NPP Exposes $3Bn Kickback … In the ENI Deal

By Richard Kofi Attenkah

The New Patriotic Party (NPP) Minority in parliament has disclosed that the agreement between government and GNPC on one hand and ENI and VITOL (Ghana) for the development of the Sankofa and Gye Nyame Oil and Gas project is bloated by US$2-3 billion to the disadvantage of Ghana.

“It is important to once again question the motive behind the Government of Ghana overreaching itself to sprinkle such quantum of roses in the way of ENI/VITOL, the minority noted.

The NPP Minority in parliament continued that: “In doling US$2 billion out, God knows how much somebody in government will be taking as kickback.”

Addressing a press conference in Accra yesterday, Osei Kyei Mensah-Bonsu, Minority Leader in parliament, expounded that another wasteful concessions offered to ENI/VITOL in the agreement is in the area of tax incentives, which Ghana is required to provide to the tune of at least $125million.

GNPC, he clarified, is obliged to make additional upfront cash payment of $125million in order to bailout the contractors in the event of a shortfall in revenue.

“In other words, the government is compelled to pay cash to the ENI/VITOL to offset any decreases in their (the contractors) profit”, Mr. Mensah-Bonsu posited.

Again, government is required by specific provisions in the agreement to issue a $100million sovereign guarantee to pay for the shortfall in case GNPC defaults, adding these risks are too high for the country, which could ostensibly expose the country to other investors.

“Besides these, the World Bank and IDA, at the invitation of the Ghana government, provided further partial risk guarantee cover of up to $700million”, the Minority Leader explained.

He explicated; “In effect, the back-up guarantee points to the lack of investor-confidence by ENI/VITOL in the Government of Ghana”, adding “This will have repercussions on any future agreements. Investors will take a cue.”

Beside the sovereign guarantee provided by government, the Member of Parliament (MP) for Suame said the guarantees separately offered by the World Bank and IDA, GNPC is obliged to open a US Dollar Escrow Reserve Holding Account for ENI and VITOL.

He continued that the GNPC is required to capitalise the account with an amount, which shall be equivalent to 4.5 months of the contractor’s share of Annual contract quantity.

Explaining further, he noted that the Jubilee and TEN gas sales Escrows called for the provision of funding amount to 3 months of annual contract quantity.

He added; “The Jubilee and the TEN gas sales agreements were the initial agreements and one would have thought that they would have provided government with useful lessons to improve the fiscal regime. Alas, this is akin to the biblical story of Essau selling his birthright to Jacob.”

Continuing, the Minority Leader said GNPC is required to off-take 90% of the total quantity of gas produced by the contractors at a guaranteed price of $9.8million per British thermal unit (mmBtu).

Using the price of Nigeria gas in comparison to what is expected to be produced by the Sankofa and Gye Nyame Oil and Gas project, Hon Mensah-Bonsu noted that “Nigeria’s gas to Ghana is about $9.00 per mmBtu after it has been transported over 670km.”

He questioned the kind of interventions GNPC would make in the production of Nigeria gas “and yet we procure gas delivered from Nigeria to Ghana at a cost of $9 less than the headline cost of gas at Sankofa which is $9.8 per mmBtu.”

Continuing, he stated; “There would be no incentive to Nigeria to continue to sell gas to Ghana at a cost of $9.0 per mmBtu or $7 without the transport cost. Nigeria is likely to negotiate the selling price of their gas upwards if the State, through GNPC, is prepared to buy made-in-Ghana gas at $9.8.

“In plain language the net effect of the so-called negotiation that culminated in the agreement is that once production commences, regardless of whatever volatility that occurs in the world gas price, the contractors will never make a loss, neither will their profit level see any decline.”

The minority leader noted “The state is compelled to bear the entire risk of any loss that may happen to the contractors.”

Stating that the $9.8 per mmBtu price is guaranteed over the 20 year life span of the project, he stressed that “The $9.8 price per standard measure excludes transport cost over the 63km distance.”

“If cost of transportation is added the price per mmBtu is estimated at about $12”, he averred, adding “This makes the gas to be produced in Ghana the most expensive in the world.”

A further feature that makes the agreement catastrophic is the absence of any form of flexibility, which according to him, “say, for a review of the price downwards in the event of the collapse of world gas price.”

Touching on the tax deductible interest of 7% on the commercial loans of the contractors, the Minority Leader noted that if the contractors borrow at 2% into the project, that borrowing must be deemed to be at 7%, saying that has serious financial implications to the government.

“After the subsidence of the world financial meltdown, its aftershocks and also after growth rates in China have started dipping thereby causing a decline in crude oil prices, interest rates on commercial loans, correspondingly, have been plunging and are predicted to remain below 7% for long.

“ENI has interest in some banks”, which according to him, “If they borrow from such banks or their sister companies they would escalate their gains at the expense of Ghana.”

Commenting on the 20% returns on the ENI/VITOL investment, Hon Mensah-Bonsu said the figure was abnormally high as compared to the normal 12.5%, which applies internationally.

“The contracted provision of financial terms to ENI/VITOL of 20% return on investment instead of the normal 12.5% is an unusually high rate for commercial transactions of this nature, especially as GNPC and Government assume all the risk in the project.”