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THE UPSTREAM
PETROLEUM INDUSTRY IN GHANA: WHAT THE
EXISTING LAWS SAY
Solomon
Kwawukume
April 04,
2015
The framework for managing the Upstream
Petroleum Industry in Ghana before the
discovery of oil was established and given
legal backing by two main statutes, PNDC Law
64 and the Petroleum Exploration and the
Production Law 84.
Law 64 established GNPC with the mandate to
undertake the exploration, development,
production and disposal of petroleum (Sec 2
clause 1).
Section 2 (2) (a) says GNPC shall promote
the exploration and the orderly and planned
development of the petroleum resources of
Ghana.
Section 2 (2) (b) of law 64 says that GNPC
shall ensure that Ghana obtains the greatest
possible benefits from the development of
its petroleum resources.
Sec 2 (2)(c) mandates GNPC to obtain the
effective transfer to Ghana of the
appropriate technology relating to the
petroleum operations.
Sec. 2(2) (d) states that GNPC shall ensure
the training of citizens of Ghana and the
development of national capabilities in all
aspects of petroleum operations.
Sec. 2(3) (b) of Law 64 gave GNPC the sole
rights to engage in petroleum operations
alone or in association with others.
Sec. 2(3) (c) also gave GNPC the power to
enter into petroleum exploration, production
agreements and other petroleum contracts for
the assistance, participation or cooperation
of contractors in connection with petroleum
operations if it cannot do it alone.
Sec. 2(3) (d) says GNPC either alone or in
association with others buy, sell, trade,
store, exchange, import or export petroleum
and for this purpose acquire or operate any
installations, facilities or means of
transportation.
Sec. 3(g) of Law 64 says where expedient,
GNPC shall employ agents or contractors to
carry out petroleum operations on its
behalf.
Law 84 sec. 1(1) vests all petroleum
existing in its natural state within the
jurisdiction of Ghana in the Republic of
Ghana, that is, is the property of Ghana.
Law 84 Sec. 2(1) conferred on GNPC the sole
rights of exploration, development and
production of petroleum in Ghana, except in
accordance with the terms of petroleum
agreement entered into between that person,
the Republic of Ghana and GNPC.
Law 84 Sec. 5(1) gave GNPC right over all
oil blocks declared as open for petroleum
operations where no petroleum agreement
exists.
Sec. 5(4) says where the exploration,
development and production of petroleum is
carried out by GNPC in association with a
contractor, such a contractor shall first
enter into a petroleum agreement in
accordance with sub section (1) of section 2
of the law with the Republic and GNPC to
specify the terms and conditions under which
such petroleum operation shall be carried
out. Any such petroleum agreement shall
include such provisions as may be required
by Part II of Law 84.
Some relevant sections of Part II of Law 84
to be included in the petroleum agreement
are:
1. Sec. 12 (1) deals with the period of
validity of the petroleum agreement – not
exceeding 30 years.
2. Sec. 13 Review of terms and conditions.
“A petroleum agreement shall provide for a
review of it terms at any time any
significant change occurs in the
circumstances prevailing at the time of the
entry into the agreement or last review of
the agreement”.
3. Sec. 17 Participating Interest. “A
petroleum agreement shall provide that GNPC
shall, within a specified period of time
from the date of discovery is declared to be
commercial, have the option to acquire up to
said percentage of the interest in the
rights and obligations of such petroleum
operations on such terms as may be agreed
between GNPC and the contractor in the
petroleum agreement” The period is 60 days.
This means that it is not compulsory for
GNPC who is representing the State interests
to participate in the project.
4. Sections 18 and 19 deal with rental and
tax payment.
5. Section 20 deals with payment of
royalties. Section 20 (3) makes GNPC liable
for the payment of royalty due in respect of
petroleum produced under a petroleum
agreement.
6. Section 21, Contractor to transfer assets
to GNPC. Section 21 makes it mandatory for
all petroleum agreement to provide for the
transfer to GNPC of all physical assets
purchased, installed and constructed by the
contractor for petroleum operations and the
cost of which has been included in
Exploration Expenditures.
The State through GNPC becomes the owner of
such assets and installation. However, the
contractor shall have the use of such assets
for the purpose of operations under a
Petroleum Agreement and shall remain liable
for the maintenance, insurance and other
costs associated with such use. The
contractor is allowed to lift an agreed
percentage of daily production to cater for
these expenses.
Part III of Law 84 spells out the duties and
obligations of the contractor or
sub-contractor, and among the numerous
obligations are:
1. Section 22 forbids a contractor or
sub-contractor from assigning in whole or in
part his rights to a third party without the
prior written consent of the Secretary
(Minister).
2. Section 23 (2) says all data and
information obtained by a contractor or
sub-contractor shall be the property of GNPC.
Such data and information include all
geological, geophysical, technical,
financial and economic reports, studies,
interpretations and analysis prepared by or
on behalf of a contractor or sub-contractor
in connection with such petroleum
operations.
3. Section 23 (3) says a contractor or
sub-contractor shall not retain or export or
permit the retention or export of any such
data or document without the prior approval
in writing by GNPC.
4. Section 23 (10) says a contractor or
sub-contractor shall ensure that
opportunities are given as far as possible
for the employment of Ghanaians having the
requisite expertise or qualification in the
various levels of the operations.
5. Sections 23 (11) says a contractor or
sub-contractor shall not engage in
discriminatory practices on grounds of race,
nationality or sex in the conditions of
service provided for personnel.
6. Section 23 (12) also says a contractor or
sub-contractor shall as far as practicable
use goods and services produced or provided
in Ghana for his operations in preference to
foreign goods and services.
7. Section 23 (13) says a contractor or
sub-contractor shall in consultation with
GNPC prepare and implement plans and
programmes for training Ghanaians in all job
classifications and in all aspects of
petroleum operations.
8. Section 23 (14) makes it mandatory for a
contractor or sub-contractor while carrying
out petroleum operations to prepare and
implement plans for the transfer to GNPC of
advanced technological know-how and skills
relating to petroleum operations.
9. Section 30 (b) of Law 84 limits the
management control of the contractor or
sub-contractor in the petroleum operations
with GNPC. They are agents and only
assisting.
These two laws were crafted and modeled to
suit the most progressive, equitable and
fairer fiscal regime or arrangement in
sharing petroleum revenue in the world - The
Production Sharing Agreement. The laws have
all the relevant features that go into
Production Sharing Agreements.
Records available at Oxford Institute of
Energy Studies indicated that earlier
agreements entered into by Ghana in the
1990’s based on these laws were Production
Sharing Agreements.
But all agreements and contracts entered
into from the NPP administration to the
current NDC administration and approved by
Parliament - our Lawmakers - are modeled to
suit Modern Concession Laws which were not
in existence in our statute books at the
time of signing these agreements and
contracts.
These agreements and contracts are therefore
not compatible and in conformity with the
tenets of the existing two Laws. In our
layman, legal opinion, these agreements and
contracts are illegal and ultra vires
because they are at variance with the
existing PNDC Laws.
What is happening now is an attempt to give
retrospective legal backing to these
agreements and contracts by introducing into
this Petroleum Exploration and Production
Bill, Modern Concession fiscal provisions to
consolidate and give legal effects to these
obnoxious and exploitative agreements and
contracts signed up to date.
The Bill has been cunningly designed to look
like a “contract for work law” which governs
Production Sharing Agreement, but it is not.
The Bill is essentially in all respect the
Royalty Tax system which includes some
aspects of loose Joint Ventures and
Production Sharing Agreement, partially in
implementation to conform and fall in line
with the current prevailing system which
GNPC and the Ministry of Petroleum referred
to as a Hybrid system - a system progressive
and forward looking countries would not
adopt to regulate oil and gas discoveries in
this 21st Century.
The implication of passing this Bill into
Law will mean taking away all the sole
rights and controls granted GNPC under Law
64 and 84 and place the ownership of all the
Oil blocks in private hands contrary to Sec
1 (1) of Law 84, Article 257, Section 6 of
the Constitution of the Republic of Ghana
and 1962 General Assembly Resolution on
Permanent Sovereignty over Natural Resources
(GRA 1803).
GNPC would have to compete with the foreign
oil companies for oil blocks declared open
by the Minister of Petroleum if it has the
resources to do so. Ghanaians would
eventually lose ownership rights and
permanent sovereignty over their oil and gas
riches to foreigners, rendering Article 257,
Section 6 of the Constitution a Paper Tiger
and a farce.
Ghana’s Oil and Gas Technical Committee
headed by a Professor who claims the
responsibility for the introduction of the
hybrid system – the Modern Concession upon
which the fiscal provisions have been drawn
and incorporated into the Petroleum
Exploration and Production Bill now under
discussion - has dealt the greatest
collateral damages to Ghana’s economic
independence and emancipation since our flag
independence.
“When the Truth appears every form of error
or discord must necessarily disappear,”
Charles Haanel.
Solomon Kwawukume
Senior Research Officer
Oil and Gas
Ghana Institute of Governance and Security
1st April, 2015
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