Over the last few days, I have watched with keen interest, Kevin Taylor’s expose on the Aker/Ghana government deal. Kevin on his Loud Silence Media programme dubbed: “With All Due Respect” revealed clandestine changes in the upstream petroleum sector.
For the benefit of readers, let me add my comments to what I call the most radical political attack on Ghana’s upstream petroleum sector since the commencement of the FOURTH REPUBLIC. This attack has far reaching consequences and serious implications for the future of Ghana’s upstream petroleum industry way beyond AKER; affecting not only our economy but future generations to come!
Government knew we would all be distracted over the Christmas festivities in December; So, guess what our Govt did??? Late one evening, precisely on Dec 23rd, whilst some were spending family time together, some of us grieving, and our youth “Detty Raving”, “Blooming”, “Afro Chelling”, “Afro Nating” etc, our government led by President Nana Akuffo Addo, rushed amendments through Parliament, to approve significant changes to the upstream petroleum sector without following the due process!
Let me refresh our memories a bit; you may all recall in October last year, I stood on a platform with the Minister of Energy, Hon Peter Amewu at an Oil and Gas Conference held at the University of East London in the United Kingdom. At this conference I raised the alarm about the entire integrated Plan of Development (PoD) resubmitted by Aker Energy in relation to the Pecan oil field which would rob the nation of billions of United State Dollars both immediately and over the next 30 years.
I hinted that government was preparing to pass amendments to the existing regulations and laws governing the upstream petroleum sector provided Aker Energy agreed to the NPP Government’s demands. It is alleged that Government among other demands, asked Aker Energy to ensure the usage of only designated/chosen local partners (mainly controlled by people associated with the leadership of the NPP), even if these local partners are not qualified or even if these foreign oil services companies have already chosen their local partners.
The Energy Minister assured Ghanaians at the conference that he would not approve the PoD if those were the conditions attached to it. He said and I quote “the PoD that you are talking about is lying on my table and I insist I am not going to give them that opportunity”.
The changes that were rushed through Parliament, even made reference to an earlier amendment which Parliament had approved conditionally; the condition being that the Minister had to come back to Parliament, within 6 months or so, with some agreed revised clauses Parliamemt had insisted on, which related to increasing the People of Ghana’s additional participating interest ( additional equity) from 3% to 10%, as well as ensuring that the original local content partners were not removed and their equity holding remained untouched .
Guess what happened ?? The Minister in his submission of the recent amendment to parliament on Dec 22 did not even have the courtesy to address those preconditions that our legislative body (Parliament) had given for passing the previous amendment, but rather made mention in the new amendment laid on Dec 23, 2019 before Parliament that the previous conditional amendment that Parliament had given had been passed!
Consequences
The immediate impact of the amendments will;
- Strangle state policymaking, state regulation, and state commercial participation in the upstream oil and gas (O&G) Sector.
- Collapse local content development.
- Impose certain critical obligations on the Minister which are regulatory in nature.
- Compel the Minister to accept use of FPSO technology as the only option for producing the resources of the AGM Block – even before the appraisal of the field in which the technology must be deployed.
- Compel the Minister to accept the contractor’s delineation of the area to be included within a “Development and Production Area” in the Aker Block.
- Allow Aker within a year of its Final Investment Decision to unilaterally vary the approved development plan without reference to the Minister contrary to Section 27(12) of Act 919.
- Give Contractors unfettered discretion over oilfield procurement without recourse to the petroleum commission or any other governmental authority – also weakening the role of GNPC in Joint Management Committees.
The direct beneficiary of these giveaways will be the Norwegian Multinational, AKER which owns and controls both the Aker Ghana and AGM operated Oil Blocks. The direct LOSER is Ghana
The cumulative medium to long term effect of all these giveaways will be a loss of national control over our precious petroleum resources which will lead among other things to:
- billions of dollars lost to the nation; and
- loss of job creation
Taxation and Other Imports
Sadly, these amendments also provide sweeping tax exemption for Aker and AGM, its sub-contractors and sub sub-contractors. No withholding taxes in the case of AGM itself, and a reduced withholding tax rate of 5% – instead of the 15% withholding tax – for any work or services or supply or use of goods, both to domestic and international transactions.
It is reckless to exempt Withholding tax for international transactions; this is akin to surrendering taxing rights to a foreign state because the foreign state will apply tax on its worldwide income and will result in permanent revenue loss for Ghana. Additionally, exempting Withholding tax on domestic transactions may lead to tax evasion as the trail is lost; eventually resulting in large scale tax loss due to avoidance.
The non-resident companies having established a Permanent Establishment (PE) status for tax purposes would be liable for full corporate tax. Sadly, the amendments make it possible for non-residence Permanent Establishment (PE) to be exempted from the payment of tax at the domestic rate. This will cause a substantial tax loss as the tax exemption is for 7 years.
Transactions between Sub-contractor to sub-contractor is also not subjected to Withholding tax in the case of AGM and a reduced withholding tax rate of 5% instead of the 15% withholding tax for any work or services or supply or use of goods, both to domestic and international transactions.
The amendments to exempt transactions between Sub-contractor to sub-contractor are unacceptable as it would have similar consequences as said above. Aker and AGM will be exempted from import duty, VAT and all sorts of other taxes. However, the indirect taxes are not a cost to the Aker and AGM as it avails input credit.
Conclusion
This government has bestowed on all Ghanaians massive historical damage to our oil and gas sector and our economy for future generations – damage that at least in financial terms far exceeds the damage of the PDS scandal.
May God help us all as we embark on a mission to reset and rescue Ghana from corruption and state capture in 2020!!!
By Alex Mould
The writer is a former CEO for Ghana National Petroleum Corporation.