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Friday, February 12, 2010

Feature: A legislative framework for oil, a priority


In writing this paper, I am not unmindful of some readers' attempt to tag authors with political colour in this country. There is nothing in Ghana which does not bear political undertones. That notwithstanding, it is my humble view that professionals would do this country a great disservice if we shy away from assisting in the development of appropriate, acceptable and transparent legislative framework for the emerging oil and gas sector of the Ghanaian economy.

In 2007, in the midst of the euphoria that greeted the discovery of oil in commercial quantity in Ghana, many were those who reasonably advised policy makers to ensure that the discovery becomes a blessing rather than a curse. In offering such philosophical admonition, references were made to Ghana’s big brother Nigeria as well as countries like Sudan and Angola where such a geological blessing has turned into nightmare. Many Ghanaians also pointed to the success stories of countries such as Norway and Trinidad and Tobago which have benefited and continue to benefit from their oil find. The reasonable conclusion therefore is that oil find itself is not a curse. Whether or not the black gold becomes a curse depends largely on leaders of those countries. Whether or not there will be emergence of militants in Ghana, as it is in Nigeria, depends on the framework established to manage the expected revenues from the oil and gas.

Talking about militants, Ghanaians should not denude themselves as always that Ghanaians are peaceful and therefore would not embrace militancy. Oil politics is always risky and volatile and can easily trigger violence when people suspect that some are lining their pockets at the expense of the nation or more specifically the host communities. It is in this light, that I caution the Ministry of Energy, GNPC and of course the Attorney-General’s Department on the issue of revocation of ratified Joint Petroleum Agreements (JOA). We should not by our actions bolster the emergence of KOSMOS, Tullow or Aker militants. In the same way, nobody should be allowed, after a change of government, to act in such a way as to develop VANCO or Anardarko militants. What I am driving at is this, as internationally practiced, there should be stability of contract devoid of political considerations. If agreements entered into during the NPP era are revoked without recourse to judicial processes, what happens to agreements currently being signed? Considering the risk and the expense involved in oil exploration, most, if not all legislative frameworks are intended to grant foreign investors broad protections including stable and predictable investment enforcement in order to maximize the volume of foreign direct investments. This trend of thinking has been captured in the decisions of many international law cases involving direct and covert attempts of expropriation of interest by sovereign governments. This can be summarized in these words ‘fair and equitable treatment should be understood to be treatment in an even-handed and just manner; conducive to fostering the promotion of foreign investment’.

In making this argument, I am more than aware of the interest of a sovereign resource owner to maximize its take and protect its interest. I should also not be branded as a fan of foreign investors who intentionally and willfully, in connivance with their local counterparts, set out to flout the laws of the countries they invest. However, where there are suspicions of wrong-doing, it should not be resolved through administrative fiat unilaterally without recourse to provisions in both domestic law and international best practices, especially where foreign companies are involved. Even though in law and in fact no one can downplay the power of the Minister of Energy in the negotiation and ratification of Petroleum Agreements, it is in the interest of the country for the legal advisors of the Government to express in no uncertain terms that whatever mandate is given to the Minister by the Petroleum Exploration and Development Law, PNDCL 84 is not absolute. This can be clearly seen from the Model Petroleum Agreement and even from the provisions relating to Consultation, Arbitration and Independent Expert in all the Petroleum Agreements ratified by Parliament. The gist of the provisions is that disputes or differences in implementing Petroleum Agreements shall be settled through international arbitration under the auspices of the International Chamber of Commerce adopting the Rules of Arbitration of the International Chamber of Commerce. The dispute settlement mechanism requires the setting up of a three member tribunal and to ensure fairness no arbitrator or sole expert shall be a citizen of the home country of any party to an agreement. What it means is that in case of a dispute, the Minister cannot nominate Ghanaians to serve on the Arbitration Panel and the Ghanaian populace needs to be told of this fact. It is important for Ghanaians to know that it is most often very costly both in terms of money and the dent to the image of corporate Ghana to engage in these international arbitrations. Are Ghanaians aware that if there shall be the need for dispute settlement between Ghana and Tullow or Kosmos, for instance, the provisions are that the arbitration proceedings shall be conducted in London, England or at such other location as selected by the arbitrators unanimously, but which must be located in a State which is party to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards and located within any one of the States specified in the Schedule to the Arbitration (Foreign Awards) Instrument, 1963 (L 261). The leaders of this country should tell the people that when it comes to the enforcement of international agreements, it is not sovereignty that determines issues but international law jurisprudence. In fact, in most Petroleum Agreements, the right to arbitrate disputes arising out of the Agreement survives its termination or revocation. One can therefore not avoid the arbitration clause by simply using the principle of sovereign domain to declare void ab initio an Agreement properly executed by the appropriate authorities. Considering the huge cost involved in international arbitrations, our leaders should, in my humble view, avoid being cited for frivolous and vexatious cases, because of political decisions based on ulterior motives.

Drafting of New Legislation: Matters Arising

In writing this part of my paper, let me say that I have had the benefit of reading through the Final Drafts of the Petroleum Exploration and Production law 2009, the National Petroleum Authority, Act 2005 (Act 691), the Petroleum Upstream (Licensing) Regulations, 2009, Petroleum Upstream and Midstream (Exploration, Development and Production Operations) Regulations, 2009 and the Local content and Participation in Petroleum Activities Policy. Much as the Ministry of Energy should be lauded in attempting to develop further the legal and policy framework for the oil and gas sector, my initial comment, upon critical review of the aforementioned documents is that they seemed to be in a rush and that much of the drafting of these documents lack the input of local drafters. I say there is a rush because it seems there is no synergy between the enabling Acts and the Regulations. While in the Petroleum Exploration and Production Law 2009, GNPC is called a Corporation, in the Regulations, it is referred to as a Company. The issue about a Corporation and Company must be resolved as the legal character of a corporation is different from a Company. It seems to me that there is a rush to change the powers and functions of existing bodies such as GNPC and NPA and in my view this can be done by providing a clearest of Memorandum to the Draft Laws. For example, as the Draft Petroleum Exploration and Production Law 2009 stands, one is not sure whether it is amending, revoking or replacing PNDCL 84.

The lack of domestic professional content in the document can clearly be seen when one refers to the Pursuant provision of the proposed laws. For instance, the Drafter provides “IN PURSUANCE OF THE PROVISIONAL NATIONAL DEFENCE COUNCIL (ESTABLISHMENT) PROCLAMATION, 1981 THIS LAW IS HEREBY MADE”. This statement is a serious indictment on the competence of the Drafter of this proposed law. Maybe, this anomaly has been corrected after deliberations by some Ghanaian experts, but the fact still remains that Ghana has not had value for money by hiring these types of experts. Prior to coming to specifics, let me suggest that for once we should learn to consolidate statutes rather than always having dispersed provisions which always confuse issues. May be there is the need to have a composite legislation on Petroleum and Gas which can embody both the provisions of the Petroleum Exploration and Development Act and the National Petroleum Authority Act.

Local Content and Participation in Petroleum Activities Policy
As indicated earlier, I have had the opportunity to read this policy as embodied in the Final Draft documents to the Ministry of Energy prior to its appearance in the Daily Graphic of Wednesday January 20, 2010. Much as I do not have a problem with the policy considerations, my candid view is that care should be taken not to over raise the expectations of Ghanaians especially as regards the local value-added investments, creation of job opportunities and indigenization of knowledge, expertise and technology. Much that as a country we should strive to claim the commanding heights of the oil sector, the truth must be told that this is an area which requires highly skilled manpower and highly advanced technology. Sometimes politicians arouse these sentimental feelings of the populace by using the mantra ‘sovereignty over resources’, but as happened in the mining sector, the reality is still that most often Ghana by law has as of right 10% equity in the actual mining operations. As for the raw resources hidden either in the sea or in the Tarkwaian rocks, we all know that Ghana has 100% shares but the reality is until we develop the capacity necessarily required we should hasten slowly. If I may ask the policy-makers, how feasible is it to achieve the targets set in Paragraph 5.5 (a) and (b) which is as follows:

(a) Management staff, at least fifty percent of the management staff are Ghanaians from the start of petroleum activities of the licensee and the percentage shall increase to at least eighty percent within five years after the start of the petroleum activities;

(b) Core technical staff, at least thirty percent of the technical staff are Ghanaians from the start of petroleum activities of the licensee and the percentage shall increase to at least eight percent within five years after the start of petroleum activities and ninety percent within 10 years.

(c) In answering the question posed, the policy-makers should not forget that both in our domestic procurement law and international best practices, local content requirement should not unduly affect the competitiveness of the petroleum licensees. Also in my humble opinion, in debating this policy document we should not create the impression that this is a novelty and that by extension existing Petroleum Agreements do not contain provisions on local content and participation. As a matter of fact, all the existing Petroleum Agreements contained local content provisions as regards purchasing and procurement as well as employment and training. In the area of purchasing and procurement, all the existing Petroleum Agreements provide 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 provided by vessels owned or controlled by Ghanaian shipping companies if such materials, services and products meet standards generally acceptable to international oil and gas companies and 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. What this provision seeks to show is that a local content policy does not aim at dumping inferior local goods on a contractor or saddling a contractor with undue delays in delivering services. We should avoid the populist push which may one day compel some social commentators to call on the government to give all rig and vessel construction and or repairs to the Tema Shipping and Drydock Yard. On employment of local personnel, there are provisions in all existing Petroleum Agreements that where qualified Ghanaians ARE AVAILABLE (emphasis mine) for employment in the conduct of Petroleum Operations, Contractor shall ensure that in the engagement of personnel it shall as far as REASONABLY POSSIBLE (emphasis mine) provide opportunities for the employment of such personnel. In pursuance of this provision, Contractors are mandated to submit to GNPC an employment plan with the number of persons and the required professions and technical capabilities prior to the performance of Petroleum Operations. Notwithstanding anything to the contrary, it seems to me that the approach as contained in the various Petroleum Agreements are a good starting point which must be followed rather than the statutory achievable target approach as envisaged in the proposed policy document.

The New Legal Framework

Once again let me commend the Energy Ministry for its attempt to review the existing legislative framework for the oil and gas sector. However, a critical look at the proposed legislations shows that our legal framework is still stuck at the Exploration, Development and Production stage. Apart from my earlier submission that there is the need for consolidation and amalgamation of the various statutes, it seems to me that the most important piece of legislation, considering the stage we have reached in the oil and gas sector, is a legislation on the management, distribution and investment of oil revenue. In the nutshell, we need an Oil and Gas Revenue Management Act to define the mechanism for the receipt and distribution of the highly anticipated oil money.

At the beginning of this paper, I mentioned Sao Tome and Principe as one of the countries which seems to be enjoying the blessing of her oil find. It must be stated though that this blessing did not come by chance but rather through the establishment of a transparent mechanism for the management and investment of her oil revenue. Indeed it is worth sharing the Preamble of the Oil Revenue Law of Sao Tome and Principe, Law No. 8/2004 which states as follows:

“The Democratic Republic of Sao Tome and Principe shall soon be starting to receive oil revenues resulting from the exploitation of its oil resources. Related to this reality are complex strategic matters that must be anticipated, resolved and regulated so that such revenues can foster progress and sustainable social and economic development in Sao Tome and Principe. Based on these principles, this law is adopted, guided by two fundamental ideas. The first idea is centered on the payment and management of oil revenues. An attempt was made to address the concerns shown by the international experience taking into account the national reality and the need for the Saotomean people to make strategic decisions regarding their future. For that purpose an account is established – the National Oil Account- in which all oil revenues shall be deposited directly, and mechanisms are introduced which are intended to ensure that such revenues will not be used indiscriminately. Thus, limits are set forth for the use of the oil revenues, such limits not excluding, however, the need to make decisions about spending on priority sectors on which expenditures will focus and the respective revenue allocation”.

In my humble view it is critical now for Ghana to begin the process of promulgating a similar legislation. To me this is more critical to Ghanaians than the Policy on Local Content. Such a law, like the Revenue Law of Sao Tome and Principe provides an inclusive management of the Oil Account so established by setting up a Management Committee made of representatives of the Executive, the Legislature and the Central Bank. The law also makes specific allocations to the host communities of the resources for their peculiar development. Indeed under the law the development programmes envisaged under the law are to be subjected to public debates such as public discussions with civil society groups in public sessions to be organized by an independent Petroleum Oversight Committee. Indeed what is even more commendable about the Revenue Act of Sao Tome and Principe is the provisions on Transparency and Publicity as follows:

1. All payments, management, use and investment of Oil Revenues or Oil Resources shall be subject to the transparency principle.

2. The transparency principle implies disclosure of, and public access to, namely:

(a) Payments and respective receipts, management, and debit and credit transactions, as well as balances of the Oil Accounts;

(b) The agreement for the opening and management of the Oil
Accounts entered into between the Central Bank and the Custody Bank;
(c) The distribution of revenues arising out of the oil activity carried out in the Joint Development Zone; etc

It is my humble view that even if our land comes under a spell, provisions such as above may serve as a signpost on our households to ward off all calamities. As I say always, the oil curse is man made and not divine. In conclusion, may I urge all persons with genuine interest in the development of the oil and gas sector to assist in establishing durable and transparent Oil Revenue Management Framework. We dare not fail our generation and the next. Finally, the question is this, when the oil revenue comes, are we ready to receive it?

Written by: Maxwell Opoku-Agyemang
Senior Lecturer, Ghana School of Law; Natural Resources Law Consultant

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