PIAC’s assessment of how Ghana’s petroleum revenues are being managed

This Report is the ninth in the series of annual reports by PIAC. The Report is based on the collection, collation, reconciliation, and analyses of production and revenue data from relevant stakeholder institutions. A major development, which occurred during the reporting period, was the operationalization of the open contracting provisions of the Petroleum (Exploration and Production) Act, 2016 (Act 919), which began in late 2018.

Having launched the country’s first bid and licensing round in October 2018 and established the Licensing Bid Rounds and Negotiation (LBRN) Committee, the Ministry of Energy invited Expressions of Interest from IOCs. However, bids from IOCs were constrained by low quality data. Key findings and recommendations for action by relevant stakeholder institutions are as follows:

Petroleum Production and Sales.

1. The period recorded a 15 percent increase in crude oil production, from 62,135,435.07 bbls in 2018 to 71,439,585 barrels in 2019 due to increased production from the Jubilee and SGN Fields. The 2019 output also exceeded the benchmark crude oil output of 63.4 million bbls.
2. Gas production witnessed its greatest boost since the inception of natural gas production in Ghana with a total of 169,508.61 MMSCF of Associated Gas (AG) and Non-Associated Gas (NAG) produced from all producing fields in 2019, an 85 percent increase over the 2018 volume of91,459.30 MMSCF.
3. While the Jubilee Field has produced the highest volumes since 2014, this trend was reversed for the first time in 2019 with the SGN Field’s combined AG and NAG contributing the highest volume of 69,941.60 MMSCF (41.26 percent) to total output.
4. GNPC, representing the Ghana Group, lifted only one cargo instead of three due to its inability to honour its cash calls. The two cargoes were used to defray the Development and Production expenditures incurred by the SGN partners. Revenue Collection and Management
5. The average achieved price by GNPC on behalf of the Ghana Group reduced to US$63.496/bbl in 2019 from US$68.487/bbl in 2018 for all three producing fields, which was also below government’s 2019 estimated benchmark price of US$66.670/bbl.
6. For 2019, the Jubilee Field contributed about 50 percent of the total receipts of US$925,035,879.84 that accrued to the Petroleum Holding Fund (PHF).
7. The first lifting on the SGN Field in November in respect of the State’s equity interest in the Field, yielded US$57,487,673.93 in revenue with proceeds of two other liftings used to defray the State’s indebtedness to the Partners in the Field.
8. The revenue derived from CAPI constituted about 55 percent (US$505,987,937.41) of total revenues accruing from all three Fields, demonstrating the revenue yielding potential of this aspect of the revenue stream.
9. A total of 20,805.71 MMSCF of gas was delivered to the Ghana National Gas Company (GNGC) for 2019, at an invoiced amount of US$86,733,078.02, but no payment has been made to GNPC to be deposited into the PHF bringing the total gas indebtedness to US$668,118,346.04.

Distribution of Petroleum Revenues

1. An amount of US$925.04 million was disbursed from the Petroleum Holding Fund for the period under review. This constitutes a decrease of 5.33 percent from that of 2018, and is 14.41 percent less than projected for 2019.
2. The GNPC received US$260.56 million which is 14.65% less than the US$305.27million received in 2018,while the ABFA received US$395.47 million which was 68.21% higher than the disbursement for 2018.
3. The GSF andGHF received US$188.30 million and US$80.70million respectively, representing 38.41 percent decrease from the respective 2018 figures.

Performance of the Ghana Petroleum Funds

1. The total reserves of the GPFs as at the end of 2019 was US$968.20million, comprising the GHF with US$579.61million, and the GSF with US$388.59 million.
2. The accumulated net profit on investment of the GPFs since November 2011 to the end of2019 was US$65.92million
3. An amount of US$189.13 million was withdrawn as excess over the cap of US$300 million placed on the GSF. The excess was withdrawn into the Sinking Fund.

Allocation and Utilisation of the Annual Budget Funding Amount

1. The total ABFA available for spending in 2019 was GHȻ2,750,840,639.72 out of which GHȻ1,270,944,339.86 was utilised leaving a balance of GH¢1,479,896,299.86 to be utilised and accounted for.
2. For the third consecutive year, the actual ABFA was not fully utilised or accounted for.
3. The Agriculture Priority Area received an amount of GHȻ71,574,886.14 constituting a significant decrease of 43.28 percent from the disbursement to this priority area in 2018.
4. The Road, Rail and Other Critical Infrastructure Development Priority Area received a total of GHȻ579,268,115.44, representing an increase of 126.84 percent over the disbursement to this priority area in 2018.
5. The Physical Infrastructure and Service Delivery in Health Priority Area received an amount of GHȻ46,335,420.70, which is a 104.1 percent increase over the disbursement to this priority area in 2018.
6. The Physical Infrastructure and Service Delivery in Education Priority Area received a total of GHȻ570,865,917.58,which constitutes an increase of 35.96 percent over the disbursement to this priority area in 2018.
7. The Public Interest and Accountability Committee (PIAC) received an amount of GHȻ2,900,000, representing a 17.85 percent fall from the disbursement to PIAC in 2018.
8. In 2019, 45.14 percent of the actual ABFA was spent on recurrent expenditure, with 54.86 percent on capital expenditure, in violation of Section 8(4)(a) of Act 893.24.For the second consecutive year, there was no allocation from the ABFA to the GIIF contrary to the provisions of the PRMA and the GIIF Act.

GNPC Allocation and Utilisation

1. Even though PIAC has raised concerns in the past about GNPC’s quasi-fiscal financing in respect of the Western Corridor Roads, the Corporation continues to finance these expenditures.
2. GNPC’s expenditure on CSI remains high, increasing from GH₵41.49 million in 2018 to GH₵49.98 million in 2019.
3. The Corporation continues to provide guarantees for other state-owned enterprises (SOEs), amounting to US$645,511,405.40 in 2019.This is about double that of 2018,and also outweighs the Corporation’s total equity financing expenditure of US$164.79millionfor2019
4. According to GNPC’s own status assessment, it has achieved its set objective of becoming an operator. However, the Committee’s assessment does not support GNPC’s assertions of attaining operatorship.

Operations of Ghana National Gas Company

1. In spite of the fact that GNGC managed to bring on stream new off takers during the reporting period, namely Amandi Energy at Aboadze, Karpowership at Sekondi, Genser, at Tarkwa, and shipment of gas from Takoradi to Tema, through the West Africa Gas Pipeline, a substantial amount of the country’s gas remains stranded. More than half (56.87 percent) of total gas produced from Jubilee, TEN, and SGN had to be re-injected during the period.
2. The 2018 price of lean gas was slashed by 31.23 percent in 2019. The reduction means cheaper fuel for thermal power generation.
3. In 2019, GNPC supplied US$334,636,806.22worth of raw gas to GNGC, but no payment was received, largely on account of VRA’s inability to pay GNGC for the lean gas supplied. Added to the outstanding balance of US$333,481,539.82, this brings the total indebtedness of GNGC to GNPC in respect of lean gas supplies to US$668,118,346.04.
4. Set against its receivables of US$865,572,534.41, GNGC is fully capable of honouring its debt obligations should its debtors pay their debts.
5. Combined with what is owed PURC (US$83,953,838.01), one can conclude that GNGC’s debt is approaching unsustainable levels.
6. LPG prices saw an average price decline of 27.96 percent against the 2018 average achieved price.
7. The July 2019 reduction in the lean gas price for VRA to a level below the Industrial Development Tariff (IDT), undermines the essence of the IDT as an incentive to industrialisation.

RECOMMENDATIONS

The following recommendations are made for consideration of the various institutions with the intent of continual improvements in petroleum revenue management and utilisation:

1. Much as Government may have good reasons for renegotiating some of the existing contracts, Parliament must ensure that the practice does not create an avenue for companies to re-negotiate terms of contracts.
2. Government must invest in quality and comprehensive data acquisition as part of its preparation towards future bid rounds, noting that this was a factor proffered by the Ministry of Energy for the limited success of the first bid round.
3. The Committee recommends to MoF to diversify pricing risk through hedging a portion of the Ghana crude.
4. The Committee reiterates its recommendation that the Carried and Participating Interest(CAPI), followed by Royalties constitutes a significant source of revenue to the State. In this regard, in negotiations in respect of petroleum agreements, it is important that the government negotiate tenaciously in respect of these two in order to obtain the best possible terms.
5. The Committee reiterates its call for the Ghana National Petroleum Corporation to proactively plan to respond to cash calls in order to avoid the practice of paying in kind with oil.
6. PIAC recommends an amendment of the PRMA to remove the ministerial discretion in allocating excess revenue over the GSF cap between Contingency and Sinking Funds and mandating that a prescribed minimum portion of the excess over the cap goes into the Contingency Fund at all times. This is necessary to ensure that there is enough money in the Contingency Fund to address national emergencies.
7. The Committee reiterates its recommendation to MoF to diversify the qualifying instruments in investing the GPFs, to maximise returns.
8. After reviewing GIIF’ s investment of US$30 million in KIA Terminal 3, and the subsequent returns of US$5.5 million of the initial investment in three (3) years, the Committee recommends more of such investments in high-yielding capital projects.
9. For the third consecutive year, the actual ABFA was not fully utilised or accounted for. It brings the total unutilised and unaccounted ABFA to GH¢1,479,896,299.86 at the end of 2019.The Ministry of Finance is acting with impunity regarding accounting for the use of ABFA. PIAC therefore urges Parliament to bring its oversight mandate to bear.
10. PIAC reiterates its calls for Parliament to consider placing some restrictions on the proportion of GNPC’s budget on CSI and guarantees to state institutions, particularly in the light of their inability to respond to some of their cash calls.
11. The Committee calls on government to expedite action on the infrastructure requirement for gas evacuation and utilisation in order to avoid the huge backlog of make-up gas volumes and eventual resource waste.
12. PIAC reiterates its call on Government to, as a matter of urgency, address the unsustainable debt of GNGC.

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