David ADDO-ASHONG Founding Partner ASHONG BENJAMIN & ASSOCIATES

We need to improve energy sector planning, factoring in the inevitable costs of risk management.

David ADDO-ASHONG Founding Partner ASHONG BENJAMIN & ASSOCIATES

A new reality for Ghana’s energy regulation

November 30, 2021

David Addo-Ashong, senior partner at Ashong Benjamin & Associates, talks to The Energy Year about the question of modifying Ghana’s take-or-pay power purchase agreements (PPAs), gas monetisation opportunities in the country and issues with its upstream regulations. Ashong Benjamin & Associates is a law firm with expertise in energy project financing.

What’s the main obstacle affecting gas-to-power and renewable energy projects in Ghana?
Well, we live in a country where reliable electrical power is not yet something people can take for granted. Naturally, therefore, there is not yet intense public pressure for specifically green energy. As far as the State goes, there has been a huge 30-year institutional investment in thermal energy systems and we are still getting used to being an oil and gas producer. It’s almost a shame to have to give that all up now.
The truth is that our policy and especially regulatory systems have not yet caught up with the new technologies, business models, economics and sheer opportunities of the renewables industry – opportunities such as much greater local content. So, it is not so much that there are impediments but rather that we have been on a slow learning curve. However, the policy commitment is real, and I expect that soon things will take off very rapidly.

Should the government modify its take-or-pay PPAs with IPPs?
In the short term, the State must indeed renegotiate or replace some of our recent PPAs. We should do so discreetly and in a manner that does not further undermine industry confidence or frighten off the big infrastructure lenders. We are confident that this is possible and have direct experience of the process.
Beyond renegotiations, we need to improve energy sector planning, factoring in the inevitable costs of risk management. If our planners and our politicians were on the same page, we could escape this decades-long cycle of gluts leading to foot-dragging and shortages, leading to panic-buying of expensive entrepreneurial solutions. Our problems lie here rather than in take-or-pay mechanisms per se.
Investors need to be sure that if they sink USD 700 million into power infrastructure in Ghana, somebody will take and pay for the power produced at an agreed tariff. The simplest way for them to guarantee their cashflows is to ask the host government to give assurance that if power is produced it will be paid for even if not used.
Take-or-pay contracts are one solution. Other solutions can, however, be used, and we believe the new technologies available may offer some opportunities in this regard and that these new approaches can be incorporated into renegotiated PPAs which do not impose such heavy burdens on the country.

How do you evaluate Ghana’s gas monetisation opportunities?
The focus in the upstream industry is clearly shifting to the production of gas and the monetisation of these resources through energy generation. The focus should be on increasing generation capacity for exports of power rather than exports of gas because there’s so much more value added by doing that. At a certain point, importing LNG made sense as a short-term solution to a feedstock problem. [Ghana began LNG imports in May 2021.] But now, so much gas is produced in our fields, with the potential to produce much more, and the focus needs to shift to upgrading our gas distribution infrastructure to optimise the utilisation of this resource.

What is the most pressing matter in terms of upstream regulations?
In my opinion, our regulatory environment needs to rapidly evolve to catch up with the changes in the world economy arising from the “green transition.” There needs to be the recognition that our deepwater, relatively high-cost petroleum resources are less attractive than other cheaper options at a time when, at least in the short term, oil prices have dipped and when the future for the resource as a source of energy is not clear. Our regulatory environment needs to adapt quickly to the new reality and I am pleased to say that there appears to be a clear recognition of this and that the necessary regulatory changes which were already ongoing have been hastened to ensure that Ghana is still in a position to attract the kind of investment it needs from the kind of partners it desires.

 

Do the different public stakeholders have a defined role?
The legal framework is pretty comprehensive following its significant enhancement over the last few years and continues to evolve in response to developments on the ground and in the wider world market. It must be clear that many of the new laws and regulations are still being tested and market participants will continue to seek clarification on the practical impact of some of this legislation as it is put into practice.
There’s also sometimes a lack of alignment in terms of the policy of particularly the revenue agencies and other government agencies as regards attracting investors and planning the long-term future of the sector. GNPC has historically had the mass of expertise and the Petroleum Commission and the Ministry of Energy have also rapidly trained and resourced their human capital base to enable them to carry out their statutory roles.

How does Ghana’s legal framework affect the participation of IOCs?
The big IOCs naturally want the owner of the resource to grant major concessions and see themselves as better positioned to make these requests than the smaller exploration companies that the country was able to attract in the past. Some of what is sought is not available under our regulatory environment as it stands today, so the philosophy behind regulations may need to adjust if we want to attract bigger companies in the current circumstances.
The Petroleum Commission and other policymakers have made plenty of advances in that direction, but I think the oil price crash of 2020 and the impact of the Covid-19 pandemic changed the industry so much, so quickly that these positive steps will need to be taken even further.
We are going to have to do some more thinking on the age-old issue: how do you strike a balance between creating an environment which allows the Exxons of the world to feel comfortable in your country, whilst at the same time deriving the maximum benefit from your increasingly finite hydrocarbon resource?

What is your assessment of the unitisation of the Afina and Sankofa fields?
Given the complex web of relations that the upstream industry is, it is often better to pursue a business solution than to litigate. I am sure that both Eni and Springfield have clear objectives and appreciate how and when to bring things back to the table. The process of unitisation is a complex one, but Ghana has gone through this process before, and l am confident that the lessons learned from past experiences will be invaluable in resolving this issue.

How did the Covid-19 pandemic affect Ghanaian law firms?
For us, there was a sharp contraction because a lot of our business was related to oil and gas, energy, banking and inward investments. As regards inward investments, understandably, not a lot was happening last year. So, banking and finance became the main source of business for us in addition to our activity in energy and other projects.
I think the expectations for oil and gas in terms of their short-term impact on the economy were overstated and not properly managed. If as a result of such high expectations you positioned your law firm or business exclusively in the oil and gas space, you would have had serious problems over the last couple of years. However, currently oil and gas activity is coming back, and we expect that going forward we will be seeing significantly more activity in the upstream sector than we did in 2020.
We are also getting more and more inquiries from investors about transactions related to green energy – low-carbon technologies and energy solutions. We are certainly looking forward to working on some of these renewable energy and power generation projects. The firm is also expanding its scope by venturing into the fields of medical and aviation law.

How do you assess Ghana’s attractiveness as a destination for energy investments?
We are seeing a worldwide shift towards green energy and increasingly, the rejection of fossil fuels as a source of power. In the meantime, Ghana has found some of its best discoveries offshore in ultra-deep water at around 3,000 feet [914 metres]. That is expensive to extract.
Even so, from a wider industry perspective, Tullow and Eni, for example, are going to remain here and have demonstrated a commitment to continue to develop the concessions available to them. They are committed and will continue to be the bedrock of our industry for a while to come. On the other hand, gas has become the big story. Our ability to generate and utilise gas resources for power generation is going to be the driving impetus for the industry going forward.

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