[ 2014-09-18 ]

Energy Ministry responds to ACEP claims it awarded mysterious oil contracts
The Energy and Petroleum Ministry says the award
of new petroleum contracts to eight foreign
companies was negotiated within the existing legal
and regulatory framework of Ghana.

A news release issued by the Communications
Advisor of the ministry, Edward Bawa indicated the
companies went through all the necessary processes
to be considered for the contracts.

The release is in response to claims by the Africa
Centre for Energy Policy that the contracts with
the eight firms lacked transparency.

But according to the statement from the Ministry,
it is enshrined in the new agreements that the
companies' operations would be governed by and
construed in accordance with the laws of Ghana in
effect and as amended from time to time, a move to
ensure accountability and transparency.

Some of the companies include A-Z Petroleum,
Sahara Energy fields and Heritage Oil, Eco
Atlantic, among others.

The Executive Director of the ACEP, Mohammed Amin
Adam told a news conference Tuesday that the
administrative processes involved in awarding the
contracts were open to abuse, rent seeking and
corruption.

Again, he said these companies were start-ups and
do not have the capacity to engage in any oil
business in the country, adding, some of them were
established between June 2013 and February 2014.

But the Ministry disagreed.
It listed the following as the processes for
acquiring a block or contract area:

1. Letters of interest usually from more than one
company are addressed to the Minister for Energy
and Petroleum to acquire exploration block.

2. The Ministry then notifies the Petroleum
Commission (PC) of receipt of the application. The
PC then formally writes to the companies to do a
presentation of their companies to the PC, after
which they are invited to visit the data room at a
fee.

3. Applicants then identify blocks of interest and
formally apply for those blocks

4. An evaluation committee consisting of personnel
from the Ghana National Petroleum Corporation
(GNPC), the PC and the Ministry of Energy and
Petroleum (MOEP) then review the applications
based on, among other things, the technical and
financial competences of these companies. This
committee then sends its report including their
recommendations to the Minister for Energy and
Petroleum who then takes a decision based on those
recommendations.

5. If the application is considered successful, a
Government negotiation team made up of the MOEP,
the GNPC, the Attorney General's (AG) department,
the Ministry of Finance (MOF), the Environmental
Protection Agency (EPA), Ghana Revenue Authority
(GRA) and the PC is constituted to negotiate a
Petroleum Agreement (PA) with the applicant. If
the application is unsuccessful, applicant is
advised accordingly.

6. A draft PA is prepared following successful
negotiation by the MOEP, PC AND GNPC.

7. The Ministers for Energy and Petroleum,
Finance, Justice and Science and Environment then
consult on the draft PA.

8. The Minister for Energy and Petroleum then
sends the draft PA to Cabinet for approval

9. The Cabinet approved draft PA is then sent to
Parliament for ratification and

10. The PA becomes effective on the date of
ratification

From the above rigorous process it is obvious that
issues of corruption, rent seeking and lack of
transparency do not arise, the stated noted.

Below is the full press release issued by the
Energy and Petroleum Ministry

The Ministry of Energy and Petroleum has noted
with great concern some issues raised in a Press
Statement presented on behalf of the Africa Center
for Energy Policy (ACEP) at a press conference at
a Press Conference held on September 16, 2014 on
the state of the Energy Sector in Ghana.

The Ministry wishes to commend ACEP for their
continuous interest in the Energy Sector. The
ministry considers ACEP's contributions in the
past years as invaluable and encourages them and
other civil society organizations to continue to
be the watch dogs of the energy sector.

The Ministry however wishes to take this
opportunity to straighten some assertions made by
ACEP that seem to create some confusion in the
minds of well-meaning Ghanaians.

ACEP presented its statement under certain
captions we will as much as possible try to
respond to some of their concerns under same.

1. OPEN CONTACTING
ACEP states that the Hon. Minister extolled his
achievements for negotiating and taking through
parliamentary approval eight (8) new Petroleum
Agreements; citing increasing fiscal terms,
introduction of capital gain tax and removal of
blanket stability clauses.

However, whilst these new developments are
positive, they fall flat in the face of
transparency and accountability, as they have
cause to believe that the administrative processes
used in awarding these contracts were open to
abuse, rent seeking and corruption. It is not
clear what ACEP means by government using
“administrative process to grant all the 8 new
petroleum agreements”. The petroleum agreements
were negotiated within the existing legal and
regulatory framework.

The new agreements recognizing the transition and
changing legal landscape, provides that the
agreements shall be governed by and construed in
accordance with the laws of Ghana in effect and as
amended from time to time.

For the benefit of Ghanaians the following are the
processes for acquiring a block or contract area:

1. Letters of interest usually from more than one
company are addressed to the Minister for Energy
and Petroleum to acquire exploration block.

2. The Ministry then notifies the Petroleum
Commission (PC) of receipt of the application. The
PC then formally writes to the companies to do a
presentation of their companies to the PC, after
which they are invited to visit the data room at a
fee.

3. Applicants then identify blocks of interest and
formally apply for those blocks

4. An evaluation committee consisting of personnel
from the Ghana National Petroleum Corporation
(GNPC), the PC and the Ministry of Energy and
Petroleum (MOEP) then review the applications
based on, among other things, the technical and
financial competences of these companies. This
committee then sends its report including their
recommendations to the Minister for Energy and
Petroleum who then takes a decision based on those
recommendations.

5. If the application is considered successful, a
Government negotiation team made up of the MOEP,
the GNPC, the Attorney General's (AG) department,
the Ministry of Finance (MOF), the Environmental
Protection Agency (EPA), Ghana Revenue Authority
(GRA) and the PC is constituted to negotiate a
Petroleum Agreement (PA) with the applicant. If
the application is unsuccessful, applicant is
advised accordingly.

6. A draft PA is prepared following successful
negotiation by the MOEP, PC AND GNPC.

7. The Ministers for Energy and Petroleum,
Finance, Justice and Science and Environment then
consult on the draft PA.

8. The Minister for Energy and Petroleum then
sends the draft PA to Cabinet for approval

9. The Cabinet approved draft PA is then sent to
Parliament for ratification and

10. The PA becomes effective on the date of
ratification

From the above rigorous process it is obvious that
issues of corruption, rent seeking and lack of
transparency do not arise.

2. ISSUES OF COMPANIES BEING LISTED
ACEP also makes the case that “of all the
foreign companies involved in the eight (8) new
Petroleum Agreements, only three (3) are listed on
the stock exchange. The rest according to ACEP,
are therefore not regulated and their sources of
financing are cases the anti-corruption agencies
in Ghana should consider investigating. In as much
as we will support any Government agency that has
any interest in investigating any of the companies
in the Oil sector, the Ministry wishes to state
that listing on any stock exchange is not a
criterion to be considered for an oil block and
there is no law in Ghana that prescribes that. For
instance Kosmos Energy who discovered the Jubilee
Field came into Ghana in 2004 at a time when they
were not listed on any stock exchange. Equally
interesting is the fact that Blackstone and
Warburg Pincus, two of the largest equity funds
who supported Kosmos financially only got listed
on the New York Stock Exchange in 2011 four years
after Jubilee discovery. So it is therefore not
the case that unlisted companies necessarily have
questionable source of financing.

3. LOCAL CONTENT AND LOCAL PARTICIPATION
Local content and Local Participation Regulation 4
of the Local Content Regulations, LI 2201 provides
for a five (5%) indigenous Ghanaian participation
in every Petroleum Agreement. For a company
(international oil company) to qualify for the
allocated block, the minister shall determine if
the IOC has qualified by satisfying the
requirements of including the not less than 5%
indigenous participation. This is contrary to
ACEP's assertion that the minister has the power
to decide on persons or firms that qualify in a
petroleum agreement.

On the contrary, the minister encourages IOC's
freely selecting/choosing their local partners
without any government interference. This explains
why there are no issued guidelines from government
on the selection of indigenous firms that can
partner foreign oil companies' activities.

4. EMERGENCY POWER BARGES
While the Ministry very much encourages ACEP and
other organizations to take keen interest in the
happenings within the energy sector, we will very
much appreciate it ACEP could cross check pieces
of information they come across with what the
Ministry has. This will certainly enrich our
discussions as we collectively as a country work
to provide reliable and sustainable energy
services to all citizens. To the specific
questions raised in the ACEP's Press Conference
with respect to the emergency power barges, this
statement wishes to provide responses to them.

1. “Is the power supply arrangement for short to
medium term or long term? Given the uncertainties
of technology and natural gas prices in the
future, it will be preferable to have a short term
supply arrangement while the Government focuses on
building land based long term power plants.”

Response:
This particular power supply arrangement is a
medium-term one (10 years). We note that in line
with the objective of attaining 5,000MW installed
generation capacity by 2016, various plants are
under construction. Others are also going through
the necessary processes towards commencement.
Government, noting the low water inflows into the
hydro facilities and their implications on power
supply for 2015, is being proactive by securing
these barges as one of the many measures being
taken in order to take care of the possible
shortfalls in 2015.

2. “Has independent Feasibility Studies
(including EIA) been done on the two sites (Tema
and Takoradi) by the Government or ECG? Or are the
arrangements based on proposals and estimates by
KKH? There may be serious potential cost
implications for such a large project to be
structured mainly on proposals by the power
supplier in the absence of a Feasibility Study.
If such studies have been done, it will be helpful
to have the reports available to the public.”

Response:
Karpowership, like any Independent Power Producer
(IPP) who intends to operate in the country needs
to abide by the regulations in the sector. For
that matter any permit or license required for the
operation of a power plant must be obtained by the
developer. Karpowership is therefore going through
the processes of obtaining all necessary permits
and licenses just like any other power producer
would have done in order to operate in the
country.

As this is an emergency, the Government has formed
a team of key regulatory and commercial
stakeholders such as ECG, GRIDCo, PURC, Energy
Commission, EPA, Ghana Maritime Authority, GPHA,
etc., to facilitate and fast track the licensing
and permit process in order to meet the tight
project deadlines.

3. “How is the project being procured? Has there
been a transparent procurement process? Have
other potential power ship operators been invited
to submit proposals? Or is it sole sourcing?”

Response:
The Ministry is at a loss as to what ACEP means by
a transparent procurement process. Any IPP who
comes into the sector looks for an off-taker. The
off-taker negotiates a Power Purchase Agreement
(PPA) with the producer on the tariffs. The PURC
gives an indicative tariff based on the submission
of technical and financial proposals by the
developer. The off-taker then negotiates a tariff
with the developer with the indicative tariff
given by the PURC. This is exactly what has been
done in the case of Karpowership. The procurement
process is therefore very transparent.

4. “Who provides fuel for operating the power
ship? Is it the Ghana Government? If it is, do we
have the budget or institutional arrangements for
the supply of HFO (Heavy fuel Oil) for the
purpose? ECG, as is currently structured, does
not have that capability. If the fuel is to be
provided by KKH, are they better suited to manage
the fuel risk than the Government of Ghana? For
such large scale transactions, one will expect the
Government to procure the fuel since it can be
included in the national portfolio of fuel imports
and enjoy the economies of large procurement.
More significantly, the Government can also secure
fuel on better terms through Government to
Government arrangements etc. (Pakistan and Lebanon
supplied fuel under their respective contracts
with KKH).”

Response:
Under this arrangement, the fuel is being provided
by the power producer.

5. “Typical transactions of such nature involve
escrows for the sale of energy produced, fuel,
late payments etc. What is the size of such
escrowed amounts? We understand that the Turkish
company is demanding 4 months escrow for fuel, 4
months escrow for capacity and another US$50
million upfront for mobilization. The 2 escrows
alone will amount to between US$170 and US$200
million every 4 month. Given ECG's current
financial position, the sizes of such escrows are
too large and will impose onerous financial
difficulty on ECG. Curiously, if Ghana can afford
these, one wonders why we cannot apply these
resources to build our plants over the next three
years.”

Response:
We wish to provide the following clarification in
answering this question: Under the monthly payment
arrangement, power is consumed for one (1) month;
Seller takes fifteen (15) days to submit an
invoice to Buyer. Buyer has seventy five (75) days
grace period to effect payment. This constitutes
120 days or four (4) months. It is the equivalent
of four (4) months bill that is used in
establishing the escrow account.

The US$ 50 Million Guarantee is not an
expenditure. It is a guarantee to ensure that when
the Seller after taking bank loans to prepare the
ship and send to Ghana, Buyer will not decide to
abrogate the contract. The amount reduces by 10%
per year of operation. It is not therefore the
case that “the Turkish company is demanding 4
months escrow for fuel, 4 months escrow for
capacity and another US$50 million upfront for
mobilization” and that “the 2 escrows alone
will amount to between US$170 and US$200 million
every 4 month.”

6. “If the Government of Ghana will be called
to provide guarantees for ECG's obligations, as is
most likely, then has parliamentary approval been
sought, since it constitutes an international
contract?”

Response:
At the moment, that is not the arrangement. Should
there be the need for government's support; the
necessary approvals would be sought. This is not a
condition precedent for financial closure. It is
rather a condition subsequent to operation of the
plant.

7. “What is the firm time line for installing
the power ship in Ghana and operating it? The
Minister alludes to Q1 and Q2 of next year. Is it
a realistic target? Can all the associated
infrastructural works such as preparation of the
berthing area, grid interconnection etc be
completed by Q1 next year?”

Response:
In stating the timelines for the delivery of the
powership the Hon Minister for Energy and
Petroleum took into consideration all necessary
preparatory works that needed to be undertaken and
believes that per the project schedule the first
and second phase of powership will be delivered in
the first and second quarter of 2015
respectively.

8. “What protection do we have in the contract
for the public? It is to be noted that KKH has
had disputes with the Governments of Pakistan and
Lebanon over the administration of their power
supply contract. Have we provided sufficient
protection for ourselves regarding non-performance
by KKH? Are the penalties adequate? How watertight
are the obligations of KKH? Are the financial
safeguards (Liquidated Damages etc.) adequate? In
the Lebanese contract, the penalty for delays is
US$270,000/day whilst the penalty for not
producing the contractual output of electricity is
US$500,000/day for every 1% of production that
falls below the agreed contractual level).”

Without trying to question the integrity of ACEP
with regards to their data it is a bit curious on
the figures quoted and therefore the ministry will
want to have more information on how these figures
were arrived at. In the case of the Ghana project,
the penalty for delay is US$ 135,000/day. Penalty
for 1% output below the guaranteed level is US$
36,654.57/day per powership, making it a total of
US$ 73,309.14 for the full complement of the
powership.

9. “What is the size of the contract (in US$
terms?)”

10. This project is an IPP and therefore all
investments towards the delivery of power are to
be borne by the developer. The buyer's
responsibility is to pay for power delivered as
per the agreed tariff.

In conclusion the Ministry agrees with ACEP when
it states that in the interest of the public
taxpayer, there is the need to disclose the
details of the arrangement with Karpowership. That
is what we have attempted to do. The Ministry
wishes to assure ACEP and all civil society groups
within the Energy Sector that its doors are always
opened and going forward the Ministry will
continue to collaborate with all Ghanaians to
ensure that we provide quality, reliable,
sustainable and cost effective energy services to
all citizens.

EDWARD BAWA
HEAD OF COMMUNICATIONS

Source - MyjoyOnline

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