Ghana’s Upstream Petroleum Authorized Regime – Power and Pure Assets

To print this article, all you need is to be registered or login on Mondaq.com.

ABBREVIATIONS

HIGHLIGHTS

This section of the report presents the following:

The legal and regulatory framework of Ghana’s upstream
petroleum industry. This has been subdivided into pre-commercial
discovery and post-commercial discovery;

• The enforcement and dispute resolution functions of the
  PC;
• The maritime border disputes between Ghana and its French
  neighbours: Togo and Cote d’Ivoire;
• A case review of Ndebugre v Attorney General, a relevant case
  in the upstream sector; and
• 2019 legal trends and developments in the upstream sector.

LEGAL REGIME – PRE-COMMERCIAL DISCOVERY

Regulatory Regime

Attempts at establishing a petroleum industry in Ghana go as far
back as the late 19th century, with the first wells being drilled
in 1896, when exploration for oil and gas started onshore in the
Tano basin.1 In spite of this early start to petroleum
exploration activities in Ghana, until the 1980s, there was little
petroleum-specific legislation outside of the 1979 Constitution.
Petroleum regulation was subsumed under general minerals law such
that the definition of minerals, included
petroleum.2

The Constitution stipulates that “every mineral in its
natural state in, under or upon any land in Ghana, rivers, streams,
water courses throughout Ghana, the exclusive economic zone and any
area covered by the territorial sea or continental shelf is the
property of the Republic of Ghana and shall be vested in the
President on behalf of, and in trust for, the people of
Ghana”.3

To ensure that resources are exploited and utilised in a manner
that inures to the benefit of the country, any transaction,
contract, or undertaking involving the grant of a right or
concession must be ratified by Parliament unless Parliament by
resolution exempts it from this requirement. The grant of the right
must be done by or on behalf of any person including the
Government, to any other person or body of persons whatsoever
described.4

The 1980s marked the beginning of the development of a
comprehensive regulatory framework for petroleum. The petroleum
legal regime was crafted to attract international oil companies
with the technical know-how and financial reserves do undertake
petroleum exploration and development operations. The
responsibility for petroleum matters was given to the Minister. The
Minister was responsible for entering into petroleum agreements
(PAs),5 and for general oversight of the industry
including the setting of policy and prescription of regulations for
the effective implementation of PNDCL 84.6

Initially, the Petroleum Department under the Ministry of Mines
and Energy was responsible for petroleum activities and associated
regulatory matters.7 With the objective of ensuring that
Ghana obtained the optimum benefits from petroleum resources, the
GNPC was later established by PNDCL 64 to take over
responsibilities of the Petroleum Department. PNDCL 64, thus,
established the first institutional framework for upstream
petroleum activities.8 Subsequently, PNDCL 84 was
enacted to govern the upstream petroleum sector. It established the
contractual relationship between the Republic, the GNPC and
prospective investors in the upstream operations through a
PA.9 Under these enactments, the GNPC was made an
automatic partner to all international oil companies that entered
into PAs with the Republic. The GNPC also exercised regulatory
powers over the industry and, in particular, was the advisor to the
Minister on matters pertaining to the petroleum
industry.10 The GNPC’s dual role as regulator and
commercial actor in the petroleum industry created a
conflict-of-interest situation and was contrary to international
best practices. This conflict situation has since been resolved by
the establishment of the Petroleum Commission as the regulator of
the industry and is discussed briefly in the introduction to the
next chapter of this Report.

Fiscal Regime

At the turn of the 20th century, Ghana’s focus was on
attracting foreign investment to hasten efforts to develop the
country’s exploration and production of oil and
gas.11 It was therefore of great importance to create an
attractive fiscal regime that promoted international participation
in the nascent sector. The upstream tax regime was set out in the
Petroleum
Income Tax Law 1987 (PITL), PNDC Law 188. Under the PITL,
unless otherwise agreed in the relevant PA, a person conducting
petroleum operations was subject to a chargeable tax of 50% of the
chargeable income12 arising from the operations in
respect of a year or period.13 Whilst the PITL also
provided for withholding tax on payments to subcontractors and on
gains or profits of expatriate employees, it did not provide for
capital gains tax.14

In addition to taxes, investors were also required to pay
royalties,15 annual rental charges,16
participating interest17 and additional oil entitlements
as prescribed by their PAs. Regarding the non-tax fiscal regime,
many of the PAs negotiated under the PNDCL 84 contained what are
considered, in retrospect, generous fiscal terms and incentives.
For example, the State’s portion in petroleum operations was a
royalty, often below 10% of the crude oil to be produced. The GNPC,
as the State’s national oil company, also received a 10%
participating interest in petroleum operations. This interest was
carried for exploration and development operations. Accordingly,
the GNPC was not required to pay for costs incurred in exploration
and development activities but only for production operations. In
addition to the 10% participating interest, GNPC had an option to
acquire an additional participating interest upon the achievement
of commercial discovery with respect to a block or contract area.
This interest was pre-agreed and often did not exceed 5%. GNPC was
required to exercise this option within a prescribed period
following the declaration of commercial discovery by the
contractor. Upon the exercise of this option, GNPC was only
required to pay for development and production costs related to the
additional interest but not exploration costs.

Flexible provisions on foreign exchange, subject to the foreign
exchange laws in force at the time, also permitted investors to
transfer the proceeds of their operations out of the country with
perfunctory review. For example, international oil companies had
retention provisions in their PAs which authorised them to retain
the proceeds of their petroleum sold abroad to meet their foreign
payment obligations without going through local
banks.18

Local Content

The local content agenda was modest at best, as Ghana had
neither the resources nor know-how to make any meaningful
contributions to the industry. PNDCL 64 merely entrusted the GNPC
with the function of: (i) ensuring that the Republic obtained the
greatest possible benefits from the development of its petroleum
resources; (ii) obtaining the effective transfer to the Republic of
appropriate technology relating to petroleum operations; and (iii)
ensuring the training of citizens and the development of national
capabilities in all aspects of petroleum
operations.19

References to local content and local participation as a
strategic national objective also appeared in PNDCL 84. For
instance, a contractor or subcontractor was obliged to ensure that,
as far as possible, employment opportunities would be given to
Ghanaians who had the requisite expertise or qualifications at the
various levels of operations.20 A contractor or
subcontractor was also required to prepare and implement plans and
programmes for training Ghanaians in petroleum operations.
21

Environment

The Environmental Protection Agency Act, 1994 (Act 495) was
passed some ten years after PNDCL 64 and PNDCL 84. The Act
established the EPA and, among other things, made the environmental
obligations of persons carrying out petroleum operations clearer.
The EPA is responsible for ensuring compliance with the
environmental laws of Ghana. The EPA’s mandate includes
advising the Minister for Environment on environmental policies,
issuing environmental permits and prescribing standards and
guidelines relating to all forms of environmental
pollution.22 Accordingly, every entity engaged in
petroleum operations must register with the EPA and obtain an
environmental permit before it commences operations.23
The EPA Act and the Environmental Assessment Regulations 1999 (LI
1652) set out the registration, permitting and assessment
obligations applicable to all undertakings that may have an adverse
impact on the environment, including petroleum
operations.24 Any person interested in the exploration
and production of petroleum in Ghana was required to firstly
register with the EPA, then to submit an environmental impact
assessment (EIA) to the EPA in advance of its application for an
environmental permit before finally obtaining an environmental
permit. In order to monitor and strengthen the environmental
management of the upstream petroleum sector, in 2011, the EPA
issued Guidelines for Environmental Assessment and Management of
Offshore Oil and Gas Development in Ghana. The guidelines were
issued to promote the principles of sustainable development,
transparency, and international best practices, among
others.25 The guidelines also provide systematic
environmental impact assessment procedures, specific to the sector
as well as requirements for operators or oil and gas developers to
ensure that their activities are conducted in a safe and
responsible manner.26

Click here to continue reading . . .

Footnotes

1. Petroleum Commission, ‘Phase 1
(1896-1957)’ (Ghana Petroleum Register, 2017) https://www.ghanapetroleumregister.com/phase-1
accessed 30 April 2020

2. Concessions Act, section 49

3. Constitution, article 257(6)

4. id, article 268

5. PNDCL 84, section 1(2)

6. Id, section 32(1)

7. Petroleum Commission, ‘Phase 5
(1981-2001)’ (Ghana Petroleum Register, 2017) https://www.ghanapetroleumregister.com/phase-5
accessed on 09 April 2020

8. GNPC Act, sections 2 and 3

9. PNDCL 84, sections 2(1) and 5(4)

10. GNPC Act, sections 2(2) and (3)

11.Petroleum Commission, ‘Phase 5
(1981- 2001)’ (Ghana Petroleum Register, 2017) https://www.ghanapetroleumregister.com/phase-5
accessed on 9 April 2020

12. Chargeable income of a person for a
year of assessment is calculated as the gross income of that person
less any allowable deductions

13. PITL, section 6

14. id, sections 27 and 28

15. PNDCL 84, section 20

16. id, section 18

17. id, section 17

18. See articles 13.1 of the WCTP, DWT,
OCTP and DWCTP PAs

19. PNDCL 64, section 2

20. PNDCL 84, section 23(10)

21. id, section 23(13)

22. EPA Act, section 2(a) and (f)

23. Ghana Environmental Assessment
Regulations 1999, LI 1652, regulation 1

24. ibid

25. Offshore Oil and Gas Development in
Ghana, Guidelines for Environmental Assessment and Management
(2011), Introduction

26. ibid

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.