Sun, Jun


Business & Economy

The Franklin Cudjoe-led IMANI-Africa on Monday January 21, 2019 hosted a seminar, in collaboration with the Italian consultancy Fondazione Eni Enrico Mattei (FEEM), to provide a platform for open, objective and transparent debate. The headline topic for the day was “gas pricing”.

The Franklin Cudjoe-led IMANI-Africa on Monday January 21, 2019 hosted a seminar, in collaboration with the Italian consultancy Fondazione Eni Enrico Mattei (FEEM), to provide a platform for open, objective and transparent debate. The headline topic for the day was “gas pricing”.


Industry players observe that the content was anything but objective or transparent. They also argue that the forum only provided a platform from which participants could support a controversial agreement signed between the previous government and the Italian energy company ENI for the sale of gas from the Sankofa field. ENI is the main financial sponsor of FEEM.

Though the seminar’s key finding was a need to focus attention on the cost of processing and transporting gas, no mention was made of the exorbitant gas price charged by ENI and its partners in the Sankofa field.

Information available to the Daily Statesman shows that the high price is a huge problem facing Ghanaian energy policymakers, especially technocrats at the Ministry of Energy and Ghana National Petroleum Corporation (GNPC).

Mould’s contract

Policymakers particularly worry about how former GNPC chief executive Alexander Kofi-Mensah Mould could sign such a shady contract with ENI, one which nearly doubled the price set by the Public Utilities Regulatory Commission (PURC) for GNPC to sell gas to power stations.

By the terms of the Sankofa agreement, signed under John Dramani Mahama’s government, GNPC committed to pay $9.8 per million British thermal units (mmbtu) for gas delivered at the gas platform and a further $3/mmbtu for processing and transportation to Tema, a total of nearly $13/mmbtu or $80 oilfield barrels (bbl).

This price is also increased every year by US inflation metrics and rising gas prices.

Hijacked talks

According to our reliable sources within GNPC, Mr Mould initially left negotiation of the gas sales agreement to a team led by the economics and commercial department.

The experienced negotiators were said previously to have negotiated free gas from the adjoining Jubilee field and pushed for a wellhead price of $6/mmbtu for Sankofa and a market price of $9/mmbtu for gas delivered to Tema.

This price, though still high, was potentially manageable and if the gas volumes were kept low and retained in Takoradi, the contract could have been sustainable, insiders say.

Our sources say such a price however would not have compensated ENI sufficiently for the inflated service contracts awarded to Ghanaian and Italian companies during the project development. It would not have delivered the huge returns being demanded by ENI’s senior management in exchange for “delivering” the $1.2bn floating production, storage and offloading unit and $700m engineering contracts to individuals favoured by the previous government.

Our checks indicate that when it became clear that an intervention was required to deliver the desired outcome, Mr Mould and the GNPC board hijacked the negotiations and unilaterally agreed a 70 per cent increase in the gas price, with an explicit link between money spent on service contracts and the price itself.

“This was disastrous for GNPC and Ghana. The Sankofa price was significantly higher than the price that GNPC can sell gas to bulk buyers as set by the PURC,” said our source.


Alex Mould, the then GNPC board and the then Ministry of Energy are said to have ignored warnings from internal and external experts about the potentially disastrous consequences of signing the agreement.

The Daily Statesman is reliably informed that ENI and its partner Vitol recognised the significant gap between the inflated cost of their gas and the PURC price.

More importantly they realised that GNPC could struggle to absorb the significant cost of subsidising ENI’s inflated profits.

“They therefore constructed a commercial agreement that would protect their interests,” our source said. “The structure comprised a number of key components, all of which worked against the interests of Ghana and some of which put GNPC’s very existence into jeopardy.
“The most dangerous was the requirement for GNPC to place huge amounts of its cash flow into accounts for the protection of the Sankofa partners and the unprecedented requirement of a guarantee from the World Bank,” the source said.

World’s most expensive gas

Technocrats in the energy sector are worried that the gas tariff holds “the dubious honour” of being the world’s highest price for domestic gas. It costs GNPC more than $13/mmbtu, nearly double the $7.9/mmbtu set by the PURC for GNPC to sell gas to power stations.

The contract forbids GNPC from substituting cheaper gas from the Jubilee and TEN fields for Sankofa gas.

Officials at the GNPC and Ministry of Energy fear Ghana may now be forced to reinject or flare the cheap Jubilee and TEN gas in order to produce expensive Sankofa gas.

Meanwhile, Sankofa partners are seeking to increase production in order to discourage the development of a significantly less expensive liquefied natural gas option.


The difference between the amount GNPC pays to Sankofa’s owners and the value it receives under the $7.90/mmbtu PURC structure makes the economics of the contract unsustainable for the corporation.

In order to protect ENI against the risk of default, the gas sales agreement requires GNPC to lodge huge amounts of capital in an escrow account for the benefit of ENI and its partners.

Worse still, the $13/mmbtu is only a base price and the contract allows for it to be increased annually in line with US inflation and prices for heavy fuel oil.

Our sources among technocrats in the energy sector explain that what this means is that the already inflated price will rise in line with the crude oil prices which drive the cost of heavy fuel oil.

“This outdated pricing methodology will cost GNPC an extra $100m in price increases every five years,” a source said.

“This is important because the economics of this contract are not only bad for Ghana but bad for GNPC, putting an incredible strain on its balance sheet, limiting its ability to pay its cash calls and effectively build capacity.”

“A comparison between Sankofa gas and other sources of fuel such as gas from Jubilee, TEN, LNG and even crude oil should be based on delivered market price, the cost of getting the product to the market in a condition ready for power generation. When compared on a like-for-like basis the Sankofa price is laid bare as potentially the worst contract signed by any Ghanaian government entity,” the source said. [CUT IF YOU NEED TO]

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