Did Kosmos Energy pay fines to Ghana on moral or technical grounds?

US oil producer, Kosmos Energy’s spilled 706 barrels of low toxicity substance at its drilling fields in West Cape Three Points in 2010. A five-member ministerial committee was set up to look into the issue.

The committee after its findings recommended that the Texas-based oil and gas exploration company pays a fine of $35 million to the government of Ghana. In sharp response, Kosmos referred to the fine as baseless and unlawful.

The oil industry is known to be fraught with controversies when it comes to applying the law.
In the matter of Kosmos and the Ghana government, both parties have agreed that the impasse over the disclosure of sensitive information without government consent and payment of the fine for spillages have been resolved.

Meanwhile, Kosmos Energy as part of its filing with the US Security and Exchange Commission (SEC) when it applied to sell 30,000,000 of its common shares, said “as part of such agreement and with respect to one particular issue, we agreed to pay GNPC $8 million upon signing the settlement agreement and $15 million upon the first to occur of certain liquidity events, including the successful completion of this offering.” Kosmos Energy explained the details of these payments by stating, “these included disagreements over sharing information with prospective purchasers of our interests, pledging our interests to finance our development activities, potential liabilities arising from discharges of small quantities of drilling fluids into Ghanaian territorial waters, the failure to approve the proposed sale of our Ghanaian assets and assertions that could be read to give rise to taxes payable under the Ghanaian Tax Law in connection with this offering”.

It goes without saying that indeed Kosmos Energy has agreed to pay the fine imposed on it by the ministerial committee. Of particular consideration is whether or not Kosmos’payment of the fine corresponds to the amount as rightly recommended by the ministerial committee set up by the government. Making a critical assessment of Kosmos Energy’s statement to the SEC, there is no doubt that the oil company has disregarded the actual amount it was supposed to pay.

Kosmos, taking from its statement, is making a payment of $15 million to cover both the 706 barrels of toxicity oil mud it spilled on the high seas and sharing information with prospective purchasers without government consent. The total amount of $23 million being paid by Kosmos to the GNPC and government is even below the amount of $35 million imposed on it by the committee.

The deserving question to pose is that; is Kosmos Energy’s payment of the fine premised on moral or technical grounds?

In September last 2010, Kosmos in its letter to the Attorney General and Minister of Justice, the president and the Minister for Environment, Science and Technology said the fine was “totally unlawful, unconstitutional, ultra vires and without basis” and argued that a minister had no power under the Ghanaian Constitution or any other law of the country to impose a fine on any person in the event of an oil spillage.

It is absolutely clear that the ministerial committee had no power under the Ghanaian law to impose the $35 million fine. This explains why Kosmos Energy’s payment is well below the right amount. Did they [ministerial committee] have the power to impose that fine?

It is instructive to know that Kosmos Energy’s payment of the fine is rather premised on moral grounds and not technicalities. The payment of the fine is to the effect that Kosmos aspires to continue and sustain its operations in the jubilee field.

As a responsible oil company, Kosmos ‘feels’ it has to pay ‘something’ to government. On technical grounds, was the country using the Petroleum (Exploration and Production) Law of 1984 (PNDC Law 84) to hold Kosmos culpable for its negligence? Certainly not!

It can be said that the ministerial committee wielded no power to charge Kosmos especially when the spillage occurred. The PNDC Law 84, the only regulatory framework available, was not strong enough to hold the oil company responsible for the oil spill. There are, for now, no specific regulations governing the upstream and midstream sectors in Ghana. This has led to the incorporation of many regulations on an ad hoc basis within petroleum agreements.

May be it’s a dream come true for the ministerial committee for being able to push for a huge amount to compensate for the environmental breaches. However, was the formation of the committee necessary when it could not get Kosmos to pay the amount it recommended?

The hefty amount paid by Kosmos Energy has the tendency to quell all concerns that could possibly arise regarding the right payment of the fine. Not only has this case set a bad precedence which other oil companies could emulate but has questioned the power of the ministerial committee to hold oil companies culpable when there are environmental damages. And until the country enacts stringent regulatory frameworks to check any such future incidence, oil companies in the Jubilee Field will continue to capitalize on this weakness.

The country is yet to pass the Petroleum (Exploration and Production) Bill into law to regulate the operations of oil companies. The regulatory framework should be without loopholes and ambiguities to properly regulate oil companies. An independent regulator is yet to be established when the Petroleum Commission Law gets the President’s assent.

It is important that the country formulates a well thought out comprehensive oil response plan to counter any spillages and other possible negative impacts of the oil business in the country.

Ghana should not to be oblivious of the fact that oil companies prefer to pay a relatively low penalty for non-compliance with environmental standards rather than invest in costly pollution monitoring and control.

Is Kosmos Energy’s $15 million enough to cater for the environmental damages caused? What power did the ministerial committee have to impose the fine on Kosmos? What laws were applied to hold Kosmos Energy responsible for the spillages?

The issue is that Ghana is being slack in instituting right regulatory frameworks to check oil operations in this new but very important sector.

Sadly Ghana has began commercial operation of oil already but starting commercial oil production without strong exploration and production laws is exactly what the resource curse stands for.

By: Stephen Yeboah

Email: [email protected]

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