… raises concerns over US$700m arbitration, revenue losses
A News Desk Story
The nation has incurred financial losses exceeding US$707million from its petroleum agreements with Tullow Oil and partners, prompting calls from the Institute of Economic Affairs (IEA) to immediately halt any extension of the company’s operating licences.
The Accra-based policy think-tank, in a strongly-worded statement, demanded government must suspend a Memorandum of Understanding (MoU) that would extend Tullow’s petroleum licences until 2040 – four years beyond their current 2036 expiry date.
The IEA’s intervention comes as the nation grapples with financial fallout from two major tax disputes with the UK-listed oil company, both of which have resulted in costly international arbitration proceedings.
In the most significant case, Ghana Revenue Authority (GRA) assessed a US$320million Branch Profit Remittance Tax liability against Tullow covering the period 2012 to 2016.
When Tullow challenged the assessment, the International Chamber of Commerce in London ruled in favour of the company – forcing Ghana to pay substantial legal costs totalling £1.9million, US$294,228 and US$574,000 in tribunal fees, with interest accruing at five percent annually.
A second dispute involves US$387million in contested tax liability related to disallowed interest deductions from 2010 to 2020, which Tullow is also contesting through ICC arbitration rather than paying the assessed amount.
“We must not compound existing problems by embedding them into future agreements. A reset is long overdue,” the IEA statement said.
The civil society organisation argued that Ghana’s current petroleum agreements, which it characterises as “colonial-era contracts”, have failed to deliver optimal returns for the country compared to alternative governance models used elsewhere.
Drawing on international comparisons, IEA highlighted the stark difference between the UK’s privatisation-led approach and Norway’s state-controlled model in North Sea oil extraction. Despite similar geological conditions and production volumes of approximately 42 billion barrels each, Norway generated US$29.8 per barrel in revenue by 2014 compared to the UK’s US$11 per barrel.
This disparity translated into total revenues of US$1.2trillion for Norway against US$470billion for the UK, with Norway investing proceeds into a sovereign wealth fund now valued at over US$1.4 trillion.
The IEA recommended a transition from concession agreements to service contracts similar to those employed in Norway, Saudi Arabia and several Gulf states, where private companies provide technical expertise while the state retains greater control and higher revenue shares.
“When the original Tullow agreement was signed, Ghana was a newcomer in exploration with limited bargaining power,” the statement noted.
“Now an established producer, Ghana must renegotiate from a position of strength,” it added.
The intervention comes as President John Mahama’s administration has signalled intentions to reform governance in the extractive sector, with IEA citing the ruling National Democratic Congress’s 2024 manifesto commitments to transparency and accountability.
Tullow Oil, which operates the Jubilee and TEN fields off Ghana’s coast through the West Cape Three Points and Deepwater Tano blocks, has not responded to requests for comment on the IEA’s recommendations.
The company’s Ghana operations have faced production challenges in recent years, with output declining from peak levels due to reservoir management issues and mechanical problems at key facilities.
The domestic petroleum sector has become increasingly important to the country’s economy since commercial oil production began in 2010, though revenues have fluctuated with global oil prices and production volumes.
IEA’s call for contract restructuring reflects broader debates across Africa about maximising benefits from natural resource extraction, with several countries having renegotiated mining and petroleum agreements in recent years to secure larger shares of revenues.
With 11 years remaining on Tullow’s current licence, the economic policy think-tank argued this represents an optimal window for converting existing arrangements to service contracts that would deliver higher returns to the state.
