The Sale Of GNPC’s Drill Ship…The Story According to Tsatsu & Kan Dapaah

Good governance watchers, anti-corruption campaigners and well-meaning Ghanaians were at a loss last Wednesday when officials of the Ghana National Petroleum Authority (GNPC) and the Bank of Ghana (BoG) both disclosed that they did not have the transaction records and cash transfer of the sale of drill ship, Discoverer 511 which belonged to the GNPC.

Officials of both state institutions made the disclosure to the chagrin of Ghanaians when they appeared before the Judgment Debt Sole Commissioner, Justice Appau.

Although the disclosure left a sour taste in the mouth of many a Ghanaian on how such important public records could go missing, the Scandal believes that the jig saw puzzle could be solved by resorting to the institution of human memory.

The Scandal believes that former and current state officials such as Tsatsu Tsikata (former GNPC Boss), Albert Kan-Dapaah (former Energy Minister), Ato Ahwoi (GNPC Board Chairman), K.T. Hammond(former Deputy Minister of Energy) are some of the people who can give a trajectory of the sale of the drill ship in order to put paid to the seeming controversy.

In fact, both Tsatsu Tsikata and Albert Kan-Dapaah more than a decade ago, clashed on the same subject and this is the opportune time for the Sole Commissioner to dig to the bottom of the issue.

The commission subpoenaed the GNPC to make available its audited accounts covering 1999 to 2005, including its corresponding asset register, transaction report on the sale of the drill ship and minutes of meetings of the GNPC Board covering 1999 to 2005.

The commission also ordered the BoG to make available documents relating to the deal, including records of the ship's sale and records of the payment made to Societe Generale.

But when the Chief Manager in charge of the Banking Department of the BoG, Mr Paul Mensah-Ashun, appeared before the commission, he said, 'We have queried our database extensively but there is nothing that showed that some payment was made to Societe Generale in respect of the sale of the GNPC ship.'

The GNPC, however, managed to submit its asset register covering 2002-2003, minutes of board meetings covering 2001 to 2005, draft board minutes of May 28, 1999, December 29, 1999 and June 26, 2000.

The GNPC could not produce the transaction report because, according to its Chief Executive Officer (CEO), Nana Boakye Asafu-Adjaye, the corporation had not been involved in the sale of the ship.

Kan Dapaah's Letter
However, a copy of a letter addressed to the Board Chairman of the GNPC, dated October 24, 2001 and signed by Mr Albert Kan Dapaah, the then Minister of Energy, which was tendered in evidence, stated that,

'Further to our meeting on Monday, October 22, 2001, and as requested, I provide below details on the sale of the drill ship D511.'

'Sales price $24 million, Paid to Societe General $19.5 million, Balance $ 4.5 million, legal fees paid $ .1 million, Escrow Account $ .9 million and Balance paid to Ministry of Finance $ 3.5 million.

'The Escrow Account is operated by a UK Law firm, Constant and Constant, and is meant to pay for claims on the drill ship. All such claims will have to be approved by the GNPC. The balance on this account will be returned to the GNPC when all the verifiable liabilities have been settled.

'Those claims already settled were properly cross-checked by my deputy (K.T Hammond) with the GNPC to ensure they were properly due,' it said.

Sale of oil drill-ship
On Thursday, 27 July 2001, Government of Ghana issued a statement that it had sold the drill ship Discoverer 511, to defray a debt of $47 million owed a Bank, Societe General.

According to the statement, the former Chief Executive of the GNPC, Mr. Tsatsu Tsikata, incurred the debt when he dabbled in the derivations market and lost heavily.

The statement also added that as a result, a High Court in London awarded Societe General, the sum which included $7 million in costs and interests.

The drill ship was offered by Mr. Tsikata as security for the losses to Societe General, which tried to enforce the judgment by selling the ship then detained off the shores of Oman.

However, as part of the negotiated settlement by the government of Ghana, the bank agreed to an orderly and commercial sale of the ship.

HARD FACTS ACCORDING TO KAN DAPAAH

Ladies and Gentlemen, the hard facts of this catastrophic financial loss to our nation are as follows. Around the middle of 1996, Mr Tsikata, presented himself to Societe Generale, in the words of the bank, as "a commercial, legally trained businessman, sophisticated in terms of his understanding of derivatives trading and the theory behind how derivatives work and how they can be used." He informed the bank that GNPC traded in derivatives and was keen to transact business with it.

Mr Tsikata's business was selling the crude oil, which had been allocated specifically by the Nigerian Government to be refined at the Tema Oil Refinery to supply our country's petroleum products needs. Mr Tsikata decided to sell our oil on the international market instead of making the allocation available to Ghanaians, and wanted to hedge his risks. Mr Tsikata also told the bank that GNPC's Tano oilfield was scheduled to start production within 12-18 months. This was also in 1996.

In a set of very complex hedging transactions which started in October 1996, Mr Tsikata was paid either a premium by the bank or he paid the bank certain sums of money depending on whether the market price of oil stayed below or above the predicted ('strike') price. In effect Mr Tsikata was gambling with our oil while the people of Ghana were queuing for petrol. Mr Tsikata was hoping to reap enormous profits by selling our oil in advance of delivering the product. What Mr Tsikata had not fully comprehended, was the very basic fact that he had no infallible disposition to predict oil prices with absolute certainly.

Like all who dabbled in the hedging business, Mr Tsikata's hedging sophistry was also subject to the extreme volatility of the oil market. Thus, when the oil prices started to decline, Mr Tsikata started to lose massive sums of money. Under the arrangement with the bank, the more money he lost, the more he had to fall on the bank to bail him out and increase his indebtedness to the bank. As matters got worse and his financial situation deteriorated, Mr Tsikata refused the bank's advice to cut his losses and run. Rather he decided to up the stakes in gambling our national assets. Mr Tsikata executed a mortage of GNPC's only viable asset, the oil drill ship "Discoverer 511", in favour of the bank in the sum of $32 million. The drill ship was purchased and refurbished by GNPC in 1992 at a total cost of $25.74 million.

The mortgage amount was to secure his outstanding losses to the bank, but more recklessly, also to enable him to carry on with the gambling of our Nigerian allocated crude oil and the anticipated yield from the Tano field. And so he carried on gambling in his own merry way such that by July 1998, Mr Tsikata had run up debts to the value of the mortgaged ship and the bank entangled in Mr Tsikata's high stake gambling of Ghana's precious assets. Quite apart from reaching the $32 million limit of the security on the drill ship, Mr Tsikata was also paid a net premium of $8 million by Societe Generale, which brought his total indebtedness to the bank to $40 million.

Mr Tsikata accepted the indebtedness to the bank and promised to settle the outstanding debt. Unfortunately, he failed to keep to his word for several months, with the result that in early 1999, Societe Generale instituted legal proceedings in the High Court in London to recover its money, including interest and the costs of the legal process. Meanwhile, an arrest order was granted to the bank for the arrest and detention of "Discoverer 511" which was by now laid up in the offshore waters of Oman.

On 6th June this year(2001), the London High Court ruled in favour of Societe for the full $40 million sum, together with interest and costs totaling a further $7 million bringing Mr. Tsikata's total indebtedness to the bank to $47 million. In order to get its money, the bank decided to sell the drill ship and to pursue the GNPC for any balance, should the proceeds of the sale not be able to cover the full amount of indebtedness. Faced with the imminent loss of the drill ship, the government dispatched the Deputy Minister of Energy, on June 13, to London and Paris to try and reach a negotiated settlement with the bank. The Deputy Minister was also to ensure an orderly sale of the ship to obtain proper market price, if it became inevitable that it had to be sold.

After almost six weeks of intensive negotiations Societe Generale agreed to accept $19.5 million in full and final settlement of Mr Tsikata's indebtedness to the bank. The bank however, would not release the ship from arrest until the settlement figure was paid in full and immediately. Under the circumstances, the Government directed the Deputy Minister to sell the drill ship at the best price that could be obtained on the international market. Consequently, the ship was sold to frontier Drilling of Norway for $24 million, with the formal transaction for the sale being concluded on 17th July 2001.

HARD FACTS ACCORDING TO TSATSU
You recall that on August 8, the Honourable Minister of Energy made a statement to you in which he made many accusations against me. This followed a statement issued by the Government Spokesperson on July 27 to the effect that the GNPC drillship, Discoverer 511 (D511) had been sold to pay for losses incurred by me in derivatives transactions with Societe Generale, a bank headquartered in Paris which had obtained a judgement against GNPC in the total sum of US $47million.

The 'hard facts' are as follows. GNPC had been contesting the claims of Societe Generale since the Bank instituted their action in 1999. A statement of defence and counterclaim was filed on behalf of GNPC. These were based on the fact that Societe Generale had provided negligent advice to the Corporation with regard to the strategy it recommended for the Corporation to hedge its anticipated production of oil and gas from the Tano Fields.

An important element of the GNPC case was the testimony of an expert on derivatives based in Chicago, Dr. Culp, who wrote a report showing that Societe Generale had acted negligently in its advice to GNPC. After the GNPC statement of defence and counterclaim papers were filed, Societe Generale requested further and better particulars and detailed answers were given in response.

The High Court in London held a sitting sometime last year in which it gave directions regarding the conduct of the case, especially on the exchange of documents between the parties. GNPC and its lawyers took steps to comply with the directions of the Court and, among other things, filed witness statements from relevant personnel of GNPC, including myself, regarding these transactions. Again, as required by the judicial process, GNPC and Societe Generale disclosed to each other records in the possession of each regarding the transactions. Societe Generale even demanded records on derivative transactions with two other banks, CSFB and UBS Warburg Dillon Read and these were provided.

Ladies and Gentlemen, in some of the documents disclosed by Societe Generale to the GNPC lawyers, certain passages had been blacked out because Societe Generale claimed they did not have to disclose those passages. An application was made to the court on behalf of GNPC seeking to have disclosures of some of those passages which GNPC's lawyers considered were relevant to proving GNPC's case. An application was also made to have tape recordings made by Societe Generale in connection with transactions disclosed. Societe Generale were claiming that almost all the tape recordings had been deleted except for a few; this did not appear satisfactory to GNPC's lawyers, hence the application to the court for Societe Generale to disclose them.

DRILLSHIP VALUE

He (Kan Dapaah) also states that, the drillship was sold for US$24million. According to reports in oil industry circles, it was sold for US$24million plus transaction costs. To obtain the full picture, these transaction costs must be disclosed and added, especially in making comparisons with the purchase price. It would also be important to know to whom payments have been made in respect of these transaction costs. The Honourable Minister states that 'the D511 had been purchased and refurbished by GNPC in 1992 at a total cost of $25.74million' He does not say that the drillship earned income of over US$15million from operating in Mexico. The drillship was acquired for US$12million. It was used by GNPC to drill a number of wells in the Tano basin and for conducting an extended well-test for the South Tano field for some nine months during which oil was produced.

Even if the total cost of refurbishing the rig was US$13.74 million (taking out the purchase price from the Minister's figure), the earnings of over US$15million from the rig's operations in Mexico cannot be disregarded in the computations. Nor can the 'earnings' attributable to work done for GNPC be ignored in presenting the statement of affairs on the drillship.

Those were the versions of the former government officials when they presented their set of facts at their convenience but will the story be the same should Justice Appau decide to extend a hand of invitation to them to appear before his Commission at the Old Parliament House on the Accra High Street now named Prof. John Evans Atta Mills High Street?