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Same-Day Analysis
Oil Bill Now Planned to Precede Jubilee Production in Ghana
Published: 3/5/2010
IHS Global Insight Perspective | |
Significance | The government has set itself a tight deadline to get new oil legislation in place by the fourth quarter of 2010, after nearly two years of discussions on the law intended to clarify oversight of the country's hydrocarbon resources and, crucially, the revenues arising from this. |
Implications | Numerous stakeholders are trying to influence the course of the oil law, with concerns that a failure to institutionalise structures ahead of the arrival of oil wealth will encourage the mismanagement of revenues and new channels for corruption, which will be difficult to remove at a later stage. |
Outlook | There is a risk that tackling numerous issues at once, in a one-time effort to "get things right", will add to the sense of regulatory uncertainty in Ghana, deterring investment at a point when other Gulf of Guinea actors are preparing tenders and new projects for engagement. |
Eleventh Hour Looms
President John Atta Mills has pledged to have a new oil law (the Oil and Gas Revenue Management bill) put in place by the fourth quarter of this year in order to further institutionalise structures to manage Ghana's oil sector, as pressures on the country mount ahead of the start-up of Jubilee oil and gas production later this year.
Provisions of Ghana's Oil Bill |
Details of the oil bill have been limited in the public domain, but key clauses are thought to include:
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Internal debate on how to manage the country's newfound oil wealth has already been intense over the last two years since the bill's initial outing, ranging from criticism of existing contract forms (production-sharing agreements, PSAs), terms, and the ongoing questions about licences awarded by the previous government to Jubilee partner, Kosmos, as well as Norwegian explorationist, Aker. The change in government in 2009 meant that the 2008 petroleum revenue management bill was redrafted, although the focal points from that bill seem to have found their way into the current draft, which was submitted to the attorney-general in January and is currently under discussion by the cabinet before its presentation to parliament, on its path into the legislative books.
A visit by the World Bank last week added to pressure to expedite the bill, but also highlighted the lack of specific clauses on revenue management and the role of the state-owned Ghana National Petroleum Corp. (GNPC), as well as the independence of the proposed new regulator. Upstream reports that the World Bank had criticised the existing draft law for being insufficiently focused and raised concerns about the consultation process so far.
Neighbouring Côte d'Ivoire has also added to the pressure on the government with a claim for resources in the offshore region, reflecting lack of agreement over maritime boundaries. That has seen the government diverted into drafting other legislation to establish a Ghana Boundary Commission in order to undertake negotiations with the Ivorians on the country's on- and offshore boundaries.
Outlook and Implications
There is a slight sense of panic surrounding Ghana's last-minute efforts to pass legislation to manage the hydrocarbons sector despite a fairly long notice period for development work. That now sees the immediate focus on institutionalisation and transparency to prevent a descent into the corruption and mismanagement that has characterised the arrival of oil wealth in many neighbouring states and which, based on their experiences, would be all the harder to tackle retroactively. While the near-term priority is institutionalisation and simplification of investor terms, a number of voices have also been heard calling for a shift in the terms of engagement for foreign investors—with fiscal terms the next big issue likely to come under scrutiny once the current legislation is passed, particularly where new investments are concerned. That echoes the path of numerous other oil producers in Africa and elsewhere, where frontier terms have to be sufficiently attractive to bring in explorationists, but where work requirements, local content measures, and government take are increased after commercial discoveries are made and the risks of exploration reduced. Nevertheless, with Ghana also involved in a stand-off with ExxonMobil over its attempt to acquire Kosmos Energy's stake in Jubilee and, for good measure, engaged in a war of words with Norway's Aker over the manner of its entry into exploration under the previous New Patriotic Party (NPP) government, there is a risk that the impression of regulatory flexibility will start to turn investors off at a time when other Gulf of Guinea host countries are also coming to the market with new licence offers (see Ghana: 9 February 2010: Government Blocks ExxonMobil Move for Kosmos in Ghana and Ghana: 4 February 2010: Anadarko Clarifies Ghanaian Entry Terms as Aker Dispute Continues). This argues for a more measured approach to change and greater dialogue with the public and investors, rather than the "all at once" approach currently on show in Ghana, which also carries with it the risk of seeing a number of different issues tackled inadequately to the detriment of future growth.Most Viewed Articles
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