Energy experts are strongly calling for a renegotiation of the $7 billion Sankofa Gas project deal even though the World Bank has approved a $700 million in guarantees for the project to begin.
Despite its potential to end Ghana’s age-old energy challenges, Energy Think-Tank, Africa Centre for Energy Policy (ACEP) maintains that the signing of the deal between government and the contractors [ENI Ghana and Vitol Ghana] will result in huge financial losses to the state.
ACEP is also worried about the World Bank guarantees for the project.
According to Benjamin Boakye, Deputy Executive Director of ACEP, it comes as no good news that the Bretton Woods Institution is guaranteeing the project.
“This does not only show that Ghana has lost credibility among its creditors but it also brings to bear the rationale behind the guarantee from the World Bank,” Mr Boakye noted.
He said the guarantee from the Bank does not require it to pay up in the event where Ghana defaults yet the process would come at a cost to government.
According to ACEP again, analysis of the terms and conditions of the Agreements and Term Sheets show that the deal is filled with badly-negotiated terms, and at most serving the interest of the contractors rather than Ghana’s.
In January 2015, government, through the Ghana National Petroleum Corporation (GNPC), signed a gas deal with the Offshore Cape Three Point (OCTP) Partners; ENI Ghana and Vitol Ghana over a US$7 billion integrated oil and gas development in the Sankofa-Gye-Nyame Fields.
Under the Security Package and Fiscal Support Agreement, government is required to issue five different Sovereign Guarantees estimated at about $1.5 billion in addition to World Bank and IDA guarantees, a situation which Dr Mohammed Amin Adam, Executive Director of ACEP, says over-exposes the state to too much risk and demonstrates the lack of investor confidence in the Ghanaian government.
Following the requirements of Security Package and Fiscal Support Agreement, the Board of the World Bank last week approved a combination of two guarantees for the Project – an (IDA) Payment guarantee of $500 million to support timely payments for gas purchases by Ghana National Petroleum Corporation (GNPC) and an IBRD Enclave Loan guarantee of $200 million that will enable the project to secure financing from its private sponsors.
Together, the guarantees are expected to mobilise $7.9 billion in new private investment for offshore natural gas, representing the biggest foreign direct investment in Ghana’s history.
The Sankofa field
The Sankofa Gas Project aims to develop offshore natural gas located in deep water 60km offshore of Western Ghana.
The gas from the project will fuel up to 1,000MW of domestic power generation, or about 40 per cent of Ghana’s currently installed generation capacity. This will help improve the reliability of power services in Ghana, replacing the current use of expensive, polluting fuels (imported light crude oil) with cleaner and more affordable gas resources.
Once the project is operational, Ghana will be able to reduce its oil imports by 12 million barrels per year and reduce CO2 emissions by around 8 million tons over five years.
The exploration and commercialisation of the gas will be carried out by two private investors, Eni of Italy and Vitol Group of the Netherlands, in close partnership with Ghana’s National Petroleum Corporation, (GNPC). The Sankofa gas field is part of a wider complex called the Offshore Cape Three Points (OCTP). The OCTP includes an oil field that will be explored by the same private investors to Sankofa Gas.
While the exploration of gas and oil fields will share a floating production and storage vessel, the commercial arrangements for the oil field and natural gas exploration are strictly separate. World Bank Guarantees only support the commercial arrangements for the Sankofa Gas development.
Total investments in the development of the OCTP are estimated to be $7.9 billion over the life of the project. This represents the largest foreign direct investment in Ghana’s history.
The Sankofa-Gye-Nyame Fields is estimated to hold petroleum reserves of 131 million barrels of crude oil and 1.15 trillion cubic feet of natural gas. The project is in two phases – Phase 1 (Oil) and Phase 2 (Gas). First oil is expected on stream in March 2017 whilst first gas is expected in February 2018.
Daily production of oil will be at 80,000 barrels whilst daily production of gas will average 171 million standard cubic feet over 20 years.
Ghana’s energy crisis
Ghana’s power sector has been saddled with challenges attributed to unreliable gas supply and frequent drops in the water levels of the country’s two major hydro plants - Akosombo and the Bui power generation plants.
Other challenges include the high cost of crude oil to power plants.
Currently, Ghana is grappling with a power generation deficit of between 350 and 400 megawatts (MW), a situation caused by erratic gas supply from Nigeria and the shutdown of some machines for regular maintenance works.
Even though the Sankofa Gas project is expected to bring significant benefits for Ghana by fuelling up to 1,000 megawatts of clean power generation, there is much to be alarmed of following the experience the country is currently having with the Volta River Authority’s (VRA) inability to fully utilise the gas from the Atuabo Gas project.
Earlier this year, VRA was taking between 53 million and 60 million standard cubic feet of gas per day to generate only 230 megawatts of power a day even though it could generate 550 megawatts of power every day from the 120 million standard cubic feet of gas produced per day at the Atuabo plant.
To avoid a repetition of the Atuabo scenario, Government, as a matter of urgency, should work at putting in place all needed infrastructure before the Sankofa project comes off.
Source: The Finder
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