GNPC’s exposure to pay-or-take clauses could derail upstream aspirations – IES warns

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The Ghana National Petroleum Corporation (GNPC) wants to become a major petroleum upstream player, but that dream is under threat because of its financial exposure to pay-or-take clauses in gas contracts, the Institute of Energy Security (IES) has said.

The state-owned company holds about 15 percent carried and participating stake on behalf of the country, in oil and gas production contracts. Its aspiration was to become a major stand-alone operator by 2020 through its subsidiary, Exploration and Production Limited (GNPC Explorco), incorporated in 2012.

Although the company still harbours such dreams, IES’s Executive Director, Nana Amoasi VII, said until the issue with excess natural gas is addressed, the corporation will continue to be financially exposed due to the take-or-play clauses in contracts, which he argues could be damaging to GNPC’S long-term goals.

GNPC, he explained, is obliged to offtake gas from local producers/partners. However, the company’s financial exposure with the pay-or-take contracts means that it has to pay for supplies it cannot sell.

For instance, he said, the GNPC in 2019 had to pay a whopping US$168 million for unutilized gas: “The attending revenue losses being borne by the GNPC will negatively affect its goal of becoming an operator”.

Aside from the US$168million, other commitments for Liquified Natural Gas (LNG) to Tema and Takoradi will add an annual US$822million and US$523million respectively, which by 2023 could take GNPC’s revenue losses to an accumulated amount of US$4.5billion if nothing is done.

Ideally, he indicated, by now GNPC ought to be in a position where it can undertake its own exploration campaigns in the Voltaian Basin. “By 2030 it needs to be a world-class operator, but is still reliant on parliament for funding – partly because the money that it is supposed to keep is being channelled into paying for gas and other things.”

Apart from being a commercial operator and the holder of government interests in petroleum operations, GNPC plays the role of national aggregator for natural gas from upstream operators to service the local market. Under the Petroleum Revenue Management Act, a specific percentage of the net cash flow from the carried and participating interests of the state is ceded to the GNPC to fund its operations.

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