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Oil and Gas in Ghana: Legal issues

Posted: 5th July 2011 11:10
By Kojo Bentsi-Enchill

Challenges from Oil Discovery

The oil discovery poses enormous challenges to Ghana.  The maritime boundary with Ivory Coast has to be settled.  The Petroleum Exploration and Production Law provides for unitization but there is no mechanism for cross-border unitization.

The Ghana National Petroleum Corporation (“GNPC”) has been both a regulator and an operator.  This dual role is rich in potential for conflicts of interest and possible misuse of regulatory powers to promote valid national operational ambitions.

The regulatory structure has seen little development consisting largely in ad hoc evolution of petroleum agreements and in regulatory notices on local content and on registration of oil service companies, rather than in formal legislation.

A host of other regulatory institutions and agencies face specific challenges in their respective sectors, for example, the Environmental Protection Agency (“EPA”), the Internal Revenue Service (“IRS”), the Navy, the Ghana Maritime Authority, the Fisheries Commission, the Banking and Insurance industries..

Moving Forward

Some legislative answers are beginning to emerge in the face of these challenges. 

Legislative Developments

Key legislative developments include the National Petroleum Commission Act, 2011, the Petroleum Revenue Management Act, 2011 and the Petroleum Exploration and Development Bill.

National Petroleum Commission Act, 2011 – this was rushed through as a bi-product of parliamentary consideration of the Petroleum Revenue Management Bill and the Petroleum Exploration Production Bill.  Effective with the enactment of this Act, the GNPC ceases its regulatory and advisory function and is supposed to wrap up this function within six months.  However the Act has not received presidential assent and is rumored to have been withdrawn for further amendments.  A seismic shift is nevertheless portended in the regulatory structure. 

The Petroleum Revenue Management Act, 2011, Act 815 (“PRMA”) – this act provides for the collection, allocation and management of upstream petroleum revenue.  The new measure overrides any contrary provisions in any existing law, regulation or agreement.  Such retroactivity in respect of a fiscal matter is in fact permitted by the Constitution of Ghana.

 The Act defines petroleum revenue to include royalties from oil and gas, additional oil entitlements, surface rentals, receipts from petroleum operations and from sale or export of petroleum.  Receipts from government’s direct or indirect participation in petroleum operations also count as petroleum revenue.   

The revenue also includes corporate income tax receipts from upstream and midstream petroleum companies and the NOC’s corporate income tax, royalties, dividends, and any other dues.  Any other direct or indirect revenue from petroleum, e.g. capital gains tax from sale of interests in petroleum agreements also forms part of the petroleum revenue.

All petroleum revenue is supposed to go directly and promptly into the Petroleum Holding Fund at the Bank of Ghana.  Petroleum revenue has to be paid by direct transfer into the Petroleum Holding Fund. The revenue from the holding fund has to be transferred into 3 funds: (1) The Consolidated Fund, (2) The Ghana Petroleum Funds (Heritage & Stabilization Fund) and (3) Exceptional deductions.

An important exception is petroleum revenue that will be money to settle Ghana’s equity financing costs, and also cash or barrels of oil ceded to NOC from the carried or participating interest of the Republic in petroleum operations,  The amounts and the uses of such monies are subject to Parliamentary control and review.

Implications of Structuring Securities  

If all petroleum revenue other than the portion diverted to the national oil company has to be paid into the Petroleum Holding Fund, then the space for creating securities over Ghana’s participating interest in the Jubilee Field and other blocks is to that extent constrained.  It is now unlawful to create security structures that have implications contrary to the new statutory waterfall.   

  • The Act prohibits the use of the fund as collateral for debts, guarantees, commitments or other liabilities of any entity, the use of it as credit and loans to the government and public enterprises, private sector entities and prohibits any borrowing against it.  It cannot also be used for extra budgetary uses and cannot also be statutorily earmarked other than to the Petroleum Holding Fund for any consideration.

 

  • However as a limited and temporary exception, security may however be created over the Annual Budgeting Support Amount for a period of ten years after the commencement of the PRMA.  Such security can only be created after the petroleum revenue has been transferred from the Petroleum Holding Fund into the Consolidated Fund and from the Consolidated Fund into specific collection accounts or debt service accounts established by the Bank of Ghana upon the instructions of the Ministry of Finance.  Until the petroleum revenue hits the specific security account, a lender is reliant on the government’s contractual promises rather than upon any enforceable security interests.

Transparency

A freedom of information legislation has been meandering through the legislative process for several years.  In one stroke the PRMA portends a revolution in the provision of information to the public.  The Act requires the publication of receipts and payments in national media and mandates a public oversight committee and auditor general reports.  Confidential information which would significantly prejudice performance of Ghana Petroleum Funds, mislead through incomplete analysis, affect the functioning of government significantly, or disclose confidential communication, prejudice significantly conduct of official market operations or cause improper gains or advantages is exempt from publication.  However the right to withhold confidential information is subject to providing justification, and to principles of transparency and right of access to information.  The public will be granted access to otherwise classified information when the reasons no longer hold and after the passage of five years.  If these measures are faithfully implemented and respect, the oil age will lead to a new information age in Ghana.


Bentsi-Enchill, Letsa & Ankomah (BE&LA) is a private partnership, incorporated under the laws of the Republic of Ghana. The practice was started by Kojo Bentsi-Enchill as a sole practitioner with 2 associates in 1988, and was incorporated in 1990 when he was joined by Divine Kweku Letsa. Ace Anan Ankomah was elected to the partnership in October 2000. The Firm now has 6 partners and over 30 associates.  Kojo Bentsi-Enchill can be contacted on +233 302 221171 or by email at kojo.bentsi-enchill@belonline.org 

 

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