“May our oil be the pure “black gold” which brings the Black Star of Africa more blessing than gold brought the Gold Coast,” Kofi Bentil, IMANI, Ghana.
First, for the purpose of this discourse, we shall use the flagship Jubilee Field and its production output over the past nine years to illustrate whether the exploitation of the ‘black gold’ under the current Royalty Tax/Hybrid System could lead to or hasten the realization of the President’s vision, Ghana Beyond Aid, or the adoption of the Production Sharing Agreement (PSA) would have.
We are using the Jubilee Field because the full budgeted project costs made up of capital expenditure of $4.565 billion and Budgeted Operating Expenses of $3.435 billion for 23 years totaling $8 billion have been recovered as at December 2016 with cost overrun of $2.175 billion totaling $10.175 billion. Ghanaians are made to believe that with full capital costs recovery, earnings from income taxes would go up, thus improving Ghana’s revenues.
The above claim by the Petroleum Commission, the Ministry of Mines and Energy, supported by CSOs and Think Tanks allegedly make the Royalty Tax/Hybrid System superior to PSA, but we think otherwise because simulation figures and actual figures so far do not support their claim, as we shall attempt to use information on Jubilee Fields available to us to prove that this assertion is wrong.
In the second part, we shall examine the total operating results of the three production fields, Jubilee, TEN and Sankofa as at December 31, 2019, and show what Ghana has earned under the Royalty Tax/Hybrid System, and what would have been the position if the world’s acceptable standard PSA was adopted.
The adoption of the PSA, we strongly believe, could have led to the attainment of the President’s vision, Ghana Beyond Aid and, the ultimate, Ghana Beyond Loans.
Our analysis would be limited to the major sources of revenue, Royalties, Carried and Participation Interests and Corporate Taxes.
Summary of Oil Production At Jubilee Fields
From December 2010 – December 2019
Barrels of oil Extracted and Distribution of Revenue:
Ghana vs Contractor Parties
|Item||Oil Extracted December 2010 – December 2019||No of Barrels|
|1||Total Volume of Oil Extracted||280,245,606||100 %|
|2||Ghana ( Sovereign Owners)||49,306,271.||17.50 %|
|Item||Distribution of Revenue||Total Take US$||% of Total Revenue|
|1||Total Revenue Generated||22,361,814,363||100%|
|2||Ghana ( Sovereign Owners) Includes Royalties, Carried & Participation Interests & Corporate Taxes||
|3||Contractor Parties (Gross Revenue Net of Taxes)||17,873,774,501||79.93 %|
Note Source of Data: Petroleum Receipt and Distribution Report from January 2011 – December 30, 2019, Ministry of Finance.
Analysis of Ghana Take
US$ % of Total Revenue
- Royalties 1,064,577,325 4.76%
- Carried and Participation 2,719,381,149 12.16%
- Corporate Taxes 704,081,388 3.14%
Total: 4,488,039,862 20.07 %
Analysis of Contractor Parties’ take US$ % of Total Revenue
Total Project Cost Capex (Including Exploration and Appraisal) 8,472,000,000 37.89%
Total Budgeted Operating Expenses for 23 years 3,435,000,000 15.36%
Net Profit after Taxes Declared 5,966,774,501 26.68%
- Petroleum Commission Presentation to Council of State on February 27, 2018
- Page 25 of Jubilee Phase 1 POD Final Version by Kosmos dated July 8, 2009
Note 1. A recalculation of Royalties on total revenue generated shows a short fall of $53,513,393.
- True Corporate Tax liabilities were re-calculated to be $2,334,799,561 for the period but only $704,081,388 was reported in the Petroleum Receipts and Distribution reports for Jubilee Fields, a short fall of $1,630,718,173.
- On page 25 of Jubilee Phase 1 POD Final Version, it was projected that if $15.573 billion was realized from the sale of 224 million barrels by the Contractor at long term base price of $65, Ghana would earn $2.561 billion Corporate Income Tax and $101 million in Additional Oil Entitlement (AOE), a total of $2,662 billion.
- It was also projected that if $10.781 billion was realized from the sale of 224 million barrels at $45, Ghana would earn $1 billion Corporate Income Tax
- In a Presentation to the Council of State by Petroleum Commission on February 27, 2018 the Contractors earned cumulative gross revenue of $14.326 billion from the sale of 165,540,873 barrels, but only paid a total of $553 million Corporate Income Tax instead of $1.367 billion, a short fall of $814 million.
- At the end of 2019, the Contractors realized a cumulative gross revenue of $18,577,855,889 from the sale of 230,939,353 barrels but only paid $ 704,081,388 just $151million above the 2016 level of $553 million, whereas gross revenue increased from $14.326 billion to $18.77 billion, an increase of $4.44 billion.
One expects that with full recovery of the inflated Capital Project Costs of $8.472 billion at the end of 2016 Corporate Income Tax would have improved as Ghanaians were made to believe by the Petroleum Commission and the Ministry of Mines and Energy in the following subsequent years. It was rather the reverse. Yearly average for the first 6 years was $92.17 million but dropped to $78.22 million, which nullifies and disproves the assertions of the Petroleum Commission and the Ministry of Mines and Energy.
Applying the template of Jubilee Phase 1 POD Final Version to the Cumulative revenue figures of $22,361,814,363 as at 2019, below are the position of Ghana and the Contractor Parties.
US$ % of Total Revenue
|2. Carried and Participation||2,719,381,149||12.16%|
|3. Corporate Income Taxes||3,702,249,561||16.56%|
US $ % of Total Revenue
|1. Project Costs Capex (Including Exploration and Appraisal)||4,565,000,00||20.41%|
|2 Budgeted Operating Expenses for 23 years||3,435,000,000||15.36%|
|3. Net Profit after Tax||6,875,606,328||30.75%|
Under the above analysis, total unpaid Corporate Income Taxes due Ghana from all the Contractor Parties in the Jubilee Fields is (3,702,249,561-704,081,388) $2,998,168,173.
Despite recouping of the full Budgeted Total Project Costs of $8 billion, approved in Jubilee Phase 1 POD Final Version which Ghana is still contributing to and making net profit after tax of $6.875 billion, Tullow continues to tell Ghanaians they are making losses and therefore would not be paying taxes.
If the simpler to understand and flexible to manage PSA was consolidated and adopted and taking the base of the Least Minimum Government Take of 42 per cent of total production revenue recommended by the USA Accountability Office (GAO), Ghana would have lifted 117,703,154 barrels worth $9,391,962,032, instead of 40,306,271 barrels and total earnings of $4,488,039,862 at a cost under the Royalty Tax/Hybrid System. The Contractors would have lifted 162,542,451 barrels worth $12,969,852,331. Under the PSA model, Ghana is not participating and the Contractors are exempted from paying import and export duties and Corporate Income Taxes with full Capital Costs Recovery.
On April 3, 2018 and July 3, 2018, we lodged a complaint with the Commissioner General and the Board of Ghana Revenue Authority respectively against the Jubilee Partners for not paying the appropriate income taxes due Ghana. We were asked to go and find out from Petroleum Commission why the Jubilee Partners were not paying the taxes we found due to Ghana by the Head of the Petroleum Department at the Large Tax Payers Office of the GRA.
Summary of oil production in all fields as at December 31, 2019
Barrels of oil Extracted and Distribution of Revenue:
Ghana vs Contractor Parties
|Total Volume of Oil Extracted||355,599,965||100%|
|Allocation to Ghana||62,257,501||17.51%|
Distribution of Revenue
|Total Revenue Generated||$26,161,884,926||100%|
|Ghana: Include Royalties, Carried & Participation Interest & Corporate Taxes||
|Contractor Parties (Gross Revenue Net of Taxes)||$21,017,107,346||80.33%|
Analysis of the Ghana take
US $ % of Total Revenue
|2. Carried and Participation Interests||3,220,347,751||12.31%|
|3. Corporate Taxes||704,226,202||2.69%|
Production Sharing Agreement (PSA)
If Ghana had adopted and consolidated the PSA which PNDC Law 84 supported and taken the Least Minimum Government Take of 42 per cent of Total Production Revenue set by US Government Accountability Office (GAO) which should accrue to a host country for allowing its Oil and Gas Resources to be exploited, Ghana would have lifted 149,351,985 barrels of oil worth $10,987,991,668 as against $5,144,777,580 representing 19.67 per cent of total production revenue.
At the upper limit of 60 per cent also set by GAO, Ghana would have lifted 213,359,979 barrels worth $15,697,130,955 as against $5,144,777,580 as at the end of December 31, 2019 without paying a Cent or a Pesewa on Capital Development Cost and Daily Operating Expenses. Currently, Ghana is supposed to be paying almost $150 million yearly as operating expenses to Tullow and ENI under the Ghana Hybrid System (Energy Group, Africa Region, World Bank, June 2013).
At the upper limit Ghana lost $10,552,353,375 from the three production fields for not adopting PSA, an average of $1,172,483,708 per year.
Meanwhile, the Norwegian Government earns as much as 64 per cent of total production revenue from its oil contracts.
The range in sub-Sahara Africa is between 44 per cent to 85 per cent of total production revenue.
For example, Libya takes 81 per cent, Nigeria and Congo Brazzaville take 70 per cent, Angola, 64 per cent, Equatorial Guinea, 59 per cent and Mauritania, 50 per cent.
Considering the facts above, which of these two contract types would propel the realization and attainment of the President’s Vision, Ghana Beyond Aid, in the shortest possible time?
If the exploitation of the ‘black gold’ is the basis for your vision of Ghana Beyond Aid, then in our holistic assessment and judgment, it is a mirage which cannot be achieved at any point in time so long as the Planet Earth exists, if we continued to apply wrong policies in the management of our natural resources.
Ghana has lost it all several decades ago and is on the verge of losing the last opportunities that the oil provides in the light of what previous leaders of Ghana have done, which are being accelerated under the current government.
We call upon Professors and Doctors of Political and Development Economics to tell Ghanaians how the President’s vision of Ghana Beyond Aid could be achieved in the face of prevailing conditions whereby Ghana’s subsoil natural resources and others are controlled by foreigners under very bizarre and unbelievable agreements in the name of attracting investments? Investments that give Ghanaians crumbs falling from the tables of the foreign exploiters of these resources.
Between 90 per cent and 98 per cent of foreign exchange earnings generated from gold, bauxite, diamonds and manganese are retained outside by the foreign exploiters, now we have oil and the story is the same, almost 80 per cent total earnings are retained by the foreign oil company.
We want to sound a note of caution, the President’s vision cannot be achieved on the back of numerous taxation of citizens, but through a fair and equitable share of the wealth generated in exploitation of our sovereign natural resources.
The Centre for Natural Resources and Environmental Management (CNREM) and the Fair Trade Oil Share – PSA Campaign Team have observed and noted with grave concern beyond all reasonable doubts that the British, through the Commonwealth Secretariat, and the Norwegians have conspired to mislead and wrongly advising Ghana in regard to the management of her upstream oil sector to their advantage and others.
The Commonwealth Secretariat was secretly responsible for changing the PSA legal framework which was on our statute books before the commercial oil discovery in 2007 to the monstrous and bastard Royalty Tax System which is now called the Ghana Hybrid System.
The Model Petroleum Agreement of Ghana clandestinely back dated August 17, 2000 backing the Royalty Tax System was smuggled in to replace The Model Production Sharing Agreement of 1995 between the Ghana Government, the GNPC and the Contractor during Ex-President Kufuor’s regime to conform with the terms in the Kosmos Contract and subsequent ones that followed. Mr. Tsatsu Tsikata is in a position to testify to the correctness of the above statement of facts.
The Mahama administration had all the opportunities in the world to reverse the trend but rather consolidated it to the detriment of Ghana. They joined the gravy train set in motion by Ex-President Kufuor’s regime.
In the words of Nana Osei Bonsu,the CEO of PEF on September 20, 2013, “The NDC Government does not want to rock the boat”.
Sir Paul Collier, Professor of Economics, University of Oxford advised Ghana not to copy Norway blindly in his inaugural speech at the 2012 New Year School at Legon because of the differences in the environment and capabilities of the two countries.
Ghana did not listen but went ahead and passed the most exploitative and economic slavery Ghana Hybrid System law Act 919 under Certificate of Urgency almost midnight of August 4, 2016; under pressure and cunningly and remotely teleguided by the USA and British Embassies, the World Bank and Oxfam America through the CSOs and Think Tanks funded by them. This action by the Parliament of Ghana gave legitimacy to oil contracts which hitherto were illegal because they were at variant with the existing legal frame work which supported PSA.
ACEP became de-facto leader and mouthpiece of these CSOs and Think Tanks. Its past top executives, who are now the Minister and Deputy Minister of Ministry of Mines and Energy, executed the conspiracy against their own country through falsehood and intellectual public deceits claiming the superiority of the Hybrid System over PSA and that there is nothing like PSA any longer.
ACEP and Revenue Watch Institute, both set up by the Western interests, were responsible for misinforming and brainwashing every sector of the public that Ghana was doing right.
On behalf of the FTOS-PSA Campaign Team, we call upon Mr. Peter Amewu, Dr. Mohammed Amin, Professor Kwaku Appiah-Adu of Central University Ghana, Professor Kwamina Panford of North-East University, USA, and Professor John Asafu-Adjaye of IEA to come out and tell Ghanaians where on the African continent the Hybrid System is working perfectly and preferred to PSA in this 21st Century. Are their counterpart classes in neighboring countries – Togo, Liberia, Sierra Leone, etc. – wiser and more intelligent than them?
Are they saying the current fiscal system whereby Ghana have handed over her birthrights and sovereign natural resources properties to foreigners for crumbs is the best?
Respected Mr. Kwame Pianim, if you knew PSA was a better fiscal regime, why did you not advise for its adoption?
Mr. Emmanuel Kofi Duah, how does the Act 919 which you claimed is robust protect the interest of Ghana, if 80 per cent of total revenue accruing from the oil and gas goes to the foreigners?
Mr. Moses Asaga, is the Royalty Tax Hybrid System achieving almost the same results as the PSA you claimed 10 years ago?
With due respect, Nana Otuo Siriboe II, we have provided the Council of State more than sufficient further and better particulars you requested for on March 21, 2017.
Sir, have the Council of State drawn the attention of the President to the complete robbery in the name of investment taking place? Horrible agreements that would prevent attainment of his vision Ghana Beyond Aid are being supervised under his watch. In our estimation, Ghana would be losing over $80 billion plus under the Exxon Mobil and Aker Agreements. Equally $30 billion loses from Jubilee Field is to be expected. At the end of 2019, Ghana lost over $10 plus billion operating under the Royalty Tax/Hybrid System
Nana Adjoa Hackman, member of GNPC Board in her paper, “Was Ghana Right in choosing Royalty Tax for the oil sector” admitted on page 18 that lifting entitlement is more under PSC, and since under PSC it is oil output that is shared between the State and the contractor, more lifting entitlement by the State would generate greater revenue under PSA/PSC than the Royalty Tax System.
Ben Dagadu, former Deputy Minister of Petroleum, said PSA could give the country over 50 per cent of the accrued money while under the concessionary system a sovereign nation gets less than 25 per cent of total revenue accrued. Graphic Business Tuesday March 8 – 14, 2016.
Prof. Austin Gareth on the platform of IEA declared: “It will be better to keep the oil find underground if its exploitation will go to benefit expatriates or foreign investors at the expense of nationals.” September 2017.
The IEA followed with a conference in December 2017 under the theme, “A Decade after Oil Discovery in Ghana: The Economic Impacts and Policy Implications”, and at the end of the conference, called upon government to take steps to review oil contracts with extractive firms and blamed the poor earnings by Ghana on the outmoded PNDC Law 84. We considered this statement very erroneous and not to be true and challenged it.
The Fair Trade Oil Share–PSA Campaign Team wrote a rejoinder and distributed it to all the major media houses, including Graphic but they all refused to publish it, an indication of the sad complicity of the media in the conspiracy to cover and hide the truth from Ghanaians and keep them in complete darkness forever.
Our question to IEA is, would they have called for a review of the oil contracts, if Prof. Austin Gareth had not made that declaration on their platform?
It has been over 2 years since their call for a review of the oil contracts; what steps have they taken towards achieving that? If IEA had been involved in behind the door consultations with government on the issue, government would not have gone to Parliament with those amendments to Act 919 which further worsened the Ghana Beyond Aid vision of the President.
The Parliament of Ghana has betrayed the conscience and aspirations of Ghanaians, leading them into economic slavery and bondage.
Until arrival of Prof. Austin Gareth, IEA, CSOs and other Think Tanks supported the system in place.
The Petroleum Commission, a brain child of the Western interests, GNPC and the Ministry of Mines and Energy are collaborating and aiding the foreigners to rob their own country in the name of attracting investment. The CSOs and Think Tanks, agents of neo- colonialism, are being used to hoodwink the masses to protect the interests of their paymasters.
Mr. President, your vision Ghana Beyond Aid is a myth which can never be attained because the policy and decision makers surrounding you are shooting you in the foot and seriously misleading you. They are rather protecting the interests of foreigners as against the interests of Ghanaians, while they are made comfortable at the expense of the general good and welfare of all.
The action of our duty bearers, the Parliament of Ghana and Government, have violated the UN Resolution on Permanent Sovereignty over Natural Resources, General Assembly Resolution 1803 of 1962, reprinted in General Assembly Resolution 3171 of 1963 and the Charter of Economics Rights and Duties of State, General Assembly Resolution 3281 of 1974 which Ghana is a signatory to.
“Ghana’s Petroleum Fiscal regime should be reformed to ensure maximum long term revenue generation, even if the state is not fiscally dependent on oil revenue. Much of the regime is currently formulated to attract investment to a young industry. Given the long resource horizons of its newly discovered reserves, Ghana is in a position to enact measures that will ensure long- term revenue stability. These measures should account for government’s changing financial position, and the fluctuation in oil prices. The regime can also achieve greater take by increasing the state’s sharing in production sharing agreements”. Sara Zedingle Ghebremusse (2014). Assessing the Petroleum Fiscal Regimes of Nigeria, Ghana and Cameroon, Published thesis for a Master of Laws, Faculty of Law, University of Toronto.
Ghanaians, wake up from your slumber and free yourselves out of this economic slavery and make Ghana Beyond Loans instead of Ghana Beyond Aid.
“The only thing necessary for the triumph of evil is for good men to do nothing,“ Edmund Burke.
By Solomon Kwakwukume
Centre for Natural Resource and Environmental Management