BY KWAME MARFO
In June 2007, Kosmos Energy discovered oil in its Jubilee Field, the largest oil find in the last decade in West Africa. It is estimated to contain north of 2 billion barrels of low-sulphur, light sweet crude (which are easy to refine and command a premium price on international markets). There has been a great deal of confusion on the Ghanaian government’s share of oil revenues from the Jubilee fields. According to Kosmos, Ghana will earn between 53.75% and 63.75% of revenue before other taxes such as VAT and NHIL. (See table I for break down).
In addition, the country will earn $800 million in gas generated from the fields. Is this a fair deal?
Kosmos argues it took a chance on Ghana when most of the oil majors had given up. Since Ghana is new to the oil industry, Kosmos indicates it had to “develop” the industry from scratch, bringing personnel, supplies, machinery and rigs from different parts of the world. They also note that “operating the rig, could cost up to $1m per day. Drilling a single well could cost up to $100m considering the fact that they are drilling in 1500m of water with wells extending up to 3km below the earth’s crust into reservoirs that are 90 million years old. At a depth that is too cold for divers to operate, a remote-controlled vessel is the eyes of the rig on the ocean floor.” Also they obliged to Ghana’s government’s request for early production in a “record-breaking” three years (as compared to the norm of up to seven years). Excessive royalties and taxes, it is argued will discourage further investment in the oil sector.
However, this argument rings hollow when you compare agreements between foreign companies and other African countries. Under current joint venture terms, Nigeria government earns 90% of oil revenue (Wood Mackenzie, 2009). Companies in Angola pay income taxes on their share of oil profit at 50% before an alphabet soup of other taxes (IMF, 2004). Botswana was able to negotiate a 50-50% deal with South African mining company, De Beers for its diamonds (vs. 13.75% by the Ghanaian government)(Hillbom 2008).
Admittedly, the government was able to extract a far better deal than it has in the past such as in gold where it collects a paltry 3% in royalty (recently increased to 5%) (Economist, 2010).This explains why Ghana, which is Africa’s second largest gold producer and has one of the oldest richest goldmines in the world (Bio et all, 2006) earned only $116m in revenue from $2.2 billion in gold exports in all of 2008 during a time of record gold prices.
So was this a fair deal? Your guess is as good as mine.