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

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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

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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

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