Business in Ghana

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Waking Up from the Pipe Dream Part 2

Posted by Business in Ghana on March 30, 2014

By Charles Wereko-Brobby (Dr), Chief Policy Analyst, Ghana Institute for Public Policy Options (GIPPO),  tarzan@eyetarzan.org

The Government of Nigeria and NGas have made it clear that it does not respect the sanctity of the Gas Supply Agreement that underpins the supply of natural gas to Ghana, Benin & Togo. So much for ECOWAS Economic cooperation and integration!

Add this to Nigeria’s continuing bar of our industrial products and we might as well bury ECOWAS and stop the waste of half-yearly summits that have failed to deliver a single tangible outcome of regional integration for almost 40 years of the Lagos Plan of Action.

Instead of begging Nigeria to get some “soppy” supply, let us absorb the reality and wake up from the West African Pipe dream and take bold and decisive steps that ensure a reliable and ample supply of our own gas resources to fuel our power plants

The key to getting it right lies with our full understanding of the key implications of the betrayal that has been visited on Ghana, and to respond appropriately and fulsomely!

Gas Price

Some have suggested that the Nigerian action is a tactic to force us to pay the full commercial price for gas. Such a suggestion is made from abject ignorance of the premise on which the West African Gas pipeline project was made real.

The GSA stipulated that a minimum volume of gas had to be bought by VRA to make the project viable. This is what is called the foundation volume of 123 million cu ft per day. Whatever NGas was able to deliver, VRA was obliged to accept under the ubiquitous “take or pay” arrangement

The supply arrangement guaranteed a whopping 12-15% Rate of Return on the US dollar investment made to construct the West African gas pipeline. Yes, 15% at a time when international ROR on such projects were around 6-8%.   For this very accommodating arrangement it was agreed that VRA would have a fixed guaranteed price for the foundation volumes

Therefore it is wrong for anybody to think that VRA is paying a bargain basement price for the gas, The contrary is the actual position, 15% ROR is generous to a fault and given that the pipeline can actually carry 2x the foundation volume, the investors stand to gain super windfall profits as the pipeline cranks up to full carrying capacity.

Flexibility of WAGP operation

When we finally nail down the shifting start dates for the delivery of Jubilee gas, we will need the maximum flexibility in the operation of the West African Gas pipeline in order to get the maximum benefits from having our own gas.

As the Jubilee gas volumes crank up to full production, it is imperative that the WAGP should be able to allow a West to East flow of gas from Takoradi to Tema to deliver surplus gas beyond the needs of the plants at Atuabo and Takoradi, to any plants along the route to Tema

Then the woefully inadequate and unreliable deliveries from NGas, will now terminate its East –West flow at Tema, serving Benin, Togo and other Ghana plants at Tema

Mercifully, WAPCO is located here in Ghana and Ghana Gas also has its corporate base in Accra so there can and should not be any impediments (lawful or otherwise) to be up and doing now.  Ghana Gas must begin discussions with WAPCO NOW

Ownership & Management of WAPCO

Tsatsu Tsikata and Kofi Asante have been proven right. The states (Ghana, Nigeria, Togo and Benin) should have owned the WAGP.  As it is now, the shareholders of NGas, (Chevron Shell & the NNPC) who have treated us with utmost contempt, own over 75% of WAGP.

This entitles them to almost total control of the management of WAGP. NNPC provides the Chairman; Chevron provides the Chief Executive and Shell controls the Finances.  Three out of the five executive management positions are held by Nigerians. Ghana holds one position

A most veritable case of folks reaping where they have not sown NGas has plunged Ghana into darkness by refusing to honour its contract. Ghana contributes more than 90% of WAGP’s revenues. Yet the owners of NGas own and control WAPCO’s operations.  This means that they stand to get the most benefit from Ghana flowing Ghana’s Jubilee gas through the WAGP.

That is as unacceptable and untenable an arrangement to be allowed to continue for much longer. Those who choose act with impunity and disrespect towards Ghana, must never never be allowed to rub salt into our dum so dum so injuries.

The management of WAGP must be put into the hands of independent and experienced companies, contracted through international competitive bidding, carried out by advisers independent of and having no association with the shareholders.

Ultimately, the states constituting the foundation custom must take ownership of the WAGP. This should offer the flexibility to invite and negotiate for additional and reliable gas supply which will fill the existing 50% spare unused capacity of the pipeline.  Having failed woefully and spectacularly, the owners of NGas do not deserve nor should they be allowed to exercise any veto or act as the gatekeeper for vetting gas supply from others,

The Price of arrogance and Failure

Those who have let Ghana down so badly must be made to pay for their incompetence and self – oversight, which led to delays and non-performance that has literally cost Ghana several millions of dollars; in addition to the never ending dum so dum so.

The construction of the pipeline should have taken 18 months. In the event, its completion was delayed for several years and its cost ballooned to more than twice the original budget (we are talking US$ here not Naira or Ghana cedis) _

Chevron, which was to manage the project for one year as the WAPCO was being formed, managed to manoeuvre to remain project managers throughout the entire construction period.  In an unusual arrangement, the Chevron project team reported directly to the Chevron MD of WAGP.  Chevron plays both gamekeeper and poacher.

The cost of the project overrun has affected Ghana in two ways. Firstly, it increased the cost of gas substantially, as the price set is dependent on the final cost of building the pipeline. Secondly, the failure to deliver the contracted volumes of gas has cost Ghana dearly as we have had to continue to buy crude oil to make up for both inadequate gas and the delays in delivering the pipeline on time.

Chevron is very big in the international oil business. Indeed, it is now touted as the biggest oil company in the world. It is therefore unpardonable that it allowed an “insider trading” arrangement to be used in the construction of the pipeline.

If the WAGP had been delivered on time and to price, we could have brushed over the unsavoury conduct of Chevron. However, having failed spectacularly, Chevron must be made to pay up for all the losses that Ghana has suffered.  A starting point to this will be to engage credible international advisors to undertake a full and comprehensive audit of the construction of the West African Gas Pipeline.

There are credible reports that the repair work to the breach of the pipeline in 2012 took far longer than necessary because of botched design and shoddy operations. This also needs to be investigated and the necessary costs to Ghana established and reimbursed.

End piece

Some have suggested that we should treat this matter with kid gloves because of the size and economic strength of Nigeria. This is not to be accepted in any way shape or form. Recent history of our relationship is replete with Nigeria walking all over us and us paving the way for an increasing Nigerian economic and social investment here.

Far be it for me to suggest a “shutting down the barriers” to Nigeria. But we cannot continue a non-reversible valve economic relationship with Nigeria and its corporate entities. We need to insist on a fully-reversible and equal partnership, each respectful of the other and fully recognizing that the sum of the parts of mutual gains can be far greater than the whole.

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