In the wake of the intense controversy that has erupted over approval by Parliament to approve a US$1.45 billion loan to be taken by Ghana National Petroleum Corporation, government has initiated a process to engage the investment banking division of one of the world’s biggest and most renowned international investment banks- Bank of America Securities Inc. to conduct a new independent valuation of the two oil exploration blocks that the corporation seeks to acquire from Aker Energy and its sibling, AGM.

A Deputy Minister for Energy, Andrew Egyapa Mercer maintains that the engagement aims to bring to light the real value of Ghana’s resultant equity stake if the deal is consummated, following concerns raised by a consortium of some 15 Civil Society Organizations that the planned acquisitions are not in Ghana’s best interests primarily because the value of the blocks are grossly overvalued.

They assert that this could be inimical to the interests of GNPC which has been given Parliamentary approval to borrow the funds needed to finance the acquisitions and ultimately for Ghana itself for whom the debt would become a contingent liability.
The 15 civil society groups, working in the extractive industries sector, have petitioned Parliament saying, although they are not against the deal, its possible merits “cannot be a guise for decisions that threaten the country’s economic and fiscal outlook” hence must be reconsidered.

The crux of the controversy is over the valuation of the stakes in the two exploration blocks. While GNPC and Aker (the latter through a valuation done on its behalf by Lambert Energy Advisory) put the value at US$1.3 billion, the CSOs have chosen to take the much lower valuations of some international oil industry experts who claim the stakes are only worth somewhere between US$350 – US500 million. Interestingly, Parliament itself only approved US$1.1 billion in borrowing for the acquisition by GNPC, suggesting it believes the amount originally requested is an overvaluation, but a dispute still remains as to by how much.

The other part of the requested borrowing – US$350 million for an increased contribution to the development costs of Aker’s Pecan field whose commerciality has been established and for which a Plan of Development has already been approved by government – has been approved in full by Parliament and if all goes according to plan production from that oilfield could commence by 2024. However this is not completely certain since Aker now intends to present a revised Plan of Development for government’s approval before the end of this year, incorporating changes to be implemented due to the change in the structure of the financing of the field’s development.

While government officials remain confident that the acquisitions are in the best interest of the state which wants to accelerate the current slow pace at which the potential oilfields are moving towards development and actual production, it also wants to be sure it is not making a mistake in its haste.

The Deputy Minister explained that aside from Lambert Energy Advisory’s valuation of the oil blocks – which the CSOs assert cannot be trusted – the government has therefore gone a step further to seek the services of a third party – Bank of America Securities – to independently arrive at its own valuation.

“As we speak, the Ministry of Finance pursuant to the mandate that was given by Parliament has engaged the Bank of America Securities to do a fair value assessment of the fields and has requested GNPC to make its data available to Bank of America Securities to undertake that exercise that will lead to the real numbers that the Bank of Ghana is going to negotiate. The Lambert Advisory valuation was commissioned by GNPC and Aker, not the Ministry of Finance or Ministry of Energy” he asserts.

Indeed, the fact that the valuation being used so far was commissioned by GNPC and Aker – both of them heavily interested parties in the planned transaction – is a major reason why the CSOs doubt its veracity. Those doubts have intensified since the Deputy Minister has effectively sought to distance government itself from that valuation.

The pedigree of Bank of America Securities is strong enough to make its eventual valuation acceptable to all parties and thus put the controversy to rest one way or the other.

To this end the Deputy Minister has clarified that no final arrangement has so far been sealed yet among the entities involved to warrant the criticisms of the CSOs.

“No transaction has been concluded as we speak. No agreement has been executed as we speak. What GNPC put before Parliament and cabinet is a work programme. Going forward, I think that previous attempts to get us an operator have not been successful.

“There is an opportunity that is springing up now with Aker coming in to commence its work, so we can get the mandate to go and negotiate with Aker based on some submissions that have been done. That will inform us on some parameters within which those negotiations can be held. Cabinet evaluated the request and approved the request. Parliament then mandated the Finance Minister and the Energy Minister to negotiate. That negotiation has not yet taken place.”

He adds: “So I urge them (the CSOs) rather than making a suggestion that someone has done something untoward, the engagement is commencement. They may have views, but the Government of Ghana has been mandated by the people to manage their affairs on their behalf. Civil society will have a say but the ultimate decision will be taken by government. And so to suggest that if the government wants to engage in oil exploration there is a best option is neither here nor there.

Meanwhile, Andrew Egyapa Mercer insists that, despite the red flags raised against the deal, the arrangement is critical to exploration activities before Ghana’s oil reserves hit a level of terminal decline.

“The truth of the matter is that these are valuable assets that if we do not explore are going to be stranded and the government has taken a decision that rather than making these assets stranded, it is going to empower GNPC through the arrangement that is being negotiated to GNPC to become an operator on its own. We can have criticisms about deals that were unsuccessful, but does not mean we cannot proceed with that route by ensuring that the capacity that GNPC has will help us explore those resources.