Political storm over Chinese gas contracts
Opposition parties and anti-corruption activists call for investigations into and a renegotiation of Beijing’s energy and telecoms deals with Accra
Leading opposition presidential candidate Nana Addo Dankwah Akufo-Addo and his New Patriotic Party are stepping up criticism about the financing of Chinese projects in the energy and telecommunications sector. Akufo-Addo and the pro-NPP Alliance for Accountable Government (AFAG) have criticised the terms of the finance as damaging to Ghana. AFAG says that China’s Huawei secured US$43 million in tax exemption in return for contributions to the ruling National Democratic Congress. On 18 October, the Civil Society Platform on Oil and Gas (CSPOG) called for an investigation into transfer pricing and inflated costs for the gas infrastructure being built by China’s Sinopec in Ghana’s Western region.
Ghana heads to hotly contested national elections on 7 December and politicians are debating China’s role in the country’s politics and economics as the country looks to develop its oil and gas sectors. Both major parties, the National Democratic Congress and the New Patriotic Party, now agree that finance from the China Development Bank and China Export-Import Bank is necessary to build the country’s infrastructure. However, they differ on how negotiations should be held and what would be a good deal for Ghana. Ahead of the December vote, the role of Chinese companies and finance in the gas sector, gold mining and retail market are feeding the political debate.
The NPP’s Akufo-Addo has been critical of the role of the Chinese government and companies in Ghana. In April when the first tranche of the $3 billion Chinese Development Bank credit to Ghana’s oil and gas industry was disbursed, Akufo-Addo said he would revise and renegotiate the terms if he was re-elected in December. He says that Chinese investment is welcome, but the government needs to concentrate more on value for money. He and his party criticised some of the costs and stipulations about Chinese contractors getting 60% of the market from the projects financed by the loan. He has been critical of the quality of Chinese-built infrastructure project and has urged the government to enforce laws which would keep Chinese traders from participating in the country’s retail sector.
Questioning President John Dramani Mahama at a televised question and answer session, the CSPOG claimed that there have been serious improprieties in the procurement process for the construction of the Western Corridor Gas Infrastructure Development project, which is being undertaken by Sinopec International Petroleum Services Corporation in the Western region. Former finance minister Kwesi Botchwey, now chairman of the Ghana National Gas Company, has accused the CSPOG of ‘a blatant abuse of the role of civil society activism’, after the group’s 18 October call for GNGC Chief Executive George Sipa-Adjah Yankey to be investigated.
Mahama says he has ordered a forensic audit of GNGC’s books and is waiting for the report. He also conceded that he would be willing to review GNGC’s limited liability status if this was necessary. CSPOG chairman Steve Manteaw says that status allows the company to evade parliamentary scrutiny, and that Sinopec has inflated the cost of the gas processing plant and the pipelines being built to bring gas from the Jubilee Field to Atuabo.
Manteaw also accused Sinopec of transfer pricing. ‘SIPSC is delivering a processing plant that is costing $40 million more than another which is considered superior… including specifications which are favourable to the Volta River Authority, which will be the main customer for processed gas to feed its power generating plant at Aboadze,’ Manteaw claimed.
He also accused SIPSC of overpricing the materials through an arrangement with SAF Petroleum Investments, a Dubai-registered special purpose offshore subsidiary that makes initial procurements before reselling them to SIPSC, adding that the same person – Yang Hua – serves as project director for both SIPSC and SAF.
The superior plant would bring Ghana additional revenues in excess of $100 mn. a year, CSPOG argues, while the 45 kilometres of shallow-water pipeline to be installed by SIPSC cost $1.6 mn. more per kilometre than the 14 km. deep-water pipeline being constructed by the GNPC, the state oil company. They also say that SIPSC’s pipes do not meet the international industry standard of having internal coating. Botchwey’s strongly worded response accused CSPOG of making allegations which had been thoroughly investigated by the board and found to be ‘without merit or substance’.
These disputes point to the deep-seated rivalries within the energy sector for ultimate control of newly discovered oil and gas resources. It has long been held that the VRA and GNOC have lost out substantially from ongoing power sector reforms, including the transfer of GNPC’s regulatory powers to the new Petroleum Commission.
Under existing laws covering the oil and gas sector, GNPC technically still has regulatory responsibility for the development of all oil and gas resources. But powerful factions within the government have fought to cut GNPC’s powers, fearing a repeat of the financial turmoil that engulfed the corporation in the 1990s when a series of unsuccessful exploration and production decisions left it with unsustainable debts.
A proposed new oil law has been stuck in parliament for more than two years, creating uncertainty among investors, especially for the promising offshore fields that have yet to be developed. Critics say the process for the award of oil licences would be gravely weakened if the bill becomes law in its present form.
Analysts point to turf wars in the early days of the NDC government between Energy Minister Joe Oteng-Adjei, who favours a more technocratic approach to government involvement and a bigger role for his ministry, and a broadly pro-GNPC faction including his former deputy Kwabena Donkor, GNPC chairman Ato Ahwoi and current Managing Director Nana Boakye Asafu-Adjaye.
Having chaired the task force which recommended the creation of GNGC, it is this group to which Botchwey was referring when he accused Manteaw of sounding like a ‘hireling and advocate of these vested interests’.
Although Botchwey is correct in pointing out that GNGC is not the only state-owned limited liability company in Ghana’s energy sector – others include the Electricity Company of Ghana, GridCo and Bulk Oil Storage and Transportation – the GNGC board is under pressure to provide more detailed responses to other CSPOG criticisms, including the group’s call for the gas company to be restructured as a subsidiary of GNPC, which comes under the oversight of the Energy Ministry.
Civil society groups believe that the terms of the deal between GNGC and Sinopec should be made public and debated by parliament. Mohamed Amin Adam, a fellow of the opposition-financed Danquah Institute, argues that every lost year of gas production costs the country more than $630 mn. at current international prices, while the shortfall in oil production from Jubilee means a loss of more than $400 mn.
Since the gas project is largely being funded from a $3 bn. loan from the China Development Bank and with Sinopec pre-financing the start of construction because of delays in disbursement, the opposition NPP will be looking to use the controversy to score political points as elections approach. The project is already three years behind schedule, they say, because of infighting between NDC power blocs.
As Vice-President, NDC candidate and current national President Mahama criticised the World Bank and International Monetary Fund for ‘tiresome’ procedures and ‘the many strings attached’. He praised Chinese government financing packages and said that they offer competitive terms that Ghana needs to develop its economic infrastructure. Under the late President John Atta Mills, Mahama was in Beijing in April to sign off the first $1 billion tranche of a loan from the China Development Bank to finance gas infrastructure. Mahama also backed some Asian deals that eventually collapsed, such as the South Korean-led STX housing project (AAC Vol 3 No 2, Mortgages and minerals, Vol 3 No 7, Building on oil money, Vol 3 No 10, Scepticism grows over STX houses, Vol 4 No 11, STX's house is falling down, Vol 5 No 2 Housing scheme crumbles). He said that more money from the CDB credit line would be used to rehabilitate the Takoradi Port and railway lines in the Western Region, and that he would follow through with all of Mills’s plans to use Chinese finance (AAC Vol 4 No 11, The revolution will be financed). Mahama says that the government should negotiate with any interested country so long as the terms are fair and the money put to good use.
While Chinese companies won many road and other construction projects under Mills, Mahama too has supported the implantation of Chinese companies. In early September, he said that the Chinese government would build a stadium at no cost to the government to honour Mills in Cape Coast. He also said that Chinese engineers were already on the ground to develop plans to build the Kotokuraba market in the same city.
Another issue to rise to the level of national debate was the eviction of Chinese miners digging illegally in the Ashanti Region in early October. Local authorities have long complained about the influx of Chinese people engaging in artisanal mining, often bringing mechanised equipment to a sector dominated by local galamsey. Since August, the security forces began sweeps of gold producing regions to expel illegal miners. The government deported 38 Chinese workers in September and arrested more than 100 people in early October. The Chinese nationals were released on bail on 18 October after the Chinese government complained about their detention.
During the raids, one young Chinese man was killed. China’s Ambassador to Ghana Gong Jianzhong complained to Ghana’s Foreign Ministry and said that the 16-year-old boy was shot while running away. Officials from Ghana’s Mineral Commission said that Chinese miners are often well-armed and shoot at those that approach them. The Chinese government has asked for an investigation into the case. Gong said that the police should focus on ‘the middlemen, the traffickers and the illegal miners, and curb their illegal activities instead of just arresting victim Chinese citizens’.
Ghana Immigration Service arrested 24 Chinese miners in Bibiani-Anhwiaso District who had no work or residence permits in November 2011. Security forces also arrested 38 Chinese miners on 22 May. The police arrested another nine Chinese miners in Amansie West District in July after local youth launched protests. The authorities arrested an additional 34 Chinese nationals who had no permits at AngloGold Ashanti’s Obuasi mine in August. In July, the Ghanaian Immigrant Service reported that just 607 Chinese nationals are registered with the authorities, while the embassy says that there are several thousands of Chinese people in Ghana.
Copyright © Africa-Asia Confidential 2012