By ISAAC AIDOO IN ACCRA, GHANA.
Ghana’s petroleum revenue audit body, the Public Interest and Accountability Committee (PIAC), is courting spirited advocacy from the media, Civil Society Organisations (CSOs) and other relevant bodies to get reviewed the law that set up the country’s National Oil Company (NOC), the Ghana National Petroleum Corporation (GNPC). PIAC is confident a review of the GNPC Act will reposition it to better serve the interest of Ghanaians by adding value to the Ghanaian economy. The GNPC law (PNDC Law 64, 1983) is 40 years and a review is long overdue. GNPC is an upstream company, aiming to operate a field in the short-term. It holds minority stakes in producing fields and therefore retains earnings from crude oil and gas sales. GNPC has conducted pre-exploration activities both offshore and onshore, owns marine vessels, and sees research and collaborations as major enablers to developing operator capabilities.
Departure from core mandate
PIAC, oil experts and CSOs maintain that very little of the money given to the corporation from the central government goes into its core mandate. A chunk of budgetary allocations have gone into providing loans and guarantees for other state enterprises or government itself and for undertaking quasi fiscal expenditure, whereas it was the Annual Budget Fund Amount (ABFA) that was supposed to undertake quasi fiscal expenditures as far as petroleum revenues (PRs) were concerned or other revenue. Oil experts have called on Ghana’s NOC to focus on investing in the exploration, development and production of Ghana’s petroleum resources while building local capacity in the oil and gas industry as mandated by the GNPC Act
What a reviewed law will bring
A successful review of the law setting up the Corporation is expected to reorient the operations of the NOC and its mandate in tandem with present day operations of NOCs as well as meeting the original objective for GNPC to become a major player in Ghana’s oil and gas sector. Mark Agyeman, technical manager with PIAC, has trumpeted the call to have the 40-year law reviewed, stressing that the law in its current form has outlived its usefulness. “GNPC is aware that a time will come when they will need to put more responsibilities on themselves, diversify their investment portfolio, and be in a profit-making position and pay dividends to the state. They cannot continue to live off the largesse of the state,” he said. He added that “without the meddling of government and other state-owned agencies, GNPC would have been in a good financial position. Currently, guarantees alone to other state-owned enterprises are getting close to $600 million. And this is besides the quasi-fiscal expenditures undertaken by GNPC on behalf of the government.” Agyeman said the NOC will struggle to become independent if it continues to engage in quasi-fiscal activities. The law, when reviewed, will ensure that the NOC takes its rightful place in the scheme of things, especially in the wake of the much talked about energy transition. “It’s only a review of the law that GNPC and then we can realise what we have been calling for, per PIAC’s findings,” he said.
GNPC’s mandate
GNPC’s mandate is to be an upstream company. That said, it is tasked by the government as the national gas aggregator, collecting associated and non-associated gas from Ghana’s producing fields (negotiating the price of gas) and selling it on to the Ghana Gas Company. GNPC’s ability to reduce the cost of the non-associated gas from ENI’s field was of significant value to the country. However, GNPC is not being paid by Ghana Gas, and not financially compensated by government, which makes this role financially unsustainable in the long run and will eventually require government intervention
Red flags over GNPC’s expenditures
From its work over the past decade, PIAC and other experts in the extractive space including parliament have had cause to raise red flags over the NOC’s expenditures and activities which had fallen out of the company’s mandate. According to PIAC, GNPC’s 2022 expenditure on various line items, mainly administrative expenditure and GNPC’s capital projects, witnessed significant increases by more than 200 percent. PIAC’s findings captured in its 2022 annual report were that in 2022, the NOC received an amount of $38, 835, 537.56 as gas commodity revenue from Cash Waterfall Mechanism which was not paid into the Petroleum Holding Fund (PHF) as required by law. “GNPC’s continued funding of the construction of roads in the Western Corridor enclave constitutes quasi-fiscal expenditure, and should be the responsibility of the central government. The total expenditure by GNPC on these roads since 2014 is $124.66 million,” PIAC stated. The report disclosed further that total lifting proceeds received by JOHL, a subsidiary of GNPC for 2022 amounted to $272, 652, 208.95. “In spite of calls by PIAC that revenues of JOHL constitute Petroleum revenue and should be paid into the PHF, the NOC disagrees and continues to use lifting proceeds of JOHL for other expenditures,” the Committee laments in its report. Given that petroleum revenues recorded a historic high in 2022, PIAC demanded of the NOC a better management of its expenditure. PIAC called on the GNPC to build buffers against volatilities in petroleum revenue inflows in the future so as to not deny areas like the District Assembly Common Fund of rightful money needed for infrastructure development and governance at the local level.
AfDB’s revealing study on African NOCs
Research conducted by the African Natural Resources Centre (ANRC) in 2021 on the performance of selected African National Oil Companies revealed interesting findings. The African Development Bank (AfDB) through the ANRC commissioned the study on the NOCs in order to evaluate how African NOCs could create lasting value. According to the study, “when asked to describe GNPC in one word, interviewees offered manyinstead: bureaucratic, slow, centralised… This opened discussions on how they would like to see the company: one with a defined corporate culture that guides employees towards more personal accountability, more delegation and cascading authority, enabling decisions to be taken at the operational level, more continuity and less politics, and more openness.” In GNPC’s upstream segment, the study found out that the Corporation lacks approved upstream policies and procedures which are needed for stand-alone operatorship, such as formalised field development planning standards and procedures or integrated reservoir model development and maintenance frameworks. The GNPC, “currently does not have formalised rig inspection and certification standards and processes which are essential to the company’s goal of achieving operatorship.”
Algeria’s Sonatrach
According to the study, Sonatrach, the national state owned oil company of Algeria passed a new hydrocarbons law that underpinned a transformation strategy set to see the company invest in solar energy to meet demand at its facilities, domestic consumers and for export. It plans to have 80 percent of its own electricity needs covered by solar by 2030. In that timeframe it will expand solar generation to 1.3 gigawatt and eventually 4 gigawatts (current domestic demand is 14 gigawatts, which is expected to grow to 22 gigawatts in 2030).
Repositioning GNPC for the energy transition drive
As the window for extracting value from oil is beginning to close thanks to the uptick of the global energy transition, experts have urged the GNPC to position itself to become a stand-alone operator and take advantage of the current transition. Globally, a chunk of the major oil companies such as Shell, ExxonMobil and BP are said to be diversifying their investment portfolio and putting some into renewable energies. It is high time GNPC got its acts together, in preparation for what lies ahead, as the transition looms.
