The Institute of Economic Affairs (IEA), has urged President John Dramani Mahama not to extend the Tullow Petroleum’s Agreement with Ghana.
It said the Memorandum of Understanding (MoU) signed by the Government of Ghana to extend the Petroleum Licenses of Tullow Oil and its Partners until 2040, lacked good faith, transparency, probity and accountability.
In a Press Statement, the IEA said: “The IEA considers this decision to lack good faith, transparency, probity and accountability and to be starkly at odds with the Government’s own commitment to reset and strengthen governance of the extractive sector.”
The IEA said it was public record that Tullow’s operational relationship with Ghana had been riddled with challenges, including a series of high-profile international arbitration disputes that cast a shadow of doubt over the existing Petroleum Agreement.
“A notable instance occurred when the Ghana Revenue Authority (GRA) assessed a Branch Profit Remittance Tax (BPRT) liability of USD 320 million against Tullow for the period 2012-2016. following a thorough audit. Tullow refused to comply and challenged the claim through international arbitration,” it said.
The Institute said in the ensuing proceedings under the terms of the Petroleum Agreement, the International Chamber of Commerce (ICC) in London ruled in favour of Tullow, where the London-based ICC held that Tullow was not liable to pay the USD 320 million tax liability.
It said the ICC further directed Ghana to pay substantial legal and arbitration-related costs, including GBP 1,946,589.44, USD 294,228.72, and USD 574,000.00 in tribunal and ICC fees with interest, accruing at 5% per annum until payment was made in full.
“The IEA is equally alarmed about another tax dispute in which Tullow has refused to pay and is contesting an additional GRA-assessed tax liability of USD 387 million, based on disallowed interest deductions from 2010 to 2020. Once again, Tullow has opted for arbitration at the ICC rather than settling the assessed amount,” it said.
The Institute said in light of the unresolved and recurring issues, Government must immediately suspend the ongoing process to extend Tullow’s petroleum licenses-originally due to expire in 2036.
It said petroleum is a depletable national asset and any extension and extraction must be preceded by a comprehensive and strategic review and restructuring of the existing agreement to ensure alignment with Ghana’s long-term development goals.
The IEA said the existing colonial-era contract should be thoroughly reviewed and restructured into a service contract, akin to those in Norway, Saudi Arabia, Dubai, Qatar, Oman and Abu Dhabi where contracts controls were vested in the state while leveraging private sector expertise.
It said the United Kingdom, led by the private sector and Norway by the state, offered valuable lessons as both began offshore oil exploration in the North Sea Basin in the 1960s and had produced similar volumes of oil-approximately 42.8 billion barrels for the UK and 40 billion barrels for Norway.
“Despite similar geology and identical resource base and production levels, by 2014, the UK earned only USD 11 per barrel, while Norway earned USD 29.8 per barrel-nearly three times as much. Total revenues stood at USD 470 billion for the UK and USD 1.197 trillion for Norway. Norway further invested these proceeds into a sovereign wealth fund now valued at over USD 1.4 trillion, the largest in the world,” the IEA said.