In West Africa, the Africa Centre for Energy Policy (ACEP) is raising issues against the Sankofa gas project agreement, stating it would not offer Ghana value for money, Pulse.com reported on Tuesday.
Gas project partners, Eni of Italy, Vitol Group of the Netherlands and the Ghana National Petroleum Corporation (GNPC), announced in January that the first oil and gas production will be phased through 2017 and early 2018.
Vitol further stated that the Ministry of Energy has committed to enhancing the gas transmission system with compression stations and connections to industrial users.
The Sankofa gas project is estimated to contribute more than 700MW of new power generation.
World Bank guarantees
The board of directors of the World Bank approved a $700 million dollar guarantee for the gas project initiative, which comprised of a unique combination of two guarantees.
Firstly, an International Development Association (IDA) payment guarantee of $500 million that supports timely payments for gas purchases by GNPC.
Secondly, an IBRD Enclave Loan guarantee of $200 million that enables the project to secure financing from its private sponsors.
Together, the guarantees are expected to mobilise $7.9 billion in new private investment for the offshore natural gas project. This will be the biggest foreign direct investment in Ghana’s history.
Gas project concerns
However, in an interview with local media ACEP’s executive director, Dr Mohammed Amin Adam, is questioning the economic sense of the gas project’s deal.
Adam said: “Gas prices per million British Thermal Unit (BTU) is about 4 to 5 dollars on the average and so why would we negotiate 9.8 per million BTU?
“That is on the high side because that is the price they would sell the gas to us but because we are hungry for gas to solve our power crisis we went in for that.”
Adam continued: “After all, the risk profile has significantly gone down because a commercial discovery has been announced and so the risk is limited to gas sales arrangements.
“And to that extent, they have requested five different sovereign guarantees and our sovereign guarantees are also been guaranteed by the World Bank – which means that they don’t even trust the sovereign guarantees Ghana is supposed to issue.”
Amending the law
According to Adam the gas project deal as it stands, would also compel government to seek an amendment of the recently revised Petroleum Revenue Management Law.
“We are required to establish an escrow account and GNPC’s share of oil revenue is supposed to go into that account to be used for payment of the gas sold to us.
“By the Petroleum Revenue Management Act, GNPC is entitled to its share for 15 years from the date the law took effect but the sales agreement we’ve signed is for 22 years – which means that when GNPC is no longer entitled to the share of the oil revenue, they would be bound by the contract to still put in their share of the oil revenue when they don’t have it.
“It means that we would go to parliament very soon to amend the Petroleum Revenue Management Act in addition to the amendment that has already been carried out to allow GNPC further capitalisation beyond the 15 years.
“This is a violation of the law but because we’re hungry for gas we’ve closed our eyes to it,” Adam concluded.