Ghana’s Unitisation Push Leaves Over $6.8 Million Hole in Pocket
- Ghana’s Costly Gamble: The Price of Unitisation Dispute
Ghana’s attempt to forcibly unitise two offshore oil fields has resulted in a significant financial setback, with the country spending over $6.8 million in legal and administrative fees, the Financial Times has learned.
An arbitral tribunal in Stockholm recently ruled against Ghana in its dispute with Eni Ghana Exploration and Production Limited and Vitol Upstream Ghana Limited over unitisation directives issued by the country’s Ministry of Energy. While Ghana avoided potentially hefty damages, the costs incurred in pursuing the case have raised questions about the government’s strategy.
The tribunal’s ruling reveals that Ghana spent more than $6.8 million on legal representation and administrative costs related to the arbitration. This figure does not include the additional €189,900 that Ghana has been ordered to pay towards the claimants’ arbitration costs.
Below is the table with full cost to the nation as a respondent in the case
These expenses come to light nearly two years after the Africa Centre for Energy Policy (ACEP), a Ghanaian think tank, warned President Nana Akufo-Addo about the potential costs of pursuing litigation in this matter.
In a prescient letter dated July 16, 2021, ACEP’s Executive Director, Benjamin Boakye, urged the President to “seek a second opinion on the matter before the country braces for an almost certain arbitration.” Boakye argued that the cost Ghana sought to avoid through unitisation was “a minuscule proportion of what it will be losing with the route being pursued.”
ACEP’s letter highlighted several risks that have now materialised, including the direct costs of arbitration, potential damage to Ghana’s reputation as an investment destination, and the opportunity costs of delayed field optimisation.
“The time lag is instead delaying what Ghana seeks to achieve through unitisation if the required technical investment had been made to prove Ghana’s case,” Boakye wrote, suggesting that further investment in technical studies might have been more beneficial than pursuing legal action.
The think tank also warned of broader economic implications, including potential negative impacts on Ghana’s credit rating and the risk of activating political risk insurance provided by the Multilateral Investment Guarantee Agency (MIGA).
We at NorvanReports will want to take you back to ACEP’s Executive Director, Benjamin Boakye, letter which raised several red flags that have now materialized into tangible costs for Ghana.
- Legal and Arbitration Costs: While the exact figures are not public, international arbitration cases typically involve millions of dollars in legal fees and arbitration costs. In this case, Ghana has been ordered to pay €189,900 plus some little over 4,000 euros towards the claimants’ arbitration costs, in addition to bearing its own legal expenses.
- Reputational Damage: ACEP warned that recurring appearances at international arbitration tribunals would reinforce investor distrust in Ghana’s legal system. This latest ruling may indeed damage Ghana’s reputation as an investment destination in the oil and gas sector.
- Delayed Revenue: Boakye cautioned that the litigation would delay any potential benefits from unitization. The arbitration process has indeed prolonged the resolution, potentially deferring any fiscal gains Ghana hoped to achieve through unitization.
- Operational Disruptions: ACEP highlighted the risk of reduced sustenance capital for the OCTP field due to legal uncertainties. While the full impact is yet to be quantified, any reduction in field optimization could translate to lower production and, consequently, reduced government revenue.
- Credit Rating Risks: The letter raised concerns about potential claims on MIGA political risk insurance, which could negatively affect Ghana’s credit rating. While this worst-case scenario hasn’t materialized, the arbitration ruling may still influence investor perceptions and potentially impact future borrowing costs.
- Opportunity Costs: Perhaps the most significant yet intangible cost is the opportunity lost. As ACEP pointed out, the time and resources spent on litigation could have been invested in further technical studies to substantiate Ghana’s position or explore alternative solutions.
- Precedent Setting: The arbitration ruling sets a precedent that may constrain Ghana’s ability to manage its oil resources in the future, potentially leading to long-term economic impacts.
While these worst-case scenarios have not all fully materialised, the over $6.8 million spent on the arbitration represents a significant outlay for a country currently implementing an IMF-backed economic recovery programme.
Industry experts suggest that this expense could have funded substantial technical studies or field appraisals, potentially providing the scientific evidence needed to support Ghana’s unitisation claims.
“This case underscores the importance of balancing legal strategies with technical and economic considerations in resource management,” an energy consultant whose name is being withheld told NorvanReports. “The costs incurred here could have potentially been avoided with a more measured approach.”
The ruling and associated costs come at a challenging time for Ghana’s oil and gas sector, which has faced headwinds from volatile global oil prices and the ongoing energy transition.
While the tribunal’s dismissal of the claimants’ damages claim provides some relief, the door remains open for future claims if Ghana proceeds with enforcing the unitisation directives. This uncertainty represents an ongoing financial risk for the country.
As Ghana navigates the aftermath of this costly dispute, questions are being raised about the decision-making processes within the country’s energy sector and the extent to which expert advice is heeded in matters of national economic importance.
