Don’t mix oil trade with other activities - PIAC cautions government

The Public Interest Accountability Committee (PIAC) has cautioned the government to desist from "contaminating" the country's crude oil trade with other economic activities such as loan agreements, if Ghana is to make maximum gains from its crude oil production.

The Chairman of PIAC, Dr Steve Manteaw, who gave the advice, explained that such transactions had a very high tendency of impairing the country's crude oil trade and subsequently would impact negatively on the commodity's achieved price.

"For instance, if you talk about Jubilee, we have the China Bank of Development (CBD) loan in there. The Tweneboa, Enyenra and Ntomme (TEN) oilfield also had the Litasco transactions and some loan agreements all in there. They have impact on transactions. The encumbering of our crude oil sales is not the best thing to do,” he stated.

Forum

Dr Manteaw made the remarks at a stakeholders' forum on Crude Oil and Natural Gas Marketing, organised by PIAC and the Ghana National Petroleum Corporation (GNPC) in Accra last Thursday.

Stakeholders said the forum had become necessary following certain public misconceptions around the achieved price of Ghana's crude oil — the price paid for crude oil from Ghana per barrel.

The achieved price is a function of how the country markets its crude oil resources to the international community and how wide the demand for the resource is.

According to experts, when the resource was encumbered with transactions such as loans, it limited its availability on the wider market, hence the price paid per barrel could be low.

Forum

The forum was, therefore, held to discuss factors that affect crude oil and gas prices as well as how to achieve the retention of a higher value for Ghana.

Industry players, government agencies and civil society groups which converged on the venue were taken through the various components of crude oil and gas that determined their prices and how to incorporate some of the best practices into the way the country traded its crude oil.

"An aspect of the concerns I have has to do with the Litasco Agreement; whether or not the loan went to Parliament and duly approved before embarking on this kind of transaction and to the extent that it happened largely on the blind side of Ghanaians.

"To the extent that it wasn't done openly and yet hung on the neck of GNPC and contaminated the whole transaction, that for me is problematic,” Dr Manteaw bemoaned.

"We should desist from contaminating the crude oil trade with other economic trades such as loan agreements and the rest and let's do purely crude oil trade. If we make gains from that, we can use it to go and repay whatever loans we have. After all, if we make gains, they go to the state," he added.

Collaboration

He further advised that Ghana should collaborate with and learn from its international partners that were making gains in the sector.

"I recognise that hedging requires a certain level of expertise but these are our partners and they support it," Dr Manteaw added.

He was quick to announce that his outfit would develop a policy brief and propose to the government, the Ministry of Finance, GNPC, among others, how things could be done differently to maximise the country's gains.

He, however, commended GNPC for making improvements in terms of making timely reports of their transactions.

Steps

The Marketing Manager of GNPC, Mr Dennis Baidoo, disclosed plans by the national oil company to develop a blueprint for 'a buyer selection platform' which would enable them to pick the most competitive company and give real-time reports on transactions they engaged in.

That, he said, would be done in collaboration with the Organisation of Economic Cooperation and Development (OECD), as well as the Extractive Industries Transparency Initiative (EITI).

"The whole idea is to have a template that will make national oil companies (NOCs) transparent. We are trying to move away from asking NOCs to provide data from time to time. Our data will be on our website on real-time basis and I don't think we can be more transparent than that,” he stated.

Challenges

Mr Baidoo noted that the sector was facing payment challenges which, he added, was taking a toll on their operations and subsequently called for efficient payment arrangements to check the situation.

"Payment challenges from the power sector impair liquidity and undermine viability of the market. If funds do not flow from the users of the gas to the sellers of the gas, they will not be encouraged to invest more,” he said.

He noted that Ghana's current stock of gas was not enough to sustain the industry for two decades, given the rate of its usage, saying “we do not build an industry on the basis of such a short span.”

He said the GNPC and its partners were, therefore, conducting further explorations and “we are expecting that that will help not only to reduce the cost of gas in the country but also further stimulate demand for us,” he added.

Mr Baidoo further bemoaned other challenges such as limited infrastructure and the lack of coordinated roles of various entities to harmonise the exchange of data and information and called for a concerted effort to tackle them.

Pricing

For her part, a representative from the Bank of Ghana (BoG), Ms Nana Aba Ashun, said the current system of pricing was not favourable to the GNPC and called for a second look at it.

“With the pricing option, from the analysis that we have done in-house, you can tell that an off-taker gets the opportunity to use about two or four different pricing strategies and all these strategies give the off-taker a lot of flexibility. And that allows them to smoothen out volatility which is very prominent in crude oil pricing.

“But we do not see the seller (GNPC) having that kind of flexibility to be able to smoothen out that volatility on its side, and to that extent, it affects the lifting outcomes,” Ms Ashun said.

The view of the BoG, she stated, was that if the buyer was having that level of options, it had to come at some premium, given what the seller was giving out.

“So the pricing option fees of seven cents per barrel for Jubilee and five cents per barrel paid on TEN does not compensate much for the optionality and flexibility that GNPC is losing,” Ms Ashun stated.