What is the true motive of natural resource valuation in Ghana?

In a beautifully crafted publication on accountability titled, Do We Mean What We Say for Accountability in Ghana, I was reminded by the author that ‘Paemu Ka’, an Akan phrase which means: say it as it is, anchors accountability. So, I choose to draw attention to this phrase as I share my thoughts on recent resource-backed investment intentions in Ghana that so far unsuccessfully discredits CSO advocacy. But before I continue, brace yourself for the discourse that the utility and by extension monetary value ascribed to some of Ghana’s natural resources have over the past few years been mired in public banter. The most recent being the hoopla following the $1.65 billion GNPC-Aker Energy oil deal steeped in such controversy that one could compare it to a debate between an atheist and a theist on the existence of a supernatural God. To dissect the issue at hand I pose some questions and share some comments.  

Is the core of this debate valuation? Known for ascribing utility to natural resources, valuation has proven to serve two opposing interests at every point in time. With the right intentions, true owners of resources could derive maximum benefits from the exercise of valuation. With an ulterior motive, I daresay parochial interests paraded as public interest, could rip off rightful owners of resources all owing to valuation! While I proceed cautiously on these sentiments, the stark evidence from unfair community compensation schemes in mining operations mirror this reality where ill-intentioned valuation takes from the poor and gives to the rich. We have seen this in cases where mining concessions are issued to powerful companies who can exploit gaps in national laws using valuation to unfairly compensate poor occupants and owners of land within their concessions. This is but a tip of the iceberg.  But why is the devil in the valuation when it comes to natural resources in Ghana?  With up to 13% of GDP drawing from our natural resource rents there is enough reason to broach this question.

Valuation and State-Owned Enterprises like GNPC

News of the single biggest deal by GNPC which I referenced earlier may have clogged the airwaves in Ghana lately. The proponents of the deal, GNPC, stake their claim based on a so-called independent valuation exercise that adopted an unusually high price of US$65 per barrel of crude oil for a long-term forecast. CSOs did and have not taken this lightly. They responded and advanced counterarguments to the extent that industry forecasters like Wood McKenzie and others do not apply such high prices; facts I totally agree with. My claim in addition is that the ‘smoke screen’ of energy transition being the need for this deal to go through with such lightning speed is as problematic as it is unfathomable. This is sadly so because the proponents of this deal superintended the flaring of 19,753.51 MMScf of natural gas in just 2020 alone. This is a little over a ton of carbon dioxide emissions, the contributory consequence of which is the energy transition. The additional smoke screen is the details in the valuation which state companies have so well used to throw dust in the eyes of an unsuspecting public for sympathy. The bawling responses by proponents of the deal to CSO’s arguments suggesting that they are empty is sad for constructive criticism. If anything, CSOs have played a central role over the years in ensuring that the public purse is protected regardless of the government in power. There are many examples of this role as referenced by Ben Boakye, Executive Director of ACEP and Bright Simmons, Founder of Mpedigree and  many others within the CSOs space. For a compromise at least, what should be agreed on between CSO’s position and proponents of the deal is the debt issue that could be and potentially instigated by this deal. One thrust of CSO’s argument is that the ballooning public debt situation the country faces should warrant careful debt management which obviously the GNPC-Aker deal does not serve the public with. Our friends from the International Monetary Fund (IMF) share CSO’s concern on the public debt and what the energy sector’s contribution to this is. According to their Article IV report of July, 2021:

‘’ Public debt grew from 23 percent of GDP in 2007, the year of the first Eurobond issuance, to 79 percent of GDP in 2020, pushing gross financing needs above 25 percent of GDP and debt service (including amortization) above 129 percent of revenues. The adverse debt dynamics were driven by large and persistent government deficits (including financial and energy sector costs)…’’

Requesting a loan, about 2.2% of GDP to finance this oil deal based on a supposedly spurious valuation at a time the country’s debt situation is over the roof, is of concern to CSOs and must be re-examined. While the recent IMF transfer to Ghana of SDR1 billion will add to the debt situation, the fact remains that incurring avoidable debts through questionable valuation exercises is not anything CSOs are prepared to remain aloof about.

Who else is ‘enthralled’ by this tussle between CSOs and state companies on the facts and risks?

With about 38% and 42.22% licence and participating interests respectively, in the Deep Water Tano/Cape Three Points oil block, the subject of controversy highlighted earlier, Lukoil, a Russian multinational company expressed worry and concerns about the Aker-GNPC deal. On 9th August, 2021, the Russian company wrote to Ghana’s Minister of Energy posing questions on changes to block operatorship; financing plans etc. See extract below:

The Energy Minister did respond to Lukoil and in my opinion these exchanges do not only vindicate CSO’s concerns on the entire deal but also tacitly, from the corroborated risks in Lukoil’s letter, confer onto extractives sector CSOs, the hard-earned credibility that warrants a permanent seat at the table of natural resource discourse.   

There have also been similar transactions in the mining sector that I shall address in the unfolding paragraphs. Notable is the Agyapa mineral royalty monetization deal introduced in 2020 and on this I ask a similar question: How did valuation play out in this deal?

 History has taught us many things in the natural resources space. First, we have not been able to maximise the benefits from our mines for optimum economic development although we have mined for centuries. Read more about this in my previous posts. Second, the golden opportunity for Ghana when we found oil was to leverage petroleum resources to make a difference which is why a petroleum revenue management law, a product of persistent CSO activism, was put in place in 2011. Years later CSOs asked for a similar law in the mining sector to which the current government while in opposition committed in their party Manifesto. But the mineral revenue management law was not delivered. Rather, a mineral income investment law was enacted. This law provided the legal framework on which a mineral monetization deal based on a valuation or rather undervaluation of mineral royalty assets at about US$1 billion was birthed. Many publications from press releases to sound analysis, have been  made by CSOs in the extractives and anticorruption space against this deal as we wait for it to morph into a much better version. In this deal, about 48 mining leases would be used to capitalize a special purpose vehicle incorporated in a tax haven. The government of Ghana will retain 51% ownership of this vehicle even as the government invests in the stock market in return for $500 million upfront cash.  What is suspected again, like the GNPC deal, is the valuation issue whose similarity has been elaborated in the earlier texts. In an analysis done by CSOs, it was evident that by using a Business-As-Usual scenario, i.e, should Ghana decide not to monetize its mineral royalty, it would be US$61 million better off than monetisation proposals which offers less return on investment. As to whether this was heeded remains an unanswered question. What intrigues me though is, concerns raised by international ‘foreign’ companies on risks from ill evaluated investment decisions by government such as by Lukoil referenced in earlier texts, may be listened to by state authorities but not from citizens. This makes me wonder: to whom does the state lend its listening ear; the private company or the citizenry? The answer to this question I shall attempt in the future.

In this discourse on natural resource in Ghana, I am convinced that the main connecting tissue to deals of this nature is valuation and it must be closely monitored. The question and merits of whether we need special accountability controls and regulation on economic and asset valuation as relates to natural resource transactions is not something this write up opposes. It sure is, a path we may want to chart as a nation to address policy failure, rent seeking, and potential corruption. Until such a time, for resources governed by fiduciary power such as provided for in the laws of Ghana on hydrocarbons and minerals, state authorities owe it to the public to remain accountable and as an entry point, commission a national conversation on value drivers in the exercise of power on investment decisions. This is taxpayers’ money in the crosshairs and whatever the reason, every dime ought to be efficiently accounted for. It would therefore be the unfairness of reasoning to seek effectiveness over and above efficiency given the scale of the transaction. As CSOs, our check on this is to unpack issues and let the public debate it in the interest of value for money and accountability as the phrase goes, ‘Paemu Ka’!

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