It has emerging, that the letter from the Finance Minister, Ken Ofori-Atta to the Ghana National Petroleum Corporation, GNPC, seeking clarifications into claims of losses of about $34.12m in revenue, following from the sale of the TEN crude oil, hinged on ill-advice from the Ministry.
The Minister’s letter of inquest has also exposed the Ministry since GNPC’s method of pricing was duly approved by both the Ministries of Finance and Energy before the said contract was entered.
Information available indicates that, the Head of Energy, Oil and Gas at the Ministry of Finance, Mr. Joseph Kwadwo Assensu, may have wrongly advised the Minister into thinking that, the achieved price for the Ghana Group’s crude oil has fallen short of expectation, in comparison with Brent oil prices from Bloomberg.
For which reason the Minister’s letter wrongly assumed that, “this has given the offtaker, the latitude to choose lower prices of value TEN crude oil”.
The Minister’ letter added that, “our analysis reveals that, in 5 out of 6 cases, TEN crude oil was priced lower than the lowest possible Brent crude oil price, based on a different 5-days moving average within 30-days window before the B/L date. All lifting except the 5th were affected by this low pricing phenomenon.”
The letter stressed that, “The potential loss, based on the low case scenario, is approximately US9.83 million. Arguing that, “If GNPC had insisted on the highest possible price within the pricing window, the state would have gained a total of US$34.12 million more”.
But the reality, as revealed in a detailed response to the ill-advised letter from the Minister, the Chief Executive Officer of GNPC, Dr. K.K Sarpong minced no words when he indicated that, “losses” alluded by the Ministry’s letter were “erroneous” to think that, GNPC could simply select the highest priced out of pricing option ahead of time and impose same on the buyer.
This, GNPC explained, is because in the first instance, it’s unfair to take the pricing bit of the contract alone as bases for any claim of losses. More so, the Bloomberg source that was used as reference by the Ministry of finance “is not a reference for trading crude oil by GNPC and indeed producers or buyer”.
GNPC’s response indicated. Rather, GNPC’s crude price is Plattts Crude Oil Marketwire and therefore, the prices quoted in the Ministry’s letter are misplaced since it could not be traced in it.
It further clarifies that, “since the TEN crude oil trades at a discount, “the achieved price” actualized by the GNPC is net of this differential which includes a fee for exercising that option.
The Ministry’s analysis therefore appears to have ignored the discounts in respect of the TEN and SGN crude oils, thereby, over estimating its calculations of “losses”.
In fact, contrary to claims of losses to the state as the Minister’s misinformed letter sought to portray regarding GNPC’s transitions with Litasco, GNPC made substantial gains running into over US$20 million. The gains, include, the “supply of HFO at a competitively priced premium of $6.5 per metric tonnes for an annual supply of about 720,000metric tones”. “Annual savings of two guarantees that amount to $179 million at a cost of 5.25% per annum compared to 9% per annum charged previously, bringing the savings of US$10.3 million. It further revealed.
Its added that, “there is also a financing cost of 5.25% (APR) on the US$100 million loan to BOST which is very competitive when compared to similar loans secured by government entities priced at 9% or even more. This ultimately results in savings of about US$8.25 million over the two years of the loan period”.