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The Ghana Gas Company has replied the Africa Center for Energy Policy (ACEP) on their request for the company to be made a subsidiary of the Ghana National Petroleum Company (GNPC).

According to Ghana Gas Company, it cannot be a subsidiary organization to GNPC for various reasons outlined below by the Communications Director of the company, Ernest Owusu Bempah.

Read statement below:

We refer to the publication by ACEP in Daily Graphic on 22 May 2020 criticizing the decision by the Presidency on the Institutional Roles Alignment in the Gas Sector.

When you read the header and indeed parts of the presentation, it seems like ACEP is arguing for restoration of GNPC’s role as the Gas Aggregator, but eventually concludes with a recommendation that GNGC should be made a subsidiary of GNPC!! They rely on the Gas Master Plan and GNPC’s “Balance Sheet” to support their recommendation.

ACEP is a respected think-tank but this is certainly not their best presentation.

1.0 GENERAL COMMENTS
First of all, here are some general comments to note about the Gas Industry.
1) The Gas Industry in Ghana is only 5 years old.

2) The life of a gas infrastructure project could be as long as 40 years, and this could be longer with prudent maintenance protocol. The EPC (Engineering, Procurement, Construction) & amp; Financing phase may take only 2-4 years and the Operations and Maintenance phase, takes the remaining 36-38 years.

3) Ghana Gas’ core business has three key components –Daily Operations, which takes about 80% of the lifecycle time, periodic Maintenance which takes about 10% of the time and occasional Expansion which takes the remaining 10% of the life cycle time. So Ghana Gas’ key job description is to deliver gas for Power generation for Ghanaians,
through reliable and uninterrupted operations. Not necessarily expansion projects.

4) It is important not to base lasting policy decisions, including Institutional Arrangements, just on ability to Finance new facilities or expansion of existing ones or someone’s Balance Sheet as suggested by ACEP.

5) Ghana’s Gas industry still riddled with legacy that; and Ghana Gas is owed the most by sister agencies. This is a very unusual circumstance by any standard. ACEP should be providing ideas to address this recurring legacy problem in the sector, instead of espousing short-sighted band-aid solutions.

6) Gas Master Plans (GMPs) are meant to address two issues: Design Optimization and Operational Optimization. The current Gas Master Plan addresses only the former. Ghana Gas Team and their counterparts from Trinidad and Tobago have addressed the latter. Furthermore, a GMP is also a working document, which requires regular update.

2.0 History

1. In October 2014, the then Minister of Finance, in his budget presentation to Parliament, announced the merger (marriage) of GNPC and GNGC. The primary reason presented by the Minister to Parliament was to enable GNGC use GNPC’s balance sheet to facilitate access to capital for any future expansion of its facilities. The then Board Chair of GNGC, publicly denounced the merger and never signed off on it; and together with other board members resigned. This was over two years before the government changeover in Dec 2016 and the completion of the Gas Master
Plan-not 6 months.  Since the marriage of convenience, the primary objective of financial support was not realized; not even in the form of minor working capital. GNGC relied on its own Internally Generated Funds (IGF) for working capital and has been using different commercial vehicles to finance expansion projects. In effect, up to date, there has been no functional or financial relationship between GNPC and GNGC, to justify the merger.

2. Following the Minister of Finance’s presentation to Parliament (in October 2014), the Minister of Energy, followed with a directive in April 2015, designating GNPC as the Gas Sector Aggregator, in which capacity GNPC was to be the sole buyer and seller (and therefore the sole Shipper) of bulk natural gas, and was to enter into all upstream and downstream Agreements in the discharge of its duties. The Minister of Energy further directed that BOST be made the pipeline operator in the country and was issued the license by the Energy Commission accordingly.

3. So essentially, the then Minister of Finance made GNGC a subsidiary of GNPC in October 2014; and the then Minister of Energy made GNPC the Gas Aggregator in April 2015. All this happened before the Gas Master Plan was completed in December 2016.

In effect, we had a Disintegrated Gas Sector – part was with GNPC, part with BOST and part with GNGC. In October 2017, the current President, took the first step towards integrating thenGas Sector and appointed a new Board of Directors for GNGC with no representation from GNPC. The National Gas Transmission Utility (NGTU) license was also reissued by the Energy Commission to GNGC and withdrawn from BOST. The Ministry of Finance subsequently
transferred all of GNGC’s share to the Ministry of Finance (now transferred to SIGA). We believe ACEP does not us to undo this and go back in time to the 2014 era.

3.0 COMMENTS BY ACEP

3.1 Gas Commercialization

Again we need to correct an impression created by ACEP. GNPC had the Gas Project from 2007- 2011, through the change in Government. GNGC picked it up the Gas Project in July of 2011 and had all the infrastructure mechanically
completed in November, 2014; and fully commissioned in April, 2015.

It is also worth noting that the financing was provided by the China Development Bank (CDB) facility and not GNPC’s “parental benevolence.” Another point worthy of note is that the Jubilee partners provided “free gas” to help defray the cost of the installation of the gas infrastructure.

3.2 GNPC has a Better Balance Sheet

“..GNPC can use their Balance Sheet to Finance GNGC’s Projects..” This is not a good or sufficient reason for making GNGC a subsidiary of GNPC. The fact is both GNGC and GNPC have one parent, the Government of Ghana (GoG). It is the GoG that affords both agencies the security for any financial transaction in the sector. 3.3 Gas Master Plan Recommendation ACEP should consider checking the recommendations of the Gas Master Plan (2016) again. A
gas masterplan is essentially a composite document which provides a roadmap for achieving the most cost-effective solution for infrastructure design (Design Optimization) based on gas supply and demand forecasts; and minimization of operating cost for operational planning (Operational Optimization).

It is indeed a working document which needs regular update as conditions, particularly the supply and demand forecasts change. The 4-year-old GMP is hardly fit for purpose and requires an update. For instance, none of the supply and demand data are applicable. The infrastructure plan is also obsolete and needs revision. However, some of the recommendations and procedures are still worth considering. It will also require an expanded scope to include
operational optimization.

Let’s look at the exact wording of the current GMP with respect to Institutional Alignment as presented in the executive summary and detailed in section 7.2.1 of the body of the report. The recommendation is simply to adopt the Turkish model of Botas Gas Company.
Here is how it reads.

“It is recommended that the approach adopted in Turkey, which involved the petroleum pipeline company Botaş, a subsidiary of the state petroleum corporation Türkiye Petrolleri Anonim Ortaklığı, (TPAO) being the sole developer and operator of Turkey’s gas transmission and distribution infrastructure, is also appropriate for Ghana’s gas sector, at least at this early stage of development. Botaş acted as gas aggregator and wholesaler, was the
entity that invested in and operated an expanding national transmission and distribution pipeline system.
In Ghana’s case, this role can be divided between GNPC and GNGC, whereby GNPC will be the aggregator and wholesaler of the gas and GNGC, as the wholly owned subsidiary of the GNPC, will be the owner and operator of the infrastructure……

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As the sector matures, the GoG may consider unbundling the services along the gas sector value chain”.
Thus, contrary to the assertion made by ACEP, the recommendation of the GMP is mixed as indicated below:

a) The GMP recommends the approach adopted in Turkey, where Botas is the sole
infrastructure developer and operator, aggregator and wholesaler. This is an
Integrated Operation.

b) But they go on to suggest that, in Ghana’s case, we can unbundle these aggregated
functions and divide them between GNPC and GNGC. Reasons given: to improve sector
co-ordination and facilitate investment and financing.

So item a) above clearly speaks to an integrated system as proposed by Ghana Gas. Item b),
however, speaks of a segregated system. ACEP’s recommendation goes further; it is to go back
to a subsidiary arrangement that the current government changed 3 years ago.
The reasons provided as noted above are two-fold: improve sector co-ordination and facilitate
investment.

First of all, the case for improved sector coordination envisaged by the GMP, has not
happened from an operations continuity viewpoint.

Let’s look at a practical operational case which occurred on the 25 th April, 2020. There was an operational upset at ENI’s Onshore Receiving Facility (ORF) in Sanzule. GNGC Operators, VRA Operators and ENI Operators were all in the operation zone in the western region but had to wait for GNPC’s Commercial Manager to give approval from Accra, before the very important work of contiguous gas delivery for power generation could go on. This could have affected
60% of the country’s power generation. That is hardly an efficient co-ordination.

The other reason of investment facilitation, has also not materialized for 5 years. So, there is
clearly no reason for a subsidiary arrangement, if even that was a valid criterion.

3.4 OCTP Expansion of the Takoradi and Tema Regulating and Metering Facilities The first phase of the Takoradi Tema Interconnection Project (TTIP) was completed in August 2018 and this allowed reverse transport of gas from Takoradi to Tema via WAPCo’s system. The second phase, which expanded WAPCO’s gas handling capacity in Tema is expected to be completed in June 2020. The project was pre-financed by the OCTP partners (where GNPC holds a minority stake) as part of the Sankofa project development cost, which ultimately is being paid through increased gas price by end-users. This was a condition precedent in the OCTP contract. The total project as at 30/3/2020 was $178m; $56M (30%) of which was expended on GNGC’s facility in Aboadze. This is the extent of indirect contribution by GNPC to
GNGC.

3.5 Gas Price

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The current ENI commodity price submitted by GNPC and the Ministry to PURC for computation of the Weighted Average Cost of Gas in the country is $6.1408/MMBtu (equivalent to $31M/month, for a supply of 170,000 MMBtu/d for 30 days), when it really should have been around $9.59/MMBtu (equivalent to $49M/month, for a supply of 170,000 MMBtu/d for 30 days). This means the Ministry of Finance has to make up the shortfall of about $18M/month for GNPC. Thus, even GNPC whose Balance Sheet ACEP is touting, has to seek financial rescue from the Ministry of Finance, every month.

3.6 Capacity to Manage Gas Projects

It is not clear which gas projects ACEP is referring to that GNPC has managed and acquired the requisite capacity. But certainly, for Ghana Gas here is the list of Gas Projects managed: 1. Jubilee- Atuabo offshore gas gathering pipeline – This is a 12 inch diameter, 59 km offshore pipeline from the Jubilee oil& gas field’s FPSO to the Atuabo Gas Processing Plant. The pipeline has a deep-sea portion of 14km, and shallow water component of 45 km. This pipeline brings raw gas from the Jubilee field for processing onshore at the
Atuabo Gas Processing Plant. Completed in 2013, the pipeline is owned and operated by the GNGC.

2. Atuabo Gas Processing Plant – the plant has a design capacity to process 150 mmscfd of raw gas, into lean gas, and Natural Gas Liquids (LPG and Condensate). The plant is owned and operated by the GNGC.

3. Atuabo – Aboadze onshore transmission pipeline – This is a 20-inch diameter, 110km onshore gas transmission pipeline to bring the lean sales gas from Atuabo to Power plants at Aboadze. This pipeline, completed in 2013, has a design capacity of 400 mmscfd. The pipeline is owned and operated by the GNGC.

4. Associated gas infrastructure for metering and distribution – this includes an Initial Station at Atuabo, a Distribution Station at Esiama (the start of the branch line to Prestea) and a regulating and metering station at Takoradi.

5. Essiama-Prestea lateral pipeline, regulating and metering station – this is a 20-inch diameter75 km long lateral pipeline connecting Essiama to Prestea. Furthermore, since March 2017, Ghana Gas Engineers & Technicians assumed full operatorship of all the infrastructure, saving the country GHs 15M/month in operating cost.

3.7 Gas Processing Plant Expansion

ACEP also contends that the expansion of the Gas Processing Plant is 6 years behind schedule. That simply cannot be possible. Even the first plant, currently in operation, was commissioned 5 years ago (April 2015). How can the second plant be 6 years late? Thus, ACEP expects the second plant to have been in service a year before the first!

6.
3.8 Consistency with World Models

This is also misleading and we provide the National Gas Company of Trinidad as an example. The fact is the National Gas Company of Trinidad and Tobago is an integrated gas company with aggregation, hipping and operation as core mandate. The processing function is performed separately by NGC’s subsidiary, Phoenix Park Gas Processing Ltd (PPGPL), which concentrates on the separation and fractionation process. This is simply because the processing operation has grown very large and it makes sense to unbundle it from the Transportation unit.

But it still remains a part of the national gas company, NGC. Indeed, PPGPL operation is 13 times bigger than that of Ghana Gas, with capacities of 1950 MMscfd and 150 MMscfd respectively. That clearly underscores the point that you bundle the services (processing and transportation) when operations is small (typically in the early stages of operation for efficiency reasons), and you can unbundle when there is significant growth in operations.

The Trinidad Gas Model has been so successful that it has been the template for development for most emerging economies (not the Turkey model, as suggested in the GMP).

Finally, we encourage ACEP to work with ALL stakeholders in the development of the gas sector
and provide any meaningful suggestions they have to the appropriate ministry.

Signed

Ernest Owusu Bempah

Communication Director