Moses Asaga, Chairman, Parliamentary Subcommittee on Energy
Edited transcript
David’s introduction: Moses Asaga is the Member of Parliament for Nabdam and the Chairman of the Parliamentary Sub-Committee on Energy.
We’ll be examining the state of laws with regards to the legal framework in the industry. We will also be examining issues of revenue sharing, the fiscal regime and a whole range of issues that show that this country is ready for production in the last quarter of 2010.
David: What kind of legal framework does Ghana have in place to guide the development of its emerging oil and gas industry?
Moses Asaga: First of all the parliamentary sub committee on energy is responsible to the Ministry of Energy. The committee has oversight responsibility over the Ghana National Petroleum Company (GNPC), the Tema Oil Refinery, the Bulk Oil Storage and Transportation Company and all affiliated energy agencies. With regards to oil and gas up stream sector the main agency there is the GNPC and the Ministry for Energy. The laws we operate with now were promulgated in the mid 80’s - PNDC Law 84, the Petroleum law, taxation law and the model agreement which came in around 2000. These are the laws that guide the petroleum sector especially the upstream. There are different acts for the downstream sector also; we will soon come up with legislation for the midstream. Based on these laws parliament is able to do its work and as far as oil and gas is concerned GNPC is our main target group. This is how the system works. Once there is an application for exploration and production, GNPC handles the technical work and then forwards the agreement to parliament. We in turn review the company applying to determine its technical capabilities, financial capabilities, exploration experiences worldwide and especially in West Africa because most of the basins and geological formations in the region are similar. Now that we are talking deepwater, companies with exploration and production ambition must have deepwater experience; so basically these are some of the few details we look out for. Being representatives of Ghana and having oversight responsibilities on the expenditure and revenue on Ghana, we also look out for the fiscal regime in the contract such as the revenue government will take. As far as the fiscal structure is concerned, we look at royalties and additional oil entitlement based on the rate of returns on a particular project or field. We are also looking at the 35% corporate tax and in addition the equity participation of GNPC which is in the law; and most importantly the 10% carried interest of GNPC where we pay nothing for exploration and production but are entitled to an equity stake as the Ghana government.
David: Most of the laws that govern the operations of the petroleum industry were established in 1980s. Are they not outdated?
Moses Asaga: Substantially they are still very relevant but with new technologies in place I think we need to improve on them. That is why government is looking at a Petroleum Regulatory Authority Law which will harmonize the petroleum agreements, GNPC law, taxation and the model agreement. Efforts are being made and I know in the next 30 days we should have a Petroleum Regulatory Authority Law. But I think we need to amend the laws governing contract content and the policy of giving out blocks. This is because we initially had a geological risk which was very high so we ensured that it was an open door policy where GNPC and the Ministry for Energy received applications from potential international oil companies. But now that we’ve found oil, Ghana has now been de-risked and there are lots of applications as a result. I think that in order to improve the value of our assets in monetary terms we need to start the Licensing or Bidding Rounds. Because we do not have experience in this, I think that part of the regulation will need to capture how the Bidding Rounds or Licensing Rounds are done.
David: An open transparent bidding process or quiet assignment of blocks?
Moses Asaga: I think it will be an open transparent process including even the demarcation of blocs.
David: Is the fiscal regime finalized and agreed and properly in place?
Moses Asaga: The fiscal regime is in place.
David: And you are happy with it?
Moses Asaga: I think so far we are happy because when you aggregate all entitlements and consider what the government take is, I think we are doing very well. Government is actually making about 55% and above.
David: 55% of what?
Moses Asaga: Of the total oil revenue that will come from a production field.
David: Is that how much we get as a country?
Moses Asaga: Yes that is what we are going to get. It is even going to be better because it varies from contract to contract. In previous contracts we were getting around 45% - 50% but in the new contracts that we have recently rectified, we are almost hitting 65%.
David: So you are asking for more and more as you go along?
Moses Asaga: Yes, we are asking for more.
David: Is there not a risk there?
Moses Asaga: We are cautiously asking for more because if we take into consideration other countries it is as high as 90% but we think that 50% - 65% is quite an optimum number as government take.
David: But exploration is expensive and development of the fields is also expensive. We don’t have the resources to do it, do we?
Moses Asaga: We don’t.
David: If you don’t, how do you therefore manage to be the biggest beneficiary?
Moses Asaga: They are sovereign resources and the oil and gas belongs to Ghana and therefore the international oil companies are here to do business. They should not do business where the Ghana government and its good people will be at a disadvantage. That is the industry practice right from the Gulf of Mexico to Venezuela and to the North Sea and where have you. I think that so far the oil companies are happy with their take here in Ghana. Other companies are even willing to give us bigger benefits because in Venezuela for instance, an international company’s take could only be 10%.
David: The Venezuela example is a controversial one, isn’t it? The Venezuela example is not the primary attraction for foreign investors and it has an air of nationalization about it.
Moses Asaga: It’s not nationalization. Despite the controversy, all the major oil companies like BP, Chevron, and Exxon-Mobil are still operating there because they are making money out of it. If we want to look at best practice, it’s always about 80% - 85%; like what the Norwegians take.
David: But their government makes substantial investments itself?
Moses Asaga: Yes, what is happening is that the government is using Statoil which has been in existence for a period of 50 to 60 years. Our equivalent of Statoil is GNPC. Having a national oil company is key and that is why in the laws that are yet to be promulgated, the role of GNPC has to be properly defined.
David: Shouldn’t development of major oilfields be a private sector activity given the large amounts of money involved?
Moses Asaga: Oil and gas is a strategic commodity and so cannot just be passed on to the private sector to handle. Secondly, the general model so far is that National oil companies do have roles to play and I believe about 80% of oil producing countries in the world would always use national oil companies.
David: Even when they don’t have the capacity and expertise?
Moses Asaga: But that is why GNPC is there. Look at where we came from; today we have improved a lot in the area of technology. We used to dabble with 2-Dimensional seismic data; today GNPC can look at 3D imaging seismic and process data. We have also developed the capacity for this industry, even though we need to do more. Today, we have excellent geophysicists, geologists, petroleum engineers etc for the industry. But where we lack the human resource is the reservoir engineering, reservoir management and maybe a few production engineers. That is why we partner with Kosmos and Tullow to learn more on the technology of production.
David: What is the attraction to Trinidad and Tobago?
Moses Asaga: Trinidad and Tobago is an oil and gas producing country with a very good gas policy. The attraction therefore for Ghana is on two levels, the first being the fact that Trinidad is a small country and secondly, it could be considered as a developing economy which means it fits into Ghana’s present state of economy. They also use indigenous human resources who have extensive knowledge on gas technology for their gas industry. What Ghana needs from Trinidad and Tobago is their model for gas, ie, the gas infrastructure and then the use of the gas; processing of the gas to add value. Also we want a model for what we call an industrial estate, be it a petroleum or chemical or petrol-chemical industrial estate.
David: Do we have a clear idea of what we want to do with the substantial gas deposits that will accompany the oil?
Moses Asaga: Yes. First of all we want to use the gas basically for power generation. The second phase will be to use the dry gas for petrol-chemical s and produce chemicals like methanol, fertilizers and urea. The other products from the gas will be the natural gas liquids which have high value like propylene. They will be stripped from the gas and loaded onto tankers, compressed and then exported. Dry gas which is methane is what will then power our thermal plants along the coast; this will be about 5000 megawatts of electricity which means our thermal compliment will be very high. We will need the West African pipeline because pipeline construction is very expensive and so we will use that facility for reversal flow of gas to Benin or Togo. This means that we will save the infrastructural cost from Aboadze up to Tema and beyond and then we will only build new infrastructure to serve these other countries.
David: What is the status of the gas plant you have been speaking about for sometime now?
Moses Asaga: You don’t build the plant when you have not yet completed your plan of development of the fields. I think a month ago government signed the plan of development of the production of the fields between Kosmos and Tullow. Currently we are at the level of contracting the FPSO. It is this FPSO that is going to produce the oil and gas and also separate the gas from the oil. As I talk to you GNPC has shortlisted companies for the gas plant.
David: But that’s been the case for some time now?
Moses Asaga: No, that is not the case.
David: So when will this process be complete so we will know which company is going to build the gas plant?
Moses Asaga: Like I said earlier, tendering has taken place and we have shortlisted companies. Companies A, B, C have been selected and they know what they are supposed to do. They have been given between 15 – 18 months to complete their bit of the infrastructure.
David: We have chosen THE COMPANIES?
Moses Asaga: Yes. We have chosen the companies that are going to build first of all the gas pipeline, the gas processing plant (on shore) and also the pipeline to the power plant, be it Efasu or Aboaze. So we are on track.
David: Is there a plan for the petrol-chemical industry, and where does the petrol-chemical industry fit into this?
Moses Asaga: There is a plan and that is why we are strictly using the Trinidad model but with country specifics. The GNPC and Ministry for Energy have acquired land in western region for this industrial estate. Now we need things like right of ways, EPA assessment which are all going on concurrently; so that when we are done with the processing plant we can then test run the plant. Like I said initially, the idea will be to power the thermal plant then we’ll start the construction of the industrial park which will then deal with the petrol-chemicals.
David: Do we have legislation in place with regard to local content?
Moses Asaga: GNPC has the ideas with regard to local content. When I say local content it means that all the services within the oil and gas industry are all local content. Partnerships with foreign companies constitute the local content. What GNPC has done is that it has identified and listed all the local contents. They have also come up with an application for people who want to get involved in the services sector. Two weeks ago the Ministry for Energy came out with a local content policy but it is still in consultation with stakeholders. I think that the local content should not only be a policy document, it should be by legislation and that is where we have to move on next.
David: Will you do that?
Moses Asaga: As far as I am concerned I will want us to do that so that the rules are clear.
David: The upstream oil and gas industry is new and the stakes are high. Are the people in the sub-committee on energy knowledgeable enough?
Moses Asaga: Oil and gas production involves various professions like finance, economics, business and law. We have people in the committee with backgrounds in these professions as well as people who understand the oil and gas industry either from practice or a technical point of view like me.
David: And these skills are there in parliament?
Moses Asaga: Yes, these skills are found within parliament.
David: So you don’t rely on any expertise from outside?
Moses Asaga: Sometimes we need expertise when there is too much detail of technical issues.
That is where GNPC comes in.
David: That’s another issue. Many consider GNPC as playing a conflicting role.
Moses Asaga: The GNPC law that I quoted was very specific on the role of GNPC. GNPC was supposed to operate as a commercial entity.
David: So what about the regulatory aspect?
Moses Asaga: The regulatory aspect only came in as an administrative fiat based on need. Need in the sense that at the time we started a lot of the staff of the petroleum department of the ministry were transferred to start the GNPC.
David: So the ministry was more or less depleted of human resource?
David: You plan to correct that?
Moses Asaga: The correction will be stated clearly with the emergence of a Petroleum Regulatory Authority. GNPC will now be assigned with commercial responsibilities and it must undertake joint ventures, partnerships and be able to do it’s own exploration and production. It will no longer dabble into regulatory or supervision affairs. This will mean that Ghana Regulatory Authority will have the departments that will play the regulatory role. To be able to build the capacity for this purpose, the Ministry is scouting round in the Diaspora for Ghanaians with the expertise to do this job. I was in Houston, Louisiana and Washington scouting for Ghanaians and asking them to come home. We must be able to give them attractive packages with incentives in order to bring them home. The Minister for Energy in particular is very interested in this plan. USAid is also interested.
David: What will government do with the oil revenue?
Moses Asaga: Stakeholders have been meeting to look at managing the oil and gas revenue.
David: So for now there is no clarity yet on that?
Moses Asaga: Before you get to clarity there must always be a consensus.
David: Yes, but you are running out of time.
Moses Asaga: No; everything is in progress. It’s probably the PR of the Ministry of Energy that hasn’t let the information out. There is always a myth surrounding oil and gas; and I think this myth should be broken so that people can understand what the Ministry of Energy is doing. Two days ago I had a meeting with the World Bank and the Minister for Finance. The focus of the discussion was oil revenue management. Again I was in Norway about a week ago listening to presentations on oil revenue law and oil revenue management. I went into another meeting with the Ministry for Finance in Norway which is in charge of the revenue management and the fiscal regulation for it.
David: What is the direction you are going in?
Moses Asaga: There are two fold directions. We can have a formula for the revenue which is ear marked; we can also have one that will not be ear-marked and that just goes into the consolidated fund. With the ear-marked, we are only going to say the revenue should go into ABCD areas and in certain ratios. The one that is not ear-marked goes into the consolidated fund so that government uses it to fill in the gap from the non-oil budget for example. But Ghana wants to go beyond that so we want to have a fund called a stabilization fund and then a future generation fund. A certain percentage would then be allocated to the stabilization fund and the future generation fund while a certain proportion goes into the consolidated fund. To be able to do that, we need to get the real production figures in order to know how much revenue we are going to get.
David: But we already know that. We say we are going to get about $20bn over the next two decades or so.
Moses Asaga: but we are discovering more fields.
David: Let’s look at what we have now.
Moses Asaga: Yes, then you have to take an optimum figure. Then again test producing is very important because we have seen countries like Mauritania which had hyped figures and when production began it got chocked up. So I think we should do this gradually and the laws should be put in place.
David: But you must do it before the oil is produced.
Moses Asaga: Yes, we will. As you are aware the regulation for oil revenue management is one of the prior conditions for our relationship with the World Bank and the IMF. We as government need to do it because World Bank is pumping in almost a billion plus. I believe by the time parliament will reconvene in October we will have the draft of revenue management law brought forward to parliament and then we flesh it out, take it back to the ministries of finance and energy for fine-tuning and then back to parliament before it becomes law.
David: Thank you
First Broadcast 26th September 2009, TV3 Ghana
