The Government of Ghana, through the Ghana National Petroleum Corporation (GNPC) between the period of 2015 and 2019, sold 35 oil cargoes two oil companies owned by China and Russia.
The number of cargoes sold to the two companies – Unipec Asia and Litasco owned by China and Russia respectively – forms 79.5 per cent of Ghana’s total share of crude oil produced from the three oil fields from 2015 to 2019.
Analysis of GNPC’s disclosures show that from 2015 to 2019, GNPC sold 44 cargos to seven different buyers out of which 25 cargoes or 57 percent of the cargoes, was sold to Unipec Asia as part of its long-term sales agreement with GNPC for five cargos per year from the Jubilee oil field.
The majority of the rest – 10 cargoes – was sold to Russian oil company, Litasco, also as part of a long-term sales agreement to purchase four cargos per year from the TEN field.
In the five years for which data is available on the buyers of GNPC oil, GNPC sold the remaining nine cargos to buyers through spot sales. The buyers include: Gemcorp (three cargos), Glencore (two), Springfield (two), Trafigura (one) and Vitol (one).
GNPC sells its oil through both spot contracts and term contracts. Spot contract sales are one-off sales made on the open market, and usually delivered upon with 10 to 60 days of contract signing. Term contracts are long-term sales agreements, whereby the government and a buyer agree on the purchase of a specific quality and quantity of crude, lifting schedule, formula for determining the price and payment terms.
According to the Natural Resources Governance Institute (NRGI) in its latest report titled Ghana’s Oil Sales: Using commodity trading data for accountability, GNPC signed the term agreement with Unipec Asia in December 2011 as part of the umbrella loan agreement of a $3 billion loan the government of Ghana agreed with the China Development Bank.
Under this long-term sales agreement, which came into effect in February 2012, Unipec Asia, a trading subsidiary of Chinese state-owned Sinopec Group, has agreed to the purchase five cargos per calendar year from the Jubilee field for 15.5 years.
Also, GNPC’s term contract with Litasco, the marketing and trading arm of Russian international oil company Lukoil, provides for the trader to purchase four cargos a year from the TEN field for six years. This agreement began in 2017, meaning it is due to run until 2023.
With regards to the term agreement with Litasco for TEN field’s crude oil, GNPC in a letter to the Ministry of Finance in 2018 responding to the Ministry’s queries about its pricing basis of the TEN field crude oil to Litasco, noted its term contract with Litasco reflected multiple agreements.
According to the NRGI in its report, GNPC’s long-term arrangements with Litasco include “bank guarantees by GNPC on behalf of other state entities, as well as loan advances and other transactions by Litasco on behalf of GNPC and the government of Ghana.”
“For example, Litasco provided a $279 million guarantee, comprising $100 million for the Bulk Oil Storage and Transportation Company Limited (BOST) and $175 million for Karpowership, a subsidiary of Karadeniz Energy Group, to ensure stable power supply and to clear the debt of BOST. In the heat of Ghana’s power crisis in 2014, Karpowership signed a 450 MW contract with Electricity Company of Ghana to deploy a floating power plant for a period of 10 years.”
“The government called on GNPC to provide a sovereign guarantee for the project. BOST was on the brink of defaulting on its debt, and the government, through GNPC, took advantage of the Litasco transaction to rescue the company. Litasco also supplied heavy fuel oil worth $80 million to the Karpowership and another $179 million bank guarantee to the Electricity Company of Ghana (ECG), the country’s power distributor, among several other transactions,” the report revealed.
GNPC as of the end of the second quarter of 2020, had sold 73 cargos of oil filled with over 71.1 million barrels of oil averaging 974,000 barrels of oil per cargo.
These oil sales activities have generated $5.2 billion for the country since 2011.
The 71.1 million barrels of oil includes the nation’s 5 per cent royalties on gross oil production as well as its 10 – 15 per cent initial carried and participating interest (CAPI) in each oil field.
The 73 cargos sold by GNPC from early 2011 to date have been generated from the three producing fields with the vast majority of the oil generated from the Jubilee fields.
The first cargo sold from Tweneboa, Enyerra, and Ntomme (TEN) was sold in 2016, with Ghana’s newest producing field, Sankofa Gye Nyame (SGN), producing its first cargo in 2018.
The most valuable cargo sold by GNPC was the sixth lifting from the Jubilee field, sold in April 2012. This cargo consisted of 997,636 barrels of oil sold for a unit price of $125.90, equaling $125.6 million.
Conversely, GNPC’s lowest value cargo was the 54th lifting from Jubilee, sold in April 2020, following the oil price crash that occurred at the start of the coronavirus pandemic. This cargo sold 992,896 barrels of oil for a unit price of $12.24, equaling $12.2 million.
The new report by the NRGI, reveals the importance of Ghana’s two long-term oil sales agreements with Unipec Asia and Litasco and the impact of the coronavirus pandemic on this important source of government revenue.
In 2019, revenue from these two sales contracts equaled six percent of government revenue. These two deals alone generated 59 percent of the government’s total oil revenue for 2019.
In its new analysis, the Natural Resource Governance Institute (NRGI) uses these publicly available data to show the importance of GNPC’s oil sales, and the need for greater accountability, as the country faces the challenge of responding to coronavirus and debt sustainability issues exacerbated by the pandemic.
It also includes recommendations for the government, GNPC and commodity trading companies aimed at improving governance of the country’s oil sales activities.