STATEMENT OF THE CS PLATFORM ON OIL AND GAS ON RECENT DEVELOPMENTS WITHIN THE GHANA NATIONAL GAS COMPANY
Presented to the Press in Accra on October 18, 2012
Ladies and Gentlemen of the Press, we have invited you here today to share with you and the good people of Ghana, our concerns around issues bordering on fraud, disregard to standards, management intransigence, and lack of accountability as they relate to the Ghana National Gas Company.
Sometime during the second quarter of 2011, the National Gas Development Task Force, established by the late President, Prof. John Evans Atta Mills to work-out the road map to the development and utilization of associated gas from Ghana’s Jubilee oil field as well as other gas reserves in Ghana’s offshore zone submitted its report to the president. The task force was led by Dr. Kwesi Botchwey, with Mr George Sipa Yankey as member.
The task force in their report recommended an early phase of gas harvesting and processing, which if implemented expeditiously, would enable the evacuation and treatment of associated gas from the Jubilee Field production.
Shortly after receiving the team’s report, the President proceeded to establish the Ghana National Gas Company Limited, with Dr. Kwesi Botchwey as its Chairman, and Dr George Sipa Yankey as its Chief Executive Officer.
The Ghana National Gas Company Limited (GNGC) was incorporated as a limited liability company and registered in the Republic of Ghana under the Ghana Companies Code 1963, in July 2011.
The Ghana Gas Development Project
Though GNGC was incorporated in 2011, efforts at developing the requisite infrastructure to harness Ghana’s associated gas from the Jubilee Field began much earlier, as far back as in 2009.
We recall that, in September 2009, Nigeria\'s Oando , Italy\'s Saipem and Japanese consortium Modec-Itochu were reported to have been selected by the Ghana National Petroleum Corporation (GNPC) to develop the Jubilee field\'s gas reserves. Out of 50 initial bidders, Oando, Saipem and Modec-Itochu were reportedly selected to develop assets and infrastructure at the field to exploit the field\'s gas reserves alongside GNPC. According to a press statement issued by Oando, the contract included the development of offshore and onshore high pressure gas transmission pipelines, a processing facility, liquefied petroleum gas (LPG) and condensate storage tanks, with \'the US$1bn ultra-modern facility planned to commence operations in the near future\'. But the then gas infrastructure Project Coordinator at GNPC, Mr. Victor Sunu-Attah later denied reports that Oando has won such contract with the GNPC. He explained that Oando was involved in a selection process when GNPC was looking for a company to partner it to develop Ghana’s gas infrastructure, but said the selection process was inconclusive and no contract was therefore awarded to Oando.
Ghana Gas and SINOPEC Deal
After the initial botched attempt to secure an investor to partner the GNPC the government decided to establish the Ghana National Gas Company (GNGC) upon the advice of the Kwesi Botchwey-led presidential task force. The government in 2011 secured a $3 billion oil-backed Chinese loan, part of which is to finance the gas project. The GNGC proceeded to select Sinopec to deliver the project having subjected the procurement to competitive bidding.
Ladies and gentlemen, I believe some of you may have read the reports of impropriety and underhand dealings on the part of the management of GNGC carried in the Public Agenda and Ghanaian Chronicle newspapers in recent weeks.
The Public Agenda in its September 17 edition carried a story captioned – “CHINESE CHEAT IN GAS PROJECT”, while the Chronicle captioned its story on the same subject: “Red Flag over Ghana-Sinopec deal”. The two papers raised very serious issues ranging from disregard for authority to transfer pricing manipulations, etc.
The Public Agenda alerted in its story, that China\'s Sinopec International Petroleum Services Corporation (SIPSC) may have succeeded in short-changing Ghana by at least $140 million. The amount, the paper said, represents how much SIPSC (a subsidiary of the Sinopec Group) is believed to have overpriced the Liquefied Petroleum Gas (LPG) processing plant it is purchasing to install at Atuabo for processing of gas from the Jubilee Field and losses from the first year of production.
The SIPSC is delivering a processing plant that is costing $40 million more than another plant which is considered superior by virtue of having five additional features including specifications that are favourable to the Volta River Authority (VRA).
Various simulations indicate, for instance, that the \"superior\" plant would yield additional revenues in excess of $100 million every year, translating to about $360,000 per day.
In addition, the 45-kilometer shallow water pipelines to be installed by SIPSC will cost about $1.6 million more per kilometre than the deep water pipeline installed by the Ghana National Petroleum Corporation(GNPC) despite the shallow water pipelines not meeting the technical requirement of having internal coating.
It is suspected that SIPSC has overpriced the materials - both the power plant and pipes - by building hidden costs purportedly occasioned by an arrangement with SIPSC\'s special purpose subsidiary offshore firm called SAF Petroleum Investments (FZE), which is registered in Dubai. Under the arrangement, SAF will make the initial procurement and resell the items to SIPSC. Meanwhile, the same person - Ms Yang Hua - serves as Project Director for both SIPSC and SAF.
Our information is that, attempts by both the Petroleum Commission and the Ministry of Energy to obtain details of the transactions entered into by GNGC have been resisted by its Chief Executive Officer, Dr George Sipa Yankey, who allegedly claims he reports to the president and not the Commission or the Ministry. Indeed the September 24 edition of the Public Agenda reported that the Petroleum Commission, upon noticing that portions of the purchasing order submitted to Ghana Gas by Sinopec were \"missing\", directed Ghana Gas to halt operations and make information on the \"processing facility site selection criteria\", \"facility design basis\" and \"results of simulation processes\" available to it.
The Commission is reported to have ordered Ghana Gas to suspend all \"burying\" or joining together of pipes until it had fed the Commission with certain quality assurance information. But GNGC did not comply.
The Chief Executive Officer of Ghana Gas, Dr Sipa Yankey in the wake of the reports mounted a spirited defence of his actions, but the more we heard him on radio, the more convinced we became that a forensic audit into the activities of Ghana National Gas Company was very necessary at this time.
Our concerns are many fold and cut across all the steps taken so far to harness Ghana’s gas potential.
- First, we are concerned that the Ghana National Gas company Limited was established by the Presidency, with little or no involvement of the sector ministry. Such practice undermines the authority of the ministry, and is therefore regrettable;
- We believe it was improper for Dr Kwesi Botchwey and Dr Sipa Yankey, who worked on the feasibility and road map to developing Ghana’s gas resource, to have benefited from their report to the president, by their appointment to the company that emerged as part of the implementation of their recommendations;
- The registration of GNGC as a limited liability company, while funding it 100% with public money is in our view an anomaly that makes it difficult for the exercise of the kind of public oversight that are the norm with public companies such as the Volta River Authority, the Ghana National Petroleum Company, Electricity Company of Ghana etc
- We are also concerned that, the gas infrastructure project currently underway, has not been approved by parliament;
- Again, we are concerned that Environmental and Social Impact Assessment, which is a legal requirement for projects of this nature is yet to be complied with;
- The 2012 budget and economic policy statement of the Republic of Ghana estimates that the country loses about $36 million annually through transfer pricing. With the support of the EU, Ghana has developed new transfer pricing rules. We find it worrying that in spite of the new rules, SINOPEC is able to circumvent the ‘arm’s length principle’ to inflate its purchases from a related company;
- We are concerned about the relatively high cost and low liquid recovery of the gas plant being procured for the project;
We demand as follows:
- That Dr. George Sipa Yankey be made to step aside as Chief Executive Officer of Ghana Gas, pending the institution of a high level forensic investigation into the affairs of the company. We make this demand because of the huge costs being recorded relative to the gas project and their ramifications for gas pricing when the project is completed. Ghana’s projected price of delivered gas to Takoradi (the sum of well head price of gas and capacity charge based on rate of returns) is put at $5.9 per MBtu according to a study by the Africa Centre for Energy Policy (ACEP) assuming a zero capital cost of Jubilee field development. The study was based on projected cost of the gas project proposed by the GNPC in the Jubilee Field Development Plan. The new developments around the gas infrastructure project executed by SINOPEC could raise the price of delivered gas even higher making Ghana’s Jubilee gas not only uncompetitive but also uneconomical to industrial consumers who will be unjustifiably denied cheaper source of energy than what the West Africa Gas Pipeline Company offers - currently at $6 per MBtu. We believe that, by the singular act of investigating these allegations of fraud and impropriety at Ghana Gas, the President will be sending a strong signal to the skeptics that his government is serious about fighting corruption.
- The president must gather the political courage to deal with those that may be found culpable of any impropriety at Ghana Gas;
- The Ghana National Gas Company must be restructured as a subsidiary of the Ghana National Petroleum Corporation (GNPC) under the Ministry of Energy’s oversight. This is important not only for tapping into GNPC’s technical expertise and years of experience but also for enhancing the corporate profile and industry leverage of GNPC. Again, even though the GNGC has been incorporated, its mandate is not clear as the GNPC by law and by the Jubilee contractual arrangements owns the gas reserves with the international partners, and is expected to develop and transport gas to onshore facilities.
- Parliament must take immediate steps to call for the GNGC-SINOPEC deal to be laid before it for debate and possible ratification in order to streamline GNGC’s activities;
- The Environmental Protection Agency must take steps to make Ghana Gas comply with its regulations on Environmental and Social Impact Assessment;
Finally, it is our hope that, the President, in his bid to restore trust and confidence in his government will find it necessary to act swiftly on these matters, which in our view are dragging the public image of his government in the mud.
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