Former Chief Executive Officer of the Ghana National Petroleum Company, Alex Mould says while oil contribution to government revenue is expected to drop by nearly $600 million, the sector's input to Ghana’s GDP will see a $2.5 billion reduction in 2020.

“The bad news is that government, with oil prices below $30 per barrel, will experience a drop in oil’s contribution to GDP and government revenues. This slow down on the economy will severely affect government's discretionary spending; and the impact will be felt on many of its infrastructure and capital expenditure projects e.g. roads, which may in turn impact consumers’ costs, if not managed appropriately,” the Finance and Energy said in an interview.

From an estimated production of 77m barrels of oil and 86,000m BTU of gas - an equivalence of 14.4m barrels of oil - from the country’s three producing fields, Mr Mould said oil revenue excluding corporate taxes (which itself will drop from approximately US$500m to less than US$100m) will likely drop from US$1.1bn to less than US$600m by the end of 2020.

“As a result, the net revenue to the Government of Ghana will be less than $300 million after GNPC pays for its share of development costs, i.e equity financing cost.

So, the oil contribution to the country’s GDP will drop by $2.5 billion this year and contribution to government revenue will also drop by nearly $600 million (approximately 50% of what was budgeted),” he stated.

The International Monetary Fund (IMF) had projected an economic growth of 6.8 percent for Ghana in 2020, the joint third highest in Sub-Saharan Africa. Due to the COVID-19 pandemic however, the government says it expects growth to be around 1.5 percent this year. 

Already, due to the impact of the Coronavirus pandemic on the economy, the Government, which had initially programmed a crude oil price of US$62.60 per barrel for the 2020 Budget, consistent with the PRMA (Act 815), revised its benchmark price downwards to $30 per barrel for this year.

This, the Finance Minister, Ken Ofori-Atta, during a March 30th presentation to lawmakers, noted, will result in a shortfall in crude oil receipts amounting to GHȼ5,679 million.

However, Mr. Mould in responding to a question on some of the implications of the current oil prices for Ghana, cited the current slowdown on oil and gas activities- which has led to the lowest rig count lowest in 10 years and the global price fall, among others, as reasons the sector’s contribution to the GPD will drop by $2.5 billion.

He added that some development projects have already been delayed, while some oil service contracts rescheduled or postponed.

“In Ghana, with the airports shut to commercial airlines, special flight arrangements have to be made to keep our production FPSOs on our 3 oil fields manned.

Some major exploration players have stopped short of citing Act of God or Force Majeuer. Aker for instance, has requested a postponement to deliver the final Plan of Development (PoD) and has even cancelled some of its long lead development contracts,” he noted.

Legal cases for compensation

According to the immediate past CEO of GNPC, the rescheduling or postponement of some oil projects due to the disruption caused by the Covid-19 crisis, coupled with the prevailing low prices, could lead to an increase in legal cases for compensation.

“On April 1, YINSON was hit with FPSO deal termination just after receiving a letter of intent from Aker on Feb 21st, 2020 and YINSON is seeking compensation due to termination, which if not paid by Aker could end them up in court.

On March 24, 2020, Tullow notified Maersk Drilling of early termination of the drill ship Maersk Venturer offshore Ghana creating a backlog of $175 million in revenues. This is a result of a review of its 2020 work programme which sees a reduction in its investments programme,” he further explained.