The Parliamentary Select Committee on Mines and Energy has advised the Ghana National Petroleum Corporation (GNPC) to look for potentially-oriented investors to take over the Prestea Sankofa Gold Limited (PSGL).
The committee, in its report on the 2020 activities of the GNPC, observed that the corporation continued to allocate funds dedicated to its petroleum operations to support PSGL; an organization that had ceased its operations since 2016.
For instance, it was noted that a total amount of US$5 million had been earmarked for activities relating to PSGL for 2020.
According to the corporation in its explanation to the committee mentioned that all efforts to revamp the company given its socio-economic importance, which is to provide jobs and possible revenue generation for the state had not been successful as expected.
As a result, the committee was then of the view that the continuous expenditure on such non-revenue generation venture was financially not prudent. In effect, it had accordingly urged the corporation to look for potential investors as a matter of urgency and priority to take over the company.
The committee again noted that the price war between Saudi Arabia and Russia had as well as the impact of the COVID-19 pandemic led to a crash in oil prices in the first quarter of 2020.
The price of Brent crude dropped from an average of US$62.00 in December 2019 to as low as US$22.90 as of March 30, 2020, and was projected to average US$30.00 per barrel for Ghana’s crude liftings, down from US$58.66 originally estimated by the corporation.
Consequently, a total of US$837.73 million down from the original estimation of 926.81 million was expected to be released in 2020, while total expenditure was projected around US$1,125.64 million.
Financing gap for upstream oil operations
The committee observed that GNPC was expecting total revenue worth US$179.79 million from its share of crude oil sales and internally generated funds for the 2020 fiscal year, while expenditure in respect of petroleum exploration, appraisal, development and production, as well as other petroleum-related activities was projected at US$500.14 million, leaving a financing gap of US$320.35 million.
The financing gap is expected to be financed by cash balance from 2019 (US$20 million), loan of US$25 million, contractor financing and receivables from the government and related agencies.
The committee further noted that receivables from the government of Ghana totalled US$339.53 million, representing over 88 per cent of the expected funds for meeting the financing gap.
The committee, therefore, urged the Ministry of Finance to prioritise its obligations towards the GNPC during the year in order to implement the planned programme and activities for 2020.
Gas business activities
It was noted that the revenue from the gas business was projected at US$657.94 million, made up of sales revenue of US$641.79 million and gas aggregation services income of US$16.15 million.
The corresponding expenditure for the year is also projected at US$625.50 million, comprising gas commodity cost of US$481.82 million, as well as transportation services charge, gas management services and financing charges of US$143.68, giving a net position of US$32.44 million.
The corporation informed the committee that its major challenge was the unlikelihood of receiving the projected revenue from the gas business due to the occasional delays in the payment of fuel bills issued to the power sector institutions.
For instance, only seven per cent of gas supplied had been paid to the corporation as of the end of the third quarter of 2019.
The committee urged the government to step up efforts in resolving the financial challenges of the power sector institutions to enable them to operate more efficiently and effectively.
GNGC as new midstream gas operator
The committee was also informed about the decision by Cabinet to cede the midstream gas operations to the Ghana National Gas Company (GNGC).
The committee was, however, assured that the GNPC would continue to play its role as an aggregator of the gas in the upstream sub-sector. However, the midstream operations involving the processing, transportation, distribution and sale of the gas to the end-user were being transferred to the GNGC.
In responding to the impact of the decision on GNPC finances, the Deputy Minister of Energy, Mr Amin Adam, explained that the inflows directed to GNPC from the gas business were just about 2.5 per cent of its budget. Therefore, abandoning the gas management business to GNGC would not significantly affect the corporation’s finances.
The committee expressed concern about the capacity of the Ghana National Gas Company to play its critical role considering the high investment cost associated with transporting and distributing gas, considering the current weak financial position of the GNGC. But, the committee was assured that the government would adequately resource the GNGC to effectively discharge that mandate.
