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ExxonMobil deal to boost local refinery capacity

By: Jessica Acheampong
Dr Steve Manteaw addressing participants in the workshop.
Dr Steve Manteaw addressing participants in the workshop.

The country is expected to get more crude oil to refine locally as part of the domestic supply requirement under the petroleum exploration agreement between the Government of Ghana and Exxon Mobil Corporation (ExxonMobil).

Under the Domestic Supply Requirement, (Article 15.1) of the agreement, the Ghana Group are under obligation to supply their respective entitlements for local consumption.

Again, the contractor (ExxonMobil) and associates are under obligation under Article 15.2 to supply a volume of crude oil for local consumption, subject to being given three months prior notice which is consistent with Section 71 of the Petroleum Exploration and Production Law (2016), Act 919.

This means that the current practice of shipping locally produced crude oil abroad for refining would be a thing of the past, hence the need to build local capacity to meet this new obligation.

A policy analyst, Dr Steve Manteaw, who presented an analysis of the agreement to selected members of the Institute of Financial and Economic Journalists (IFEJ) in Akosombo, said “this provision in the agreement gives me some assurance that when we set up the refinery we shall be able to source for crude. Under this contract, the practice of shipping your crude abroad to go and sell comes to an end and this lays the sound basis for the second oil refinery.”  

Deal with inefficiencies
Dr Manteaw also made a strong case for the country to address the operational inefficiencies at the Tema Oil Refinery (TOR), as it braces itself to refine more crude locally under the ExxonMobil agreement.

He said the current inefficiencies at the refinery contributed largely to it not being competitive and there was ,therefore, the need to address the issues before moving to establish the second refinery.

The government has announced its intention of building a new oil refinery valued at US$4billion to increase the supply of refined products in Ghana in the next four years.

“The idea is a good one but we will first need to address the inefficiencies challenge at the current TOR and not to export that culture to the new refinery.”

“You go to the current TOR and you will find hundreds of workers parading there in the name of national security but adding no value to the operations of the oil refinery and are been paid by the refinery. There are issues to address before we go on that trajectory,” he said.

The workshop was sponsored by the German Development Corporation (GIZ) and provided the platform for the selected journalists to have expert analysis on the petroleum agreement.

The ExxonMobil petroleum agreement was signed on January 18, 2018. The allocated block is situated in the Deep Water Cape Three Points area and was allocated through direct negotiation;

The Minister for Energy, Mr Boakye Agyarko is said to have described the terms of the agreement as one of the best and it is indeed the first time the public has been invited to witness the signing of an agreement.

The agreement is yet to be ratified by Parliament as an indigenous Ghanaian company to take an assigned five per cent was yet to be selected. Exxon Mobil holds 80 per cent interest, with the national oil company, the Ghana National Petroleum Corporation (GNPC) having 15 per cent stake.

Under the agreement, ExxonMobil will pay a 10 per cent royalty, Corporate Income Tax (CIT) of 35 per cent, with zero duties on imports and exports by the company. 

Touching on some of the good provisions under the agreement, Dr Manteaw said an obligation had been placed on ExxonMobil to develop GNPC’s operational capacity within four years to meet its aspirations to achieve operatorship capacity and also commit fulfilling local content obligations imposed by LI 2204.

ExxonMobil is also expected to commit to best environmental practices and environmental protection laws while operating in Ghana.

“There is also an opportunity for the GNPC to earn income by providing direct services to the project (Article. 2.8) and the earnings will be either cash or credit against future cash calls,” he said.

There is also an obligation on the contractor to acquire approvals or waivers from relevant agencies and regulators such as the Environmental Protection Agency (EPA),the Fisheries Ministry and others.

He ,however, explained that going forward, it will be useful for an upstream cost/benefit analysis to compute or estimate the total tax expenditure as against revenue in the various agreements to inform policy as the country had the tendency to be giving out too much under some of these agreements. GB