By Constance Ababio | IMANI Africa
The forum was jointly organized by The Natural Resource Governance Institute (NGRI) and Africa Center for Energy Policy (ACEP) to initiate discussions on how the new petroleum Exploration and Production Act which replaced the old petroleum (Exploration and production) Act, 1984 addresses the weaknesses of the later. The old 1984 Law has been criticized for lack of a clear roadmap to support leveraging benefits from the extractive sector, lack of transparency in the license award process among others. The program was organized to discuss how the new law addresses these challenges and how it aligns with international best practices.
Participants at the forum included representatives from civil society groups, Petroleum Commission, media and other major stakeholders in the petroleum industry in Ghana and some neighboring countries. The program was structured into three main sessions; Analysis of the governance provisions in the petroleum (Exploration and Production) Act, 2016; Analysis of the fiscal provisions in the petroleum (Exploration and Production Act, 2016) and a Panel discussion.
Session One: Analysis of Governance Provisions in the Petroleum (Exploration and Production) Act, 20116
The first session was a presentation by Nicola Woodroffee, a legal analyst at NGRI. She explained to participants that, the new petroleum law will enhance transparency in awarding of contract because the first come first serve method of awarding contract has been replaced by competitive bidding which is in line with best international practices. The Act approves open and competitive public tender process and also creates room for prequalification processes. She raised concern about the provision in the Act that gives the minister the right in some circumstances to skip tender processes and enter into direct negotiations sine such provision can breed corruption and lack of transparency.
She advised that the reasons underlying such an occurrence should be made available to the public before the contract is awarded and lessons from the Angola Petroleum Activties (2004) can serve as a guide. On the issue of transparency and access to information, she explained that the new law has some provisions that encourage access to information but information such as bidding information are not made available to the public.
Session Two: Analysis of fiscal Provisions in the Petroleum (Exploration and Production) Act, 2016
The second session was a presentation by Dr. Mohammed Amin Adam, Executive Director of ACEP on the fiscal provisions of the new act. He educated participants on the two main types of fiscal provisions in the petroleum industry, namely; the profit and non-profit based provisions. The profit based provision consists of corporate tax, capital gain tax and additional oil entitlement. The non-profit provision includes royalty, bonus and acreage fees. He also threw light on the difference between Production Sharing Agreement (PSA) (royalty + tax), concession (share of profit oil) and service contract (payment in cash from sales). There are two types of fiscal systems: modern concessions (Royalty + tax+ equity oil) and modified PSA (profit oil + tax +royalty) but Ghana’s system can be described as the hybrid system because of the mixture of both concession and PSA features.
He went on further to say that, in recent times, the type of fiscal system adopted by a country does not matter but rather the negotiation of terms. Therefore government should have knowledge of the area to be awarded and negotiate on ways to maximize returns. Issues like local content, value additions and environmental standards must be addressed properly.
Provisions such as valuation (pricing) of petroleum, debt loading, revenue postponement and misinvoicing could limit state ability to maximize benefit. Generally, ‘the arm-length’ and the ‘equalization’ principles are used in the pricing of petroleum. The arm length principle addresses transfer mispricing and focuses more on the purchasers and sellers whilst the price equalization principle addresses valuation of petroleum to international market standard. But he added that even when the arm length is used, the true value of petroleum must be the basis for prices.
Debt loading is a process by which foreign multinational corporation lends capital to its subsidiary at an unusually high-interest rate and this has the capacity to erode the tax base but fortunately, Ghana has sufficient provisions in the income Tax Act 2015 to address this issue.
Poor measuring of petroleum products result in misinvoicing. The new law addresses this issue by providing approval for metering, installation and remediation of defects. The best assurance on metering is the provision that allows Petroleum Commission to install facilities to monitor production and this is consistent with the Columbian model regarded as one of the best protecting.
As part of his concluding remarks, he informed the participants that the new law has increased institutional responsibility in terms of capacity, auditing of petroleum cost and other revenue-reducing measures which may be well intended to attract investment but will face a huge potential of being abused. Hence government, parliament, media and civil societies should increase their knowledge and capacity to ensure effective implementation of the Act. He also made recommendation on the need to pass regulations as soon as possible.
Session Three: Panel Discussion
The third session of the program was a panel discussion which gave the panelist opportunity to make further contribution to the discussion. The panelists were; Tony Paul, a consultant at the Petroleum Commission, Dr. Mohammed Amin Adam, Executive Director of ACEP, Hon. Amadu B. Sorogho, Chairman, Mines and Energy Committee of Parliament, Ghana and Nicola Woodroffe Legal Analyst, NGRI.
Tony Paul in his submission said that the new law is a good one but it must be rooted in good policy, institutions and regulations. Royalty is a cost of business and not a tax, oil is an asset to a country hence royalty is the returns a country gets to compensate for it loss. He also raised the issue on the need to address overlapping roles by the institutions involved in the administration of the petroleum sector and also called a proper regulation of the gas sector.
Hon. Amadu Sorogho on the other hand said that government alone should not be blamed for the gaps in the new law but rather all the stakeholders in the petroleum sector including civil society groups must be blame as well because they were all part of the drafting, discussion and the enactment process. Participants were giving the opportunity to ask questions on the new law and other issues pertaining to Ghana’s Petroleum exploration and Production.
Launching of Report on Fuel Quality in Africa
ACEP in collaboration with Public Eye (Formerly the Berne Declaration) has conducted a study on the quality of fuel in Africa. While presenting the findings obtained from the study, Gian-Valentino Viredaz, Researcher on commodities, Public Eye said that there is a rising burden of air pollution in Africa and as long as sulphur content in fuel remains high, any efforts to reduce air pollution will be in vain. Trade statistics shows that 80% of the diesel exported from Europe to Africa has sulphur content of at least 100 times above the European standard.
He blamed this situation on Africa’s weak fuel standardization which allows traders to use cheap blendstocks, dropping the production cost and making the production of low-quality fuels a lucrative business. These cheap blendstocks damage the health of the citizenry and it is the leading cause of most respiratory diseases. He admonished African governments to review laws on petroleum content and quality to ensure less pollution. Some five countries in East Africa (Kenya, Tanzania, Uganda, Burundi and Rwanda) have implemented a new sulphur content specification hence it is possible for other countries to do same.
Dr. Mohammed Amin Adam when launching the report said that Ghana Standard Authority has a role to play to ensure that quality products are imported into the country.
Constance Ababio is a Resaercher at IMANI Africa.
