STATEMENT: GNPC Now Slush Fund For Gov't ACEP

The Africa Centre for Energy Policy (ACEP) is worried about revelations of financial irregularities made against the Ghana National Petroleum Corporation (GNPC) by the Auditor General. Such financial irregularities border on our fear that GNPC has become a slush fund for the government. According to the Auditor General’s Report, 2014:

1. GNPC advanced US$50 million to the Ministry of Finance in 2013, which was expected to be repaid in three months but which was not paid back.

2. GNPC failed to audit its partners in oil operations, a requirement imposed on it by the Petroleum Agreements signed with the partners.

These irregularities have raised disturbing issues about GNPC’s seriousness of growing to become an operator as its strategic plan envisages. We would like to proceed with a number of questions:

1. When did GNPC become a financial institution capable of advancing money tothe tune of US$50 million to the government?

2. Is it prudent for GNPC to leave its core functions and instead advance its money provided under the Petroleum Revenue Management Act (PRMA) to government, which is already entitled to more than 70% of oil revenue for the budget and savings?

3. At what interest rate was the money advanced to government?

4. Is Ghana receiving less oil/revenue than its entitlement, given that the corporation has not been auditing the cost of the operations of its partnersevery two years contrary to Article 18.6 of the Petroleum Agreements?

ACEP has always supported the growth of GNPC and to be adequately capitalized. However, GNPC by these irregularities is demonstrating that it has no capacity to spend the oil money allocated it from Ghana’s share of oil revenue.

As at the end of September 2015, GNPC had unspent cash of US$192 million of its share of oil revenue, of which US$187 million was carried forward from the previous year. This in itself is not a problem as it shows strong liquidity position of the corporation, but to the extent that this money has not been ring-fenced for the operations of the corporation, as a result of which government can fall on it, deviates from good corporate governance; and a vindication of those who think thatthe corporation is given too much money than it needs.

The GNPC has greater responsibility to prove that it has not become a slush fund for the government as other transactions by the corporations point to that. For example, in 2013, GNPC applied US$31 million of its share of oil revenue to repay a PNB Paribas loan facility, which was incurred at the instance of government in respect of oil lifting since 2009. Recently, some Members of Parliament raised issues about GNPC’s use of US$41 million to support crude oil purchase by VRA through a certain Bank in Ghana. Whilst such support might have been relevant to VRA, another profit making corporation, we are concerned about the misalignment of such a transaction with the corporation’s strategic plan. We know that this transaction was based on another directive from Government, an obvious confirmation that GNPC indeed has become a slush fund for the government.

It is for this reason that we are unable to take GNPC’s explanation that the loan it sought to contract recently without parliamentary approval was not meant for the government. National Oil Companies that operate as slush funds are often engaged in such transactions; and GNPC has now become no exception. We believe that if the GNPC Law 64, which allows it to borrow money without parliamentary scrutiny is not amended, future governments will abuse it, which will have implications for increasing the corporation’s debt liability.

Considering that such financial irregularities might have received the blessing of the Board of the corporation, it brings to question the mode of appointments to the Board of such big entities or the extent to which government interferes with management decisions, a practice which stands at variance with good corporate governance. It is not clear why the Board of GNPC will ignore the core mandate of the corporation, but rather approving loans and guaranteeing transactions for other companies.

ACEP is even more worried by a recommendation by Parliament’s Committee on Mines and Energy for an amendment to the Petroleum (Exploration and Production) Bill, currently before it, to allow GNPC to hold paid participating interest on its own behalf contrary to the current operational law which requires it to hold that interest on behalf of the state. Parliament may want to consider an additional amendment that ring-fences the corporation’s finances to its core operations of finding and commercializing Ghana’s hydrocarbon potential.

We therefore call for a special probe into GNPC’s finances to establish the corporation’s financial requirements, its capacity to manage oil revenue allocated to it, as well as other commercial loans it may contract; and how such financial decisions that depart from the corporations functions were arrived at.

We also call on the Government to list GNPC on the Ghana Stock Exchange to allowfor other independent representation on the Board to insulate Board and Management decisions from government interference.

Also, Parliament should amend the GNPC Law 64 to bring the corporations activities under parliamentary scrutiny, including approvals of loans, budgets, and use of resources.