Business News of Wednesday, 11 March 2015
Government accrued about US$2.7billion in total revenue from the oil sector after four years of production activities under the current Modern Concession System — when the figure could have reached US$6.4billion if the country had adopted Production Sharing Agreements, the Ghana Institute of Governance and Security (GIGS) has said.
The Institute is therefore asking government to switch to Production Sharing Agreements in awarding contracts to foreign oil companies (FOCs) so that the country can reap the most benefit from the oil and gas resources.
“The country lost about 38,081,090 barrels of oil worth US$3,673billion over the last four years of exploration activities through failing to sign Production Sharing Agreements with its foreign oil contractors.
“Government would have garnered US$6.4billion in oil revenue over the four year period if it had operated the PSA regime against the US$2.7billion that it has accrued under the current Modern Concession Agreement,” said the report, signed by Solomon Kwawukume, Senior Research Officer in Oil and Gas at GIGS.
Production sharing agreements (PSA) are contracts between one or more investors and the government in which rights to prospection, exploration and extraction of mineral resources from a specific area over a specified period of time are determined.
Production Sharing Agreements, according to GIGS, are the most equitable fiscal regime for sharing oil revenue with foreign contractors as they guarantee good returns on investments for the oil companies and a fair share of oil revenue to host countries.
According to the report, a total of 124,947,373 barrels of oil valued at US$13,496billion were produced and exported within the last four years.
Out of that figure, the country reaped a total of US$2,755,084,951 for 21,482,281 barrels comprised of royalties, carried interest and participation interests valued at US$2,305, 440,869; and the payments of corporate taxes and surface rentals by foreign oil companies which were US$448,379,663 and US$1,264,419 respectively.
Ghana’s contractors — the foreign oil companies (FOCs) — on the other hand, mobilised 103,519,092 barrels of oil valued at US$10,741,730,280 representing 79 percent of total production revenue; an annual average income of US$2,685,432,759; and a gross return of 64 percent on initial capital investment per year.
The figures indicate that the amount accrued to the country, which made up 21 percent of total production revenue and gross yearly average revenue of US$688,771,237.75 — representing the Minimum Government Take — is far below the 42 percent international standard set by the United States’ Government Accountability Office.
The Minimum Government Take is the total economic returns that accrues to the host oil producing country from the total production revenue for allowing its oil and gas resources to be exploited under any fiscal agreement.
The report stated that the country will continue to lose heavily yearly when other oil fields come on-stream, especially when the Petroleum Exploration and Production Bill — the legal framework that approves the current modern concession agreement system –is approved.
“Under the current system, Ghana will continue to lose heavily each year when the other oil fields come on-stream despite the increase in the carried interest cap — which supporters of the Bill see as an improvement to the fiscal provisions — to 15 percent,” said the report whose tone sought to advise government to adopt Production Sharing Agreements in its dealings with foreign oil contractors.