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$40m A MONTH FOR 21 YEARS: THIS IS HOW MUCH GHANA WILL PAY FOR THE CELEBRATED ENI DEAL CUT BY ALEX MOULD

General News

For the next 21 years, Ghana is saddled with a take-or-pay agreement that binds the nation to pay ENI of Italy at least $40 million a month for supplying gas produced from the nation’s own resources, whether the gas is used or not.

For the next 21 years, Ghana is saddled with a take-or-pay agreement that binds the nation to pay ENI of Italy at least $40 million a month for supplying gas produced from the nation’s own resources, whether the gas is used or not.

Yet Alex Mould, the former chief executive officer of Ghana National Petroleum Corporation (GNPC) who was key to signing the nation up to this killer agreement, is today criticising another agreement, signed by his successor, Dr K K Sarpong, which should propel the country to produce over 500,000 barrels of crude oil a day in the next four years or so.

Killer deal

GNPC, on Alex Mould’s watch, negotiated a gas sales agreement which guaranteed ENI a 20 per cent return on the project cost regardless of how much would be spent.

Information available to the Daily Statesman shows that the agreement was crafted in such a manner that there was no incentive for ENI to reduce costs. And many of the service contracts were inflated, with 73 per cent of the value guaranteed by Ghana going to foreign-owned companies.

This contrasts with the Aker Energy deal, in which there is a commitment of 40 per cent value to indigenous companies. Yet, Mr Mould seeks to claim that the deal he signed for the country was better than this one.

Aker Energy is seeking to create capacity by spreading value across direct contracts with many indigenous companies.

ENI, with the support of GNPC, concentrated its procurement on three foreign companies: SRI Emas, Halliburton and Technip FMC Ltd. SRI Emas subsequently filed for bankruptcy in America, while Halliburton gave less than a 2 per cent value share to its local partner.

Tax leakage

Our checks show that many of these foreign companies did not pay tax in Ghana. ENI’s strategy of awarding 73 per cent of its contracts to foreign companies operating outside the country actually meant that the companies would not have to pay tax.

ENI also failed to withhold tax and or ensure that its subcontractors withheld tax. This caused millions of dollars’ worth of tax leakage.

Under the ENI drilling contract, the contractor, Maersk, set aside only 17 per cent of the rig rate towards paying local contractors; 83 per cent was sent offshore.

On the other hand, Aker Energy has insisted that Maersk pay 40 per cent to local services while ensuring increased salaries for local rig workers, increased margins for local Ghanaian companies, and payment of more tax in the country. Yet Mr Mould says it is a bad deal for Ghana.

Fabrication

Ghana has an established fabrication sector. Under the ENI contracting strategy, 22 per cent of subsea fabrication occurred in-country, while the rest was completed abroad.

Aker Energy, however, has committed to 49 per cent subsea infrastructure being completed in-country. This equates with more than $500m of work for local Ghanaian fabrication companies.

The Statesman has learned that for the procurement under the ENI deal, the focus was on prioritising foreign companies for large-scale contracts while limiting Ghanaians to small-scale activities.

The average contract value awarded to foreign contractors was three times the value awarded to indigenous companies.