April 24, 2019

Ghana lost over $900M in oil royalties, taxes – Think Tank

Ghana lost over $900M in oil royalties, taxes – Think Tank File photo
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An oil and gas policy think tank, Centre for Natural Resources and Environmental Management (CNREM), has alleged that Ghana lost about $902.45 million in the oil sector because some of the oil companies paid less taxes and royalties to the country.

According to the centre, although the oil resource is in Ghana, the county makes less than 20% of the revenue from the sector.

Speaking further on the issue on the Citi Breakfast Show on Wednesday, the Executive Director of CNREM, Solomon Kwakumey said his outfit had petitioned the Council of State on the matter.

He added that a meeting was subsequently scheduled where they presented their arguments to the Council, and the Petroleum Commission also did a presentation.

“At the meeting, the Petroleum Commission presented a report to the Council of State that Ghana had $359 million for the six years of operation.”

He said after analyzing the Petroleum Commission’s report “to the terms of the Jubilee Field Agreement, Taxation and Accounting Principle, we discovered that this is how much Ghana was losing which is $902.45. We were able to calculate how much we lost in royalties and how much we lost regarding taxes.”

Mr. Kwakumey also said he has petitioned the government to move from the hybrid system and adopt the production sharing method to make more money from Ghana’s oil.

He added that if Ghana were to be practicing the production sharing agreement, at the end of the 7th year of oil production, the country would have “been earning over 11 billion dollars as against the under 4 billion dollars that Ghana has earned for the seven years of operation.”

“The hybrid system is skewed towards the collection of taxes and royalties. It is very difficult to collect taxes from multinationals. Secondly, under the hybrid system, we transfer our sovereignty and ownership of the oil to the foreign oil companies. The hybrid system is just a small modification of traditional concession…just as the way we have given out our gold concessions where we get only taxes and royalties from the mining companies; it is the same old thing being applied in the oil sector.”

Mr. Kawukume further explained that under the production sharing agreement, it is the output of the oil which is strictly shared between the host nation and the foreign oil company.

This he said is “because the oil is our sovereign property under the production sharing agreement. You don’t transfer it to the foreigner, we still have control over it, so it is only output that is shared and not money.”

He argued that some countries including Nigeria and Libya are making more from their oil resources because they are practicing the production sharing method.

Foreign oil companies not shortchanging Ghana – Alex Mould

Former GNPC boss, Alex Mould

But reacting to CNREM’s claims, a former Chief Executive Officer of the Ghana National Petroleum Commission (GNPC), Alex Mould, said such arguments are “myopic” because the multinational companies have to recoup their investments, adding that Ghana would begin making extra from the oil fields after the investments are made by the oil companies.

“That will be a very myopic way of looking at it. You have to remove a few things from that. You have to remove all the investments and cost of producing the fuel from that. After that, look at the taxes that are paid, we don’t pay the taxes from oil. So that is why I say it is a little more complicated than what the gentleman has portrayed. So the citizens of Ghana should be rest assured that the government is doing everything possible to increase the yield for the country.”

“Most of the countries he is talking about, most of the equity have been paid back. So the investment cost has been paid back, and that is why it seems they are benefiting by about 75%…These are fields that are either ten years or more than five years because when you put an investment in, you are allowed to recoup that investment in the first five years.”

Touching on the Jubilee Field, Mr. Mould said about $5 billion was invested in it “So that amount would be extracted from the first production in the first five years, when you finish paying back all the investments, then you could find out that the amount that is going to the state will increase.”

Hybrid system more transparent

On why Government still used the hybrid system, Mr. Mould said it is more transparent than the production sharing mode.

“The reason why we used the hybrid system was that we believed that the hybrid system was more transparent for both the investor and the government. The [multinational oil companies] have refined that system to our benefit as the years have gone by.”

By: Godwin Akweiteh Allotey/citinewsroom.com/Ghana

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