impact of carry-forward losses’. Whiles it is appreciated that oil companies do not pay corporate taxes if they do not declare profits according to Ghana’s income tax laws, this particular case needs further explanation. The Supplementary Budget was submitted to Parliament in July, 2011, seven clear months from the first export of oil, at which time Government should have known if the companies were making profits. Moreover, the Oil Companies filed their quarterly tax returns with the Ghana Revenue Authority which did not show any declaration of profits. One wonders what informed the projections for corporate taxes in the Supplementary Budget. This clearly raises problems in budget planning, revenue forecasting and lack of understanding of the petroleum contracts.”
To Hon Twumasi the only way Ghana can fully benefit from its oil and gas finds in the years to come depend on how as a nation our governments takes accountability and transparency in the industry seriously.
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