New controversy is set to erupt over the allocation of the last two and possibly three – of the six oil and gas blocks available under Ghana’s first upstream oil and gas licensing round. Two blocks have been awarded by competitive tender under this round which began in October last year and a third has been reserved for Ghana National Petroleum Corporation, all this in strict accordance with the agreed process for allocating the six blocks available in the first round.
However, while two blocks are to be allocated through direct negotiations between bidding oil firms and government – represented by the Minister for Energy, Peter Amewu – the established regulations stipulate that if there is competition for those blocks then their allocation should be done by competitive tendering. Currently eight firms have declared interest in the two blocks. Nevertheless government is intent on still using direct negotiations, in a process which industry analysts agree lacks transparency. Instructively, several of the eight oil firms now seeking to negotiate directly, originally agreed to be part of the competitive bidding process for the blocks allocated through this method, before changing their minds and opting to go in for the blocks to be allocated by direct negotiation. Indeed, this turnaround resulted in only two of the three blocks to be competitively bid for actually being allocated in this manner – the third block did not have any bidders and will expectedly be added to the two blocks originally set out for direct negotiation.
The Bid and Licensing Round (BLR) Working Group – a consortium of civil society and media partners jointly led by the Natural Resource Governance Institute (NRGI) and the British government funded Ghana Oil and Gas for Inclusive Growth (GOGIP) – are protesting government’s intent to use direct negotiations, which the Working Group asserts lacks transparency, despite fierce competition for the blocks, which makes competitive bidding thoroughly feasible. Indeed, Section 10 (8) of Ghana’s Petroleum Exploration and Production Law (Act 919) which establishes the legal processes for allocating the country’s oil blocks stipulates “Where the Minister receives more than one expression of interest, a tender process in accordance with subsection (3) shall be undertaken.”
However, government is falling back on the very next clause in the law, Section 10 (9) which states that ”the Minister may, in consultation with the (Petroleum) Commission determine that a petroleum agreement may be entered into by direct negotiations without public tender, where direct negotiations represent the most efficient manner to achieve optimal exploration, development and production of petroleum resources in a defined area.” The question the Working Group is asking is “the most efficient manner” defined?
They point out that direct negotiation is used where an oil block is not particularly attractive, usually because of a lack of geological data for making an informed decision – and for securing investors to fund exploration – or because it is situated in terrain that requires peculiar technological knowhow such as in Ghana’s very deep water blocks. But they argue that Ghana’s strong recent record of large, commercially viable oil and gas discoveries, which indeed have attracted some of the world’s largest international oil companies including ExxonMobil itself, has “de-risked” Ghana despite admittedly inadequate geological data on the specific blocks themselves. Indeed, the attractiveness of the blocks to be allocated is evidenced by the fierce competition for them.
The BLR Working Group further argues that the process for direct negotiation itself is inadequate with regards to transparency, in terms of the conditions whereby it should be resorted to and the public disclosure requirements which the Minister must comply with. Ultimately, they argue, the Minister is given complete discretion and is not required to explain his decisions, unlike in jurisdictions such as even Liberia and Sierra Leone where the frameworks for direct negotiations are far more transparent.
Criticism of the tack being taken by government is exacerbated by the failure of the Ministry to disclose its decisions and the reasons for them even as direct negotiations are expected to commence imminently – although instructively even timelines for the process have not been disclosed yet.
Government has already allocated two oil blocks by competitive tendering, after the evaluation of bids received on May 21, 2019 for Blocks GH_WB_02 and GH_WB_03.
In accordance with Ghana’s local content and participation regulations, which require that international oil companies partner local counterparts who must have at least five percent equity stakes in exploration and subsequent production blocks, First Exploration and Petroleum Development Company Limited in partnership with Elandel Energy (Ghana) Limited has been allocated the block GH_WB_02. Similarly, ENI Ghana Exploration and Production Limited in partnership with Vitol Upstream Tano Limited emerged winners of block GH_WB_03.
First Exploration is a Nigerian company which began operations in 2012. ENI Ghana is the operator of the Sankofa Gye Nyame oil and gas field off shore of western Ghana, which commenced production in July 2017 and possesses by far the largest natural gas resources available to the country.
Next year, government will engage in a second round of licensing, where three other blocks are expected to be auctioned through competitive tendering.