Analyst - PAGES

Tuesday, September 29, 2020
ACEP opposes independent Ghana Gas
NEW research and analysis, from
one of Ghana’s most reputed
specialized public policy think tanks
warns that the country presents a
high risk environment for upstream
investment and the power sector,
with the new agenda to make Ghana
National Gas Company a gas
aggregator.
an analysis paper issued by
africa Centre for Energy Policy
(aCEP) has raised key concerns on
the newly proposed policy changes
aimed to make GNGC a gas
aggregator for the country’s oil and
gas sector.
This reverses Ghana’s earlier
policy stance of putting Ghana Gas
under Ghana National Petroleum
Corporation and using the latter’s
much larger balance sheet as
leverage to obtain better private
counterparty investment terms
aCEP said, “Transferring the role
of an aggregator to GNGC also
introduces significant risks for
upstream investment and the power
sector. The weak balance sheet of
GNGC makes it unattractive to the
investor community which has
implication for exploration and
production.”
Throughout the proposal, GNGC
ignored its lack of capacity to
assume and manage the
obligations that come with
being a gas aggregator.
GNGC has proposed a
novation of relevant contractual
arrangements with both
upstream and downstream
partners from GNPC to it.
“The proposed novation of
contractual obligations within
the sector comes with risks and
this requires that the company
that wants to assume the
obligations show how they will
manage the risks,” aCEP said.
The coincidence of the policy
change with the challenging
global oil industry on the back
of COVId-19 further exposes the
country to high investment
risks.
The Gas Master Plan
recommended that GNGC
becomes a subsidiary of GNPC,
with GNPC performing the role of a
gas aggregator. according to the
master plan. “The decision to
appoint GNPC as the aggregator of
gas and making GNGC a fully owned
subsidiary of GNPC will improve
coordination in the sector and
facilitate infrastructure investment
• Mr. Ben Boakye, Executive
Director, ACEP
and
financing.”
This in addition to the security
requirement by the Off-Shore Cape
Three Point (OCTP) partners
informed government’s decision in
2015 to make GNGC a subsidiary of
GNPC which was subsequently
implemented in July
2016. However the
consolidation only lasted
for five months and was
subsequently abandoned
after a change of
government at the start of
2017.
In view of this, aCEP
protests that the proposal
to make GNGC the gas
aggregator is therefore
not in line with the
country’s Gas Master
Plan, which is a product of
institutional and
stakeholder consultation
with support from
USaId.
“This should not be
altered at the wish of one
party in the value chain.
abandoning the Gas
Master Plan deflates the
confidence of
development Partners in financing
future policy development,” the
energy think tank adds.
aCEP recommends that making
GNGC a subsidiary of GNPC as a
strategy for the implementation of
the Gas Master Plan, would be the
optimal option for achieving results
in the oil and gas sector for Ghana.
In effect, this would be pursuant
to the top-down integration model
with GNPC at the top as an anchor.
It would allow GNPC to support
subsidiaries along the value chain
with the strength of its own balance
sheet.
“This also requires that GNPC is
refocused to invest its money in the
core oil and gas business as has been
done by other integrated national oil
companies,” aCEP says.
aCEP further argues that,
although the designation of a
national aggregator is a policy
decision within the control of
government, GNGC’s proposal for
relevant gas contracts to be novated
from GNPC to GNGC should not be a
unilateral decision,
“The OCTP partners agreed with
government to make GNPC the gas
aggregator as a condition for
developing the project because of
GNPC’s financial position. any
decision to novate the existing gas
agreement has to be agreed to by the
upstream investors.
In the light of the foregoing, it is
not difficult to predict on the basis of
GNGC’s financial position that no
Exploration and Production (E&P)
company will novate their Gas Sales
agreement to GNGC,” the think tank
said.
Ghana gets crucial
Competition Law
GHaNa is speeding up the processes
to pass into law its Competition
Policy which has become urgent as
a necessary condition for the
implementation of Phase Two of
the africa Continental Free Trade area (afCFTa)
next year.
Phase two was originally slated for
december this year but has been postponed in
line with the postponement of the
commencement of phase one from July 2020 to
January 2021.
Ghana’s Competition Law is now at
consideration stage by Cabinet.
Its passage is critical to the various
implementing parties because Ghana has to
meet the expectedly mid-2021 deadline for
implementing the second phase of afCFTa. The
Competition Law is listed as one of three
protocols set to be implemented to safeguard
that phase of the agreement which also
includes Investment Policy and Intellectual
Property Rights.
The preparations follow the most
recent african Union Commission (aUC) and
European Commission (EC) meeting held in
Ethiopia early this year where the latter stressed
the importance of the second phase
negotiations of the agreement and entreated
member states who have not yet instituted
competition policy to institute measures aimed
at implementing the policy.
Ghana has accepted the need for a
competition law (known in many jurisdictions
as anti-trust law), but has
not prioritized drafting a
law, until now.
Several industries
have near monopolies
with regard to market
share, which will be
affected by passage and
implementation of a
competition law.
For instance, MTN,
the pioneer of Mobile
Money in Ghana still has
a dominant market
share of over 90 percent
despite competition
from both airtelTigo and
Vodafone. MTN’s lesser
dominant share of nearly
60 per cent with regard to voice telephony and
data has already persuaded the National
Communications authority(NCa) to invoke its
anti-monopoly powers by designating it a
Significant Market Player (SMP) which allows
the industry regulator to force it to adjust its
tariffs to curb predatory pricing.
Instructively though, while dominant
market share has given MTN the opportunity to
use preferential intra-network pricing on its
mobile money services to keep customers, it has
declined to exploit this opportunity to its
advantage.
Indeed, the tendency of many large firms to
refuse exploiting monopoly or near monopoly
market
shares to increase profit margins at the expense
of their customers is a major reason why
government has not bothered with a monopoly
law up till now.
The Phase Two protocols aim to enhance
the investment policy climate as well as address
risks facing businesses and investors on the
continent. already, the two Commissions have
agreed on the need to prioritize regional
infrastructure as an underpinning element of
afCFTa.
The impending law will need to contain
elements that give opportunity to competitors
with very small market shares to increase them
and also to ensure that where a competitor has
an overwhelmingly large market share, it does
not take advantage to set extortionist product
prices.
Globally, a market share of 70 percent or
more requires anti-trust regulations to kick in.
The Competition Policy is expected to
protect, maintain and develop free, fair
and equal competition in the market
space by making it illegal for businesses
to abuse a dominant market position.
Having such a regime will also ban
anti- competitive agreements between
firms who have instituted agreements to
fix prices or to carve up markets.
For instance, Small and Mediumsized
Enterprises (SMEs) will have a level
playing field to be able to compete with
their multinational business
counterparts and this measure would
encourage enterprise efficiency, create
wider choice for consumers, curb
monopolist or oligopolistic pricing and
ensure the need for producers to improve
the quality of their products in the
market.
With the absence of this law, some
businesses engage in restrictive trade practices
such as bid-rigging, price-fixing and abuse of
dominance through monopolistic and
oligopolistic product pricing; and when these
occur, consumers do not receive optimal value
propositions.
Currently, about 23 african countries have
competition laws enforced, but 17 have no
competition laws in place, while 10 have
instituted competition laws, but have no
authority to enforce them. Four countries have
competition laws in advanced state of
preparation.