Unmasking Act 919, Ghana’s Petroleum (Exploration & Production) Act of 2016

Derek Osei Assibey in an article debunks what he describes as false claims by some commentators that the Petroleum (Exploration & Production) Act, 2016 (Act 919), is a dangerous piece of legislation. On the contrary, he argues that the law has rather enhanced Ghana’s initial carried interest to a minimum of 15%, with an option for additional interest to be determined in negotiation.

Act 919, also known as The Petroleum (Exploration & Production) Act, 2016 (Act 919),
has been subject to false claims that it was a dangerous piece of legislation
passed urgently under dubious circumstances. These false claims must be corrected and urgently.

The law replaced the Petroleum (E&P) Law, 1986 (PNDCL 84), as the ultimate document to guide oil and gas exploration, exploitation, and management in Ghana. It seeks to improve and enhance the regulation of the conduct of petroleum operations and to institutionalize a viable commercial oil sector in Ghana.

After careful consideration, Ghana opted for a fiscal system that mixes some elements of concession sharing and state participation. It is important to note that no single fiscal regime contract best fits all countries.

The law has enhanced Ghana’s initial carried interest to a minimum of 15%, with an option for additional interest to be determined in negotiation. The law has several key features that give Ghanaians reasons to celebrate.

These include a public tender process for allocating petroleum blocks, the establishment of a Local Content Fund, imposing strict liability for pollution, and detailed provisions on the contents of a Plan of Development (POD) to guarantee the sustainable exploitation of the nation’s petroleum resources.

It is instructive to note that Act 919 is a superior Act acknowledged for its inclusion of clauses that enhance the benefits to the State and ensure environmental protection. Its hybrid fiscal system provides for higher royalties, surface rental payment, additional oil entitlement, and additional carried (enhanced and participating) interest.

It seeks to ensure greater transparency and prudent management of Ghana’s oil and gas resources.

The Petroleum Bill (E&P) that culminated in the Petroleum (E&P) Act, 2016 (Act 919) took a decade to become law.

Local and international stakeholders, including GNPC, Petroleum Commission, Water Resources Commission, Forestry Commission, Environmental Protection Agency, Western Region House of Chiefs, Civil Society Platform for Oil and Gas, Revenue Watch, Platform Oil, Tullow, ENI, World Bank, UNDP, some development partners, and parliament, were extensively consulted, resulting in five revisions to accommodate appropriate stakeholder concerns before passage in 2016.

The Bill was subjected to stakeholder consultation and gruelling constructive criticism resulting in the final Act being passed in 2016. The international oil companies did not bribe the Members of Parliament to rush the Bill through Parliament.

Act 919 tightened many loopholes, introduced a strong Petroleum Commission, and provided adequate safeguards for environmental stewardship in the sector.

Several Members of Parliament recommended establishing a truly independent regulatory body responsible for overseeing the sector in line with Article 269 of the 1992 Constitution.

Concerned parties expressed that the Bill gave the Minister for Energy too broad a discretion in the award of contracts, exposing Ghana to the risks of corruption and ill-informed decision-making that have plagued too many petroleum-rich countries.

Experts suggested that countries most successfully find strong private partners and secure the best terms for the State when they make awards via open and competitive bidding procedures.

Experts recommended that the Bill should capture the most salient ecological requirements for emphasis, including provisions for the ‘Polluter Pays’ Principle (PPP).

Experts observed that a specific subsection must be provided that predicates the granting of a petroleum exploration and production license upon the granting of an environmental permit from the Environmental Protection Agency.

Experts further observed that the Ghanaian fiscal regime for the petroleum sector as it existed then and captured in the draft left far too many crucial elements subject to negotiation.

They suggested that at a minimum, tax rates and procedures should be firmly established in law and not subject to variation, and Parliament should consider setting firm rates (or floors) for royalties and ‘additional oil entitlement.’

Parliament took cognisance that Ghana was in a different position than when the contracts for the Jubilee Field were signed, with the discovery of significant petroleum deposits and the looming onset of production.

The country was becoming a much more attractive location for petroleum investments and, therefore, should take advantage of this leverage to take a more proactive role in setting fiscal terms that promote long-term national benefit.

As a result of the public consultations and the responses, some of which are enumerated above, Parliament returned the Draft Petroleum (E&P) Bill to the Ministry and prioritized the setting up of a separate independent regulatory authority while addressing some of the concerns raised by the public which Parliament considered worthy of attention.

The Ministry suspended work on the draft bill and proceeded to work on the Petroleum Commission and Revenue Management Bill.

The Petroleum Revenue Management Act, 2011 (Act 815) was assented into law on April 5, 2011, while the Petroleum Commission Act 2011 (Act 821) was gazetted on July 15, 2011, ushering in the Petroleum Commission as an independent regulatory authority for petroleum upstream, as demanded by stakeholders.

Experts recommended the need to develop local content and local participation regulations for the upstream. The Ministry responded to these concerns and worked to produce the Petroleum (Local Content and Local Participation) Regulations, 2013 (L.I. 2204), gazetted on July 12, 2013.

During the same period, we revisited the Petroleum (E&P) Bill, and a revised draft was formulated to accommodate relevant and appropriate stakeholder inputs.

A new Parliament started work in 2013, and a new draft bill was presented to the new Parliament. The draft bill was extensively circulated among stakeholders for comments.

Several Ghanaian and non-Ghanaian parties and stakeholders were interested in its drafting and implementation, including GNPC, Petroleum Commission, Water Resources Commission, Forestry Commission, Environmental Protection Agency, Western Region House of Chiefs, Civil Society Platform for Oil and Gas, Revenue Watch, Platform Oil, Tullow, ENI, World Bank, UNDP, and some development partners.

The consultations on the 2013 draft resulted in a draft Petroleum (E&P) Bill, 2014. The Minister for Petroleum laid the Petroleum (Exploration and Production) Bill, 2014 in Parliament on November 12, 2014, per Article 106 of the 1992 constitution.

The Select Committee on Mines and Energy on the Petroleum (Exploration and Production) Bill 2014 published in the newspapers the referral and request for submission of memoranda in respect of the Bill and sent written requests to critical stakeholders in the petroleum industry to obtain their comments on the Bill.

Institutions that submitted memoranda were Environmental Protection Agency (EPA), Ghana National Petroleum Corporation (GNPC), Ghana Institute of Governance and Security (GIGS), Ghana Oil and Gas Services Providers Association (GOGSPA), Ghana E&P Forum (Ghepf), Ghana Arbitration Centre, African Centre for Energy Policy (ACEP), Natural Resource Governance Institute (NRGI), and Ghana Oil and Gas for Inclusive Growth (GOGIG).

The Committee’s Report in a section captioned ‘Adoption of Appropriate Fiscal Regime for the Petroleum Sector’ contains the following observations:

“The committee held extensive consultations with institutions both locally and internationally in the quest to find the fiscal system that will generate the best possible benefits to the country. The committee further held several meetings with the Ghana Institute of Governance and Security (GIGS) led by Mr Kwawukume to offer them the platform to present a paper on their rejection of the hybrid system as proposed by the Bill.

As against the position espoused by GIGS, GOGIG, led by Mr Amoako-Tufuor and other experts, also delivered presentations on the benefits of the hybrid system. After due consultation and simulations by experts on the subject, the committee concluded that the basis for obtaining the greatest benefits for the country’s petroleum resources does not lie in the adoption of specific fiscal systems, but what really matters is the ability of the State to negotiate appropriate terms under the petroleum agreement.

Again, the committee discovered through its study tours that the current best practice on the subject is to select the best elements from both the concession and the Production Sharing Systems. Based on the above, the committee endorses the hybrid system as contained in the Bill under Clauses 83 to 87.

The elements of the hybrid system as contained in the Bill – royalties, surface rental, taxes, bonuses, and additional oil entitlement. The State is again entitled to a carried interest and further negotiate for additional participating interest upon commercial discovery of oil and gas.”

GIGS and others advocating ‘production sharing’ using data from the Jubilee Field demonstrated their insufficient knowledge of the petroleum industry’s legal frameworks.

Individual Petroleum Agreements govern the operations of Jubilee field, Tullow, and the partners, the TEN fields and Sankofa field by ENI, which were guided by Petroleum (Exploration and Production) Law 84, PNDC L84, (1984).

These Petroleum Agreements pre-dated Act 919, and Act 919’s fiscals would not affect them retroactively. No reasonable person could describe Act 919 as a piece of legislation passed urgently under dubious circumstances.

Stakeholder consultation and constructive criticism subjected it to rigorous scrutiny, resulting in the final Act being passed in 2016. Parliament re-considered the Bill from 2014 to 2016 and embarked on extensive consultation.

The Select Committee on Mines and Energy prepared their report in February 2016, paving the way for the consideration stage of the Bill. Parliament reconvened to consider the information and its recommendations.

The Bill proceeded to the third reading when all the proposed amendments had been considered. Members of Parliament made final clarifications before a vote was taken on whether the Bill should be passed.

Most of the Members of Parliament supported its passage, and it was subsequently sent to H.E. the President to assent it into law on August 4, 2016. It would be preposterous or sheer mischief to suggest that the Bill was shelved until 2016 and rushed for passage in the middle of the night.

The claim that international oil companies bribed Members of Parliament to rush the Bill through Parliament is false and ridiculous. Act 919 introduced a strong Petroleum Commission, tightened many loopholes, and provided adequate safeguards for environmental stewardship in the sector.

Derek Osei Assibey

June 15, 2023.

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