In view of the great difficulty we in the FTOS-Gh PSA Campaign have faced in making even technocrats, academics and professionals with MBAs and PhDs - not only the politicians - understand our position, I think a little bit of insight may help more Ghanaians to understand the intricacies of the evolution of oil fiscal regimes and why our Ghanaian (mis)leaders have made dismal decisions and choices, motivated by selfish gains for themselves, not only blissful ignorance, as they are not entirely ignorant of the facts. Theirs is silent ignorance to fool Ghanaians, most of whom have no clue about oil and gas fiscal regimes.
I shall concentrate on only the Production Sharing Agreement (PSA) or Contract (PSC) and the Concession or Royalty Systems, as these are central to our situation. Other fiscal regimes are licence, service contract and joint venture. For the professional or academic reader who wants a very detailed information, these write ups, one by the IMF available on the Internet are recommended: Fiscal Regimes for Extractive Industries: Design and Implementation, Aug 15, 2012 and Kirsten Bindemann. Production-Sharing Agreements: An Economic Analysis. It is actually very simple and not rocket science at all to understand this subject. The excuses of “it is not my area of specialisation” we hear from top government advisers and our academics are therefore not tenable at all. It is simply a reflection of the depth of the pervasive intellectual bankruptcy and cowardice in the country.
The Concession or Royalty System is the capitalist and/or colonially imposed system which some colonised were lucky to receive in order to keep alive, as those natural resources were in many cases the livelihood of the people. Yes, even slaves must be fed, housed and dressed (even if in the “folks” of the masters), don't they? In the case of the Gold Coast, gold mining was already a major pre-occupation in the Akan areas, with the value of traded gold far exceeding the value of traded slaves, something not known to many. With the end of the slave trade, the Gold Coast elite shifted to and started to expand the exploitation of local and new resources like palm oil and cocoa respectively. In the case of gold, some astute Fante businessmen actually acquired the Obuasi gold fields site and bought the machinery to start underground mining. However, a colonial ordinance stopped their venture and they were forced to sell off their concession to the British who became the owners. They ripped off until Kutu Acheampong nationalised the Ashanti Goldfields, just for Sam Jonah to run it down with those far more atrocious derivatives Tsatsu Tsikata could not even dream of and then sold it off to the South Africans. Had the colonial seizure not been the case, the Gold Coast would have produced billionaires long before independence, and Obuasi, perhaps, might be looking more like Johannesburg, not far worse than Soweto as it is. To appease the chiefs, some royalty was considered good to keep the "native" chiefs associated with the deal happy, at least.
Income tax too is paid to the government based on declared profits under Concession. It is not called a “bastard system” for nothing, as the mineral or oil companies always manage not to make or declare large profits, amidst the other shenanigans associated with it. Just read that the new Obuasi operation would be exempted from taxation for a whooping 22 years! That is the Royalty System for you in a nutshell.
As for the ordinary people, it became illegal to extract even the gold dust they were entitled to, as traditionally, gold nuggets must be turned over to the Asantehene’s treasury upon pain of death for failing to do so. I think the most devastating war the Asantes fought against the Fantes was occasioned by the Fantes harbouring two fugitive chiefs who failed to hand over a few lousy nuggets of gold. Illicit mining and smuggling became the norm of the ordinary man to earn some living until “galamsey” was legalised in the 1980s by the PNDC in order to rein in the huge revenue losses through smuggling. Togo and Nigeria without gold mines were exporting more gold than Ghana by the mid-1980s! It is still interesting to read a recent report which claimed that Ghana, give and take, is not even getting up to 2% revenue from the exploitation of its gold resources now!
Let us remember that Nigeria started in the 1950s with the Concession or Royalty System for its petroleum and gas exploitation. It took the Nigerians several years to succeed in changing to the PSA system in the 1970s. That was when the petrodollars started flowing in with the economic boom which saw Ghanaians too flocking to Nigeria, as we in our kalabule infested Ghana heard too the exhortation: “fellow Nigerians, economise your soup because more gari is coming!”. With that came the attendant boom in corruption too. It is one thing to have the money coming in, another to use it prudently. All the same, if you have PSA, you have more money to steal from without even anyone noticing a dent and spread around too. And you all know that nobody sprays better than Nigerians! One just spread a reported $100,000 in Manhattan! The Norwegians have a saying: when it rains on the priest, some drops on the parish clerk too! The way Ghana is headed, many will not be feeling any rain drops on them.
A rebellion started occurring against the Concession System by the 1940s with the rise of the independence movement. In the 1950s, Bolivia, also under the scourge of the Monroe Doctrine imposed on Latin America by the Americans, conceived the first PSA system. But, CIA supported right-wing juntas quickly put a stop to their development. It was only in the 1960s that Indonesia succeeded in instituting the first PSA system. This is based on the age old principle of share-cropping whereby the owner of the land gets two third and the sharecropper gets one third of the harvested crop; this being the popular format.
Under the PSA, the crude oil and gas are shared rather than the revenue. The host country is entitled to royalty on the gross production of oil and gas. The Foreign Oil Company (FOC) lifts some oil, known as cost oil, to recoup or recover the predetermined cost of its investment over an agreed period, often 5 years. The third element after deduction of royalty and cost oil is called profit oil, which is shared between the country, often represented by a national oil company like GNPC, and the FOC on an agreed percentage basis. It is the norm, set by Indonesia, that the host country gets 60% and the FOC gets 40% of the profit oil. Malaysia as a host nation takes a whooping 83% but it can be as low as 40% and as high as 85%! No libilaba about dubious claims that we did not make profits, as is presently happening with the Jubilee “partners”! Finally, the host country is entitled to income tax on the FOC’s share of the profit oil but this is often waived or paid on its behalf by the host, in this case GNPC, simply to avoid the hassle of chasing such taxes and/or act of goodwill to incentivise the FOC.
The host country does not need to invest anything, financial or technical, at all but if it wants to earn more revenue, then it can take more shares (participatory interest) and pay for it, through more oil it earns, of course. Moreover, the investment (oil rig, platform, etc.) become the property of the host nation, as it is paid for through cost oil. The oil reserves also remain the property of the country, unlike the Royalty System in which the investment and the oil reserves become the property of the FOC. Needless to stress that under PSA, there would be no need for some front men cronies of politicians posing as “local partners” and getting 1-5% shares with companies registered in tax havens overseas, as is happening in Ghana presently. It is plain robbery what is going on, as Ghanaians sit down unconcerned and our oil reserves pass into the hands of modern day plundering filibusters. The PSA averts all that,
It is a fair win-win situation for all, unlike the corruption prone, unfair and exploitative Royalty System. With the huge returns in the upstream oil industry, even the most greedy and wicked capitalist sees yields under the PSA as super good returns! They take it rather than leave! Who wouldn't? Invest say $1-5bn which you'd get back anyway within 5 years, in addition to say 40% of the oil over a period! Jubilee Fields reserves were estimated to be worth $160bn using a conservative price figure per barrel and total expected investment is put at only $10bn. Go figure the returns to the parties under PSA. But let us assume total royalty at 5% is $8bn, making altogether $18bn to be put aside as royalty and cost oil to be paid; that leaves $142bn profit oil to be shared 60:40. Ghana gets $85.2bn (+$8bn), the FOCs get $56.8bn (+$10bn, assuming no income tax paid) over the 20 year expected life-span of the Jubilee Fields! Under the Royalty System, Ghana is expected to get only about $20bn, while contributing not less than to $2bn to the cost of production to boot! In Africa, it is only in Ghana that this nonsense is happening, thanks to the chicanery and intellectual bankruptcy and ignorance of our leaders, technocrats and elite even in academia. Today, in the 21st century, the PSA is the global standard, for more than economic reasons. We do not know of any emerging petroleum producing country in Africa that has not adopted it. Yet in Ghana, the received wisdom and misinformation bandied around by ACEP, one of the NGOs surviving on the oil largesse, and supported by the Petroleum Commission, GNPC, NRGI, PIAC, IEA, CSO Platform on Oil and Gas, CEPA, ISODEC, IMANI, etc., and even being taught at GIMPA, our elite public institution, we have learned with much sorrow and increasing contempt, goes thus:
“Concession agreement is generally used by the countries that are non producer and newcomer in the oil industry and want to encourage foreign investment in the development of their oil resources. So government grants ownership and make terms attractive to the investor. PSA is generally used by the countries whose people is very hostile to foreign companies and want to participate more actively in E&P, refinery, marketing and distribution” (Acheampong, I & Duah T., August 2013:173).
Such flagrant balderdash from even the pinnacle of academia, the source of education and training for the Ghanaian public service, is what rules the minds of our policy makers – the bureaucrats and the technocrats - with which they infect the political leaders wielding power like a blunt instrument. This is being taught to students and pandered to the uninformed and unassuming population at conferences, forums for chiefs and the public, etc., often with false claims that Ghana has not been making any investment in the exploration and production ongoing now! So, despite their contrived silence when challenged, I repeat a simple question: can anyone point to us a single newcomer into the oil sector in Africa besides Ghana within the last 10-20 years which fits the bill? That is, adopted Concession because it wants to attract investors, and one that adopted PSA because it is very hostile to foreign oil companies and wants to participate in the development of its own Upstream and Downstream oil sectors? They can choke on their own load of ignorant bollocks, for all I care, but they cannot push it down the throats of some of us!
Who really put a spell on our Ghanaian politicians and technocrats to think such an agreement is a wise one and good for us? Eh! Didn’t their “proud” and “brave” ancestors fight for better prices for the slaves they sold, huh? Mine on the Slave Coast did! I know the slave suppliers from the interior like the Akwamus, Akyems, Kwahus, Bonos, Asantes etc., were just dumping their human cargo in chains on the coast at give away wholesale prices. As for the overlords from the North - the Gonjas, Dagombas, Nanumbas, Mamprusis, etc., - they did not even have the chance to bring the so-called minorities they used to raid for captives beyond the slave market of Salaga. But I cannot really fathom out why the scions of Fantes, Ga-Adangmes and Anlos who really made a killing as factors on the coast are also behaving as dumb asses when it comes to this oil palaver. Times have changed indeed! Those of them who knew better but are silently ignorant - playing possum - are the most venal and pathetic, as many of them constitute the New Collaborators with neo-colonialism! They are the biggest challenge we face in our internal reparations quest for a better deal for Ghanaians. They are simply uncircumcised, unconscientised and still mentally warped philistines hell bent on selling us down the river all over again! Tofiakwa!
Of course, there are variants of PSA, just as we have in farming too, like "abunnu" (half-half sharing) besides the common "abusa", to use the popular Akan systems. There is a third form the name of which escapes me. In Ewe, we have "damee" with its variant forms, like sharing two-third to one-third and the half:half sharing, depending on whether seed, fertiliser, etc., were provided or not by the land owner or sharecropper. Likewise, the shares in PSA vary from the standard 60:40, depending on factors in the negotiation.
That, briefly, is the principle that undergirds the PSA, which is now considered a fair share system than the discredited "bastard" colonial Royalty System which President Kufuor illegally used for the Jubilee Fields Agreement, as it is not backed by the existing law, PNDCL 84.
If the Contract signed by government for which Woyome and his associates claimed compensation for its abrogation was deemed invalid by the Supreme Court because Parliament had not approved it, then the Jubilee Fields Agreement is even more invalid, since no law backed it, despite Parliamentary approval. Not even Parliament can make a law against itself, as it is a principle of law that an existing law must be revoked by specifically mentioning it, or the new law will be null and void. This matter must certainly head to the Supreme Court too.
However, if it was immodest for President Kufuor to accept the use of that obnoxious Concession or Royalty System, it was completely venal for Presidents Mills and Mahama to continue using same after Ghana struck huge oil and gas deposits; and then entrenched that in law under Act. 919 by President Mahama. By his time, Ghana has become a hot country for oil and a must have piece of cake investors were scrambling for. There was absolutely no need to be talking of a law to give incentives to investors and thus even add some incentives of PSA to the basically Concession system without any of the benefits to the host country added for us and called it a superior “hybrid law” to existing fiscal regimes! That was just pure baloney for uneducated people to consume! The pity is most Ghanaians, even many with degrees, are so uninformed, exhibiting all the three forms ignorance takes: blissful, bloody and silent or contrived! They have shown themselves to be incapable of critical thinking, evaluation and rational action to address the challenges we face. That is why it is difficult to argue against Norwegian NGOs operatives who claimed their country was wasting their taxes on scholarships for Africans to do Masters and PhDs, and I agree to a degree with the Australian Professor who looked into the eyes of African Oxford PhD holders and told them they were intellectually not fit to lecture in Australian universities. It is not low IQ but failure of evolution of their cosmology and cosmogony, most being first educated in their families but this is a grand debate which has not even started in Africa and among African academics.
FOCs should be paying us premium to get oil blocks now, especially in the Voltaian onshore basin! Even war ravaged Sudan and Chad signed PSA agreements! Only the “greedy bastards” in Ghana went for Royalty System because the FOCs are giving them 1-5% shares as “local partners”. I have lost every iota of respect for them. Time to begin legal proceedings to charge them with causing Ghanaians huge financial losses and treat them as traitors and lackeys of foreign interests. The struggle to win economic independence from the fangs of neo-colonialism which has clawed deep into the illusory political independence we won promises to be even more daunting, as the New Collaborators are a venal lot worse than the chiefs who were co-opted into the colonial rule after their resistance was crushed.
Andy C.Y. Kwawukume
Acheampong, Isaac & Duah Theophilus. Conference Proceedings CASS & Oil. Vol. 1 No. 1 August 2013:161-175.
IMF. Fiscal Regimes for Extractive Industries: Design and Implementation. Prepared by the Fiscal Affairs Department. Approved by Carlo Cottarelli. August 15, 2012. https://www.imf.org/external/np/pp/eng/2012/081512.pdf
Kirsten Bindemann. Production-Sharing Agreements: An Economic Analysis. Oxford Institute for Energy Studies WPM 25 October 1999.