Some energy experts and Civil Society groups have described the proposed amendments to the Aker Energy’s Petroleum Agreement (PA) as illegal and inimical to Ghana’s interest.

According to them, the new proposed amendments currently being discussed by the Mines and Energy Committee of Parliament seeks to illegally amend the Petroleum Exploration and Production Act, 2016, (Act 919) and its regulations L.I 2359 (2018).

They argue that a Petroleum Agreement cannot amend an Act of Parliament because, it is the Act that dictates the terms and conditions of a Petroleum Agreement and not otherwise.

Aside the accusation of illegal proposed amendments, they also listed a number of these amendments that are inimical to Ghana’s commercial, diplomatic and security interests.

The energy experts and Civil Society groups compared the new proposals to the provisions in the Petroleum Exploration and Production Act, 2016, (Act 919) and it regulations L.I 2359 (2018) to arrive at their conclusions.

Commerciality

Under commerciality, Article 8.20 states that notwithstanding the expiration of the exploration period under article 3, and the completion of contractor works obligation under article 4, following the approval of a development plan by the Minister, contractor shall have the right to perform additional exploration operations within the development and production area in accordance with applicable law.

The energy experts and Civil Society groups who spoke to The Finder on condition of anonymity argued that this provision is illegal because the Petroleum Exploration and Production Act, 2016, (Act 919) requires the contractor to provide a new Plan of Development (PoD) to be able to explore additional area of the development.

According to them, exploring additional area of the development area without a PoD could be detrimental to Ghana in terms of additional benefits to the country.

Taxation and other imports

Article 12 section 4.1 (g), which lists various taxes and duties that Aker has been exempted from paying failed to state that same condition will apply to the local content partners.

In view of this, it would be important for Parliament to include local content partners for same benefits.

Fixed 5% withholding tax for 7 years

Under the proposed amendments, in case the company is to pay withholding tax, it should be fixed at five per cent (5%) for seven years before any review can be carried out and this seems to be dictating how the Ministry of Finance should apply tax laws in Ghana.

This raises concern because, it is only Parliament that has authority to determine and define tax laws in Ghana.

Exempted from VAT, NHIL, AU Duties, GETFund Levy and import duties
According to the amendments, contractor and sub-contractors shall not be subject to any payment of any import duties, import Value Added Tax (VAT), National Health Insurance Levy (NHIL), Ghana Education Trust Fund (GETFund) Levy African Union duties, or levies on the import into Ghana of all plants, equipment or material to be used solely and exclusive in conduct of Petroleum operations.

Questions are being asked why multinationals are being exempted from all these taxes which generate revenue for the state while local companies which are struggling to find a footing are made to pay these taxes and duties.

However, the proposed amendments were silent on the application of same to local content partners which experts and CSOs believe Parliament must rectify.

Purchasing and procurement

Under articles 20.3 to 20.7 which deals with Purchasing and procurement, it states that the selection of suppliers and award of contracts by contractor within an approved work programme and budget shall not be subject to approval by Joint Management Committee (JMC) or governmental authorities.

This provision has the potential to undermine the sovereignty of Ghana as the country may for various reasons including diplomatic relations and national security considerations oppose a particular company selected by the contractor.

Proposed Amendment on Rights and Obligations of the Contractor and GNPC
A new article, Article 7.8, has been inserted into Article 7, Rights and Obligations of Contractor and GNPC.

The new article places a responsibility on the Minister to provide “reasonable assistance to the Contractor” in order to enable the Contractor carry out their obligations.

The article requires that, where able to, with reasonable effort, the Minister assists in the prompt granting of all licenses, permits or authorizations required by the Contractor during their Exploration and Production Periods. If the Contractor feels this requirement is not being addressed, they shall give notice to the Minister, who shall within thirty (30) days:

(a) Rectify the issues which are within his purview; or Liaise with other relevant governmental bodies or agencies to ensure the issue is promptly rectified.

The energy experts and civil society groups argue that this provision exerts undue pressure on the Minister to interfere in the work of other state agencies.

For example, by this provision, if the Environmental Protection Agency (EPA) is not satisfied with the environmental impact assessment report of company and therefore decides not to issue the required permit, the Minister under this amendment is to ensure that EPA issues the permit which is outside his responsibility.

Article 25-Assignment

It states that any assignment, directly or indirectly, in whole or in part, requires the prior written consent of Ghana National Petroleum Corporation (GNPC) and the Minister, which shall not be unreasonably withheld.
The Amended PA adds that, consent shall be sought from the Minister and GNPC to effect an assignment, directly or indirectly, in whole or in part, only if such assignment causes a change in control in the relevant contractor party.
Article 25 (1) said the agreement shall not be assigned by contractor directly on directly in whole in part without the prior written consent of GNPC and the Minister but the consent shall not be unreasonably withheld or delayed and will be required upon a change in control in the relevant contractor party.
However, unreasonably withheld or delayed has not been defined, which makes room for exploitation by both parties.

Nonetheless, a time frame that will “constitute unreasonably withheld or delayed” should clearly by spelt out to clear any misunderstanding.
Some of the proposed amendments that seeks to amend the Petroleum Agreement with Aker Energy are listed below.

Existing Petroleum Agreement on Purchasing and Procurement

The Old PA only required that In the acquisition of plant, equipment, services and supplies for Petroleum Operations, Contractor shall give preference to materials, services and products produced in Ghana, including shipping services, if such materials, services and products meet standards generally acceptable in the international Petroleum industry and can be supplied at prices, grades, quantities, delivery dates and on other commercial terms equivalent to or more favourable than those at which such materials, services and products can be supplied from outside Ghana, on a comparisons made on a Cost Insurance Freight (c.i.f) Accra basis.

Proposed Amendment on Purchasing and Procurement

The Amended PA allows the Contractor and its subcontractors to utilize a “split- contract model” if the scope of work consist of goods, works and services. However, the requirements are different if the goods, works or services originate in- country or out-of-country, as determined by the Contractor. If the goods, works or services originate in- country, then the Contract shall be awarded to a locally incorporated JV company licensed by the Petroleum Commission (“PC”) with the technical capability to perform the work. If the goods, works or services originate out-of- country, it shall be awarded to a foreign legal entity with the technical capability to do the work. This shall apply to, inter alia, goods, works and services supplied for the FPSO, SPS, SURF, drilling rigs and well services.

Once the work programs and budgets have been approved by the Joint Management Committee (“JMC”), the selection of suppliers and the award of contracts by the Contractor, within the approved work program and budget shall not be subject to approval by the JMC or governmental authorities. Both the Contractor and Subcontractor shall keep the PC and the Minister informed about the selection of suppliers and award of contracts. However, the Contractor shall be responsible for establishing a transparent procurement process whereby the JMC, PC and Minister shall be informed by the Contractor about the selection of suppliers and the award of contracts.

The Amended PA, relying on the stability clause under the Old PA, expressly exempts the Contractor or its Subcontractors, and the suppliers of goods, works and services for the use of Petroleum Operations under the Amended PA, from contributing to the Local Content Fund established under Act 919.

Existing Petroleum Agreement on Assignment

Any assignment, directly or indirectly, in whole or in part, requires the prior written consent of GNPC and the Minister, which shall not be unreasonably withheld.

Proposed Amendment on Assignment

The Amended PA adds that, consent shall be sought from the Minister and GNPC to effect an assignment, directly or indirectly, in whole or in part, only if such assignment causes a change in control in the relevant contractor party.

GNPC shall not exercise a right of preemption to acquire the interest of the Contractor in the case of a restructuring, transfer, transaction, sale, share issue, amalgamation, merger, demerger, or direct or indirect change of ownership interest in the Agreement, arising from defined instances listed in the Amended PA, including, but not limited to, transactions between affiliates, issuance of shares and equity instruments by the Contractor Party or its Affiliates, and the preparation for or a public offering of a Contractor Party or an Affiliate.

If GNPC acquires a participating interest in a Contractor Party, the transfer or disposal of such participating interest in by the Contractor Party shall not be made effective until payment has been received by the Contractor Party, or unless otherwise provided in any agreement between GNPC and the Contractor Party.

Existing Petroleum Agreement on Rights and Obligations of the Contractor and GNPC

GNPC has an obligation to assist Contractor in carrying out Contractor's obligations expeditiously and efficiently as stipulated in this Agreement, and in particular GNPC is required to use its best efforts to assist Contractor and its Subcontractors under certain defined circumstances.

Existing Petroleum Agreement on Term of the Petroleum Agreement

Subject to this Article the term of this Agreement shall be thirty (30) years commencing from the Effective Date.

Proposed Amendment on Term of the Petroleum Agreement

The Term of the Amended PA is thirty- four (34) years commencing on the Effective Date (which has been noted as being unchanged from the Old PA). The Amended PA has been extended by an additional four (4) years to restore time lost to the Contractor following the postponement of Petroleum Operations.

The Contractor may give notice to the Minister and GNPC in writing, at any time following the Date of Commencement of Commercial Production, of the production profile of the Contract Area and request the term of the Amended PA be extended by an additional period consistent with the production profile. The Minister shall thereafter, on the same terms as the Amended PA, extend the term of the Amended PA by a period consistent with the production profile and as requested in such notice.

Under the Petroleum (Exploration and Production) Law, 1984 (PNDCL 84), a petroleum agreement entered into under the Law shall be valid for a total period not exceeding thirty years (30), but such agreement shall terminate at any earlier time provided for in the agreement and in any case if no commercial discovery of petroleum is made within seven years from the Effective Date of such agreement, or such lesser period as may be stipulated in such agreement.

An extension is allowed in the limited case, where a discovery of petroleum is made during the last year of the Exploration Period, the Minister (Secretary) may grant an extension of such time period in respect of the reduced area comprising the geological structure in which the discovery is located on such terms and conditions as the Minister (Secretary) deems fit for the purpose of enabling a determination to be made within such period of extension whether such discovery of petroleum is a commercial field.

Proposed stabilization

Under Article 8.1 of the Amended PA, it is reiterated that nothing in the Amended PA shall constitute a modification or alteration of the terms, conditions and covenants of the Old PA, or a waiver of any of any of the terms and provisions thereof. It is not a modification for tax purposes under the Income Tax Act, 2015 (Act 896), the Petroleum Income Tax Act, 1987 (PNDCL 188) continues to apply, and there shall be no change to the Effective Date as defined in the Old PA.

All of Article 26, Miscellaneous, of the Old PA continue to apply.