Ghana: Ghana's Upstream Petroleum Legal Regime

ABBREVIATIONS

HIGHLIGHTS

This section of the report presents the following:

The legal and regulatory framework of Ghana's upstream petroleum industry. This has been subdivided into pre-commercial discovery and post-commercial discovery;

• The enforcement and dispute resolution functions of the PC;
• The maritime border disputes between Ghana and its French neighbours: Togo and Cote d'Ivoire;
• A case review of Ndebugre v Attorney General, a relevant case in the upstream sector; and
• 2019 legal trends and developments in the upstream sector.

LEGAL REGIME – PRE-COMMERCIAL DISCOVERY

Regulatory Regime

Attempts at establishing a petroleum industry in Ghana go as far back as the late 19th century, with the first wells being drilled in 1896, when exploration for oil and gas started onshore in the Tano basin.¹ In spite of this early start to petroleum exploration activities in Ghana, until the 1980s, there was little petroleum-specific legislation outside of the 1979 Constitution. Petroleum regulation was subsumed under general minerals law such that the definition of minerals, included petroleum.²

The Constitution stipulates that "every mineral in its natural state in, under or upon any land in Ghana, rivers, streams, water courses throughout Ghana, the exclusive economic zone and any area covered by the territorial sea or continental shelf is the property of the Republic of Ghana and shall be vested in the President on behalf of, and in trust for, the people of Ghana".³

To ensure that resources are exploited and utilised in a manner that inures to the benefit of the country, any transaction, contract, or undertaking involving the grant of a right or concession must be ratified by Parliament unless Parliament by resolution exempts it from this requirement. The grant of the right must be done by or on behalf of any person including the Government, to any other person or body of persons whatsoever described.⁴

The 1980s marked the beginning of the development of a comprehensive regulatory framework for petroleum. The petroleum legal regime was crafted to attract international oil companies with the technical know-how and financial reserves do undertake petroleum exploration and development operations. The responsibility for petroleum matters was given to the Minister. The Minister was responsible for entering into petroleum agreements (PAs),⁵ and for general oversight of the industry including the setting of policy and prescription of regulations for the effective implementation of PNDCL 84.⁶

Initially, the Petroleum Department under the Ministry of Mines and Energy was responsible for petroleum activities and associated regulatory matters.⁷ With the objective of ensuring that Ghana obtained the optimum benefits from petroleum resources, the GNPC was later established by PNDCL 64 to take over responsibilities of the Petroleum Department. PNDCL 64, thus, established the first institutional framework for upstream petroleum activities.⁸ Subsequently, PNDCL 84 was enacted to govern the upstream petroleum sector. It established the contractual relationship between the Republic, the GNPC and prospective investors in the upstream operations through a PA.⁹ Under these enactments, the GNPC was made an automatic partner to all international oil companies that entered into PAs with the Republic. The GNPC also exercised regulatory powers over the industry and, in particular, was the advisor to the Minister on matters pertaining to the petroleum industry.¹⁰ The GNPC's dual role as regulator and commercial actor in the petroleum industry created a conflict-of-interest situation and was contrary to international best practices. This conflict situation has since been resolved by the establishment of the Petroleum Commission as the regulator of the industry and is discussed briefly in the introduction to the next chapter of this Report.

Fiscal Regime

At the turn of the 20th century, Ghana's focus was on attracting foreign investment to hasten efforts to develop the country's exploration and production of oil and gas.¹¹ It was therefore of great importance to create an attractive fiscal regime that promoted international participation in the nascent sector. The upstream tax regime was set out in the Petroleum Income Tax Law 1987 (PITL), PNDC Law 188. Under the PITL, unless otherwise agreed in the relevant PA, a person conducting petroleum operations was subject to a chargeable tax of 50% of the chargeable income¹² arising from the operations in respect of a year or period.¹³ Whilst the PITL also provided for withholding tax on payments to subcontractors and on gains or profits of expatriate employees, it did not provide for capital gains tax.¹⁴

In addition to taxes, investors were also required to pay royalties,¹⁵ annual rental charges,¹⁶ participating interest¹⁷ and additional oil entitlements as prescribed by their PAs. Regarding the non-tax fiscal regime, many of the PAs negotiated under the PNDCL 84 contained what are considered, in retrospect, generous fiscal terms and incentives. For example, the State's portion in petroleum operations was a royalty, often below 10% of the crude oil to be produced. The GNPC, as the State's national oil company, also received a 10% participating interest in petroleum operations. This interest was carried for exploration and development operations. Accordingly, the GNPC was not required to pay for costs incurred in exploration and development activities but only for production operations. In addition to the 10% participating interest, GNPC had an option to acquire an additional participating interest upon the achievement of commercial discovery with respect to a block or contract area. This interest was pre-agreed and often did not exceed 5%. GNPC was required to exercise this option within a prescribed period following the declaration of commercial discovery by the contractor. Upon the exercise of this option, GNPC was only required to pay for development and production costs related to the additional interest but not exploration costs.

Flexible provisions on foreign exchange, subject to the foreign exchange laws in force at the time, also permitted investors to transfer the proceeds of their operations out of the country with perfunctory review. For example, international oil companies had retention provisions in their PAs which authorised them to retain the proceeds of their petroleum sold abroad to meet their foreign payment obligations without going through local banks.¹⁸

Local Content

The local content agenda was modest at best, as Ghana had neither the resources nor know-how to make any meaningful contributions to the industry. PNDCL 64 merely entrusted the GNPC with the function of: (i) ensuring that the Republic obtained the greatest possible benefits from the development of its petroleum resources; (ii) obtaining the effective transfer to the Republic of appropriate technology relating to petroleum operations; and (iii) ensuring the training of citizens and the development of national capabilities in all aspects of petroleum operations.¹⁹

References to local content and local participation as a strategic national objective also appeared in PNDCL 84. For instance, a contractor or subcontractor was obliged to ensure that, as far as possible, employment opportunities would be given to Ghanaians who had the requisite expertise or qualifications at the various levels of operations.²⁰ A contractor or subcontractor was also required to prepare and implement plans and programmes for training Ghanaians in petroleum operations. ²¹

Environment

The Environmental Protection Agency Act, 1994 (Act 495) was passed some ten years after PNDCL 64 and PNDCL 84. The Act established the EPA and, among other things, made the environmental obligations of persons carrying out petroleum operations clearer. The EPA is responsible for ensuring compliance with the environmental laws of Ghana. The EPA's mandate includes advising the Minister for Environment on environmental policies, issuing environmental permits and prescribing standards and guidelines relating to all forms of environmental pollution.²² Accordingly, every entity engaged in petroleum operations must register with the EPA and obtain an environmental permit before it commences operations.²³ The EPA Act and the Environmental Assessment Regulations 1999 (LI 1652) set out the registration, permitting and assessment obligations applicable to all undertakings that may have an adverse impact on the environment, including petroleum operations.²⁴ Any person interested in the exploration and production of petroleum in Ghana was required to firstly register with the EPA, then to submit an environmental impact assessment (EIA) to the EPA in advance of its application for an environmental permit before finally obtaining an environmental permit. In order to monitor and strengthen the environmental management of the upstream petroleum sector, in 2011, the EPA issued Guidelines for Environmental Assessment and Management of Offshore Oil and Gas Development in Ghana. The guidelines were issued to promote the principles of sustainable development, transparency, and international best practices, among others.²⁵ The guidelines also provide systematic environmental impact assessment procedures, specific to the sector as well as requirements for operators or oil and gas developers to ensure that their activities are conducted in a safe and responsible manner.²⁶

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Footnotes

1. Petroleum Commission, 'Phase 1 (1896-1957)' (Ghana Petroleum Register, 2017) https://www.ghanapetroleumregister.com/phase-1 accessed 30 April 2020

2. Concessions Act, section 49

3. Constitution, article 257(6)

4. id, article 268

5. PNDCL 84, section 1(2)

6. Id, section 32(1)

7. Petroleum Commission, 'Phase 5 (1981-2001)' (Ghana Petroleum Register, 2017) https://www.ghanapetroleumregister.com/phase-5 accessed on 09 April 2020

8. GNPC Act, sections 2 and 3

9. PNDCL 84, sections 2(1) and 5(4)

10. GNPC Act, sections 2(2) and (3)

11.Petroleum Commission, 'Phase 5 (1981- 2001)' (Ghana Petroleum Register, 2017) https://www.ghanapetroleumregister.com/phase-5 accessed on 9 April 2020

12. Chargeable income of a person for a year of assessment is calculated as the gross income of that person less any allowable deductions

13. PITL, section 6

14. id, sections 27 and 28

15. PNDCL 84, section 20

16. id, section 18

17. id, section 17

18. See articles 13.1 of the WCTP, DWT, OCTP and DWCTP PAs

19. PNDCL 64, section 2

20. PNDCL 84, section 23(10)

21. id, section 23(13)

22. EPA Act, section 2(a) and (f)

23. Ghana Environmental Assessment Regulations 1999, LI 1652, regulation 1

24. ibid

25. Offshore Oil and Gas Development in Ghana, Guidelines for Environmental Assessment and Management (2011), Introduction

26. ibid

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