Ghana Gas’ response to ACEP

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Our attention has been drawn to comments made by policy think-tank the Africa Centre for Energy Policy (ACEP), calling on government to halt its plan to make the Ghana National Gas Company (GNGC) a gas aggregator because it lacks the capacity to do so.

In a statement issued in Accra by the Head of Corporate Communications of Ghana Gas, Ernest Kofi Owusu-Bempah Bonsu said it was under the impression that ACEP is arguing for restoration of GNPC’s role as the Gas Aggregator, but eventually concludes with a recommendation that GNGC should be made a subsidiary of GNPC!! They rely on the Gas Master Plan and GNPC’s ‘Balance Sheet’ to support their recommendation.

We want to use this opportunity to address some of the concerns raised by ACEP which were published in the May 26, 2020 edition of the B&FT.

Below the full text of the response

1.0 General information

First of all, here is some general information to note about the Gas Industry.

  • The Gas Industry in Ghana is only 5 years old.
  • The life of a gas infrastructure project could be as long as 40 years, and this could be longer with prudent maintenance protocol. The EPC (Engineering, Procurement, Construction) & Financing phase may take only 2-4 years and the Operations and Maintenance phase takes the remaining 36-38 years.
  • Ghana Gas’ core business has three key components – Daily Operations, which takes about 80% of the lifecycle time; periodic Maintenance, which takes about 10% of the time; and occasional Expansion, which takes the remaining 10% of the life-cycle time. So, Ghana Gas’ key job description is to deliver gas for Power generation for Ghanaians, through reliable and uninterrupted operations. Not necessarily expansion projects.
  • It is important not to base lasting policy decisions, including Institutional Arrangements, just on ability to finance new facilities or expansion of existing ones or an organisation’s balance sheet as suggested by ACEP.
  • Gas Master Plans (GMPs) are meant to address two issues: Design Optimisation and Operational Optimisation. The current Gas Master Plan addresses only the former. The Ghana Gas Team and its counterpart from Trinidad and Tobago have addressed the latter. Furthermore, a GMP is also a working document that requires regular update.

2.0 History

 Let’s start with the historical context.

  1. In October 2014, the then Minister of Finance, in his budget presentation to Parliament, announced the merger of GNPC and GNGC. The primary reason presented by the minister was to enable GNGC use GNPC’s balance sheet to facilitate access to capital for any future expansion of its facilities. The then Board Chair of GNGC publicly denounced the merger and never signed off on it; and together with other board members resigned. It must be noted that this was over two years before the government changeover in Dec 2016 and completion of the Gas Master Plan, and not 6 months.

 

Since the ‘marriage of convenience’ which has its primary objective as financial support was not realised, GNGC relies on its own Internally Generated Funds (IGF) for working capital and has been using different commercial vehicles to finance expansion projects. In effect, to date, there has been no functional or financial relationship between GNPC and GNGC to justify the merger.

 

  1. Following the Minister of Finance’s presentation to Parliament (in October 2014), the Minister of Energy, followed with a directive in April 2015, designating GNPC as the Gas Sector Aggregator – in which capacity GNPC was to be the sole buyer and seller, and therefore the sole shipper of bulk natural gas; and was to enter into all upstream and downstream Agreements in the discharge of its duties. The Minister of Energy further directed that BOST be made the pipeline operator in the country, and was issued a licence by the Energy Commission accordingly.
  2. So, essentially, the then Minister of Finance made GNGC a subsidiary of GNPC in October 2014; and the then Minister of Energy made GNPC the Gas Aggregator in April 2015. All this happened before the Gas Master Plan was completed in December 2016.

 

In effect, we had a disintegrated gas sector – part was with GNPC, part with BOST and part with GNGC. In October 2017, the current president took the first step toward integrating the gas sector and appointed new Board of Directors for GNGC with no representation from GNPC. The National Gas Transmission Utility (NGTU) licence was also reissued by the Energy Commission to GNGC, and withdrawn from BOST. The Ministry of Finance subsequently transferred all of GNGC’s share to the Ministry of Finance (now transferred to SIGA).

We believe ACEP does not want us to undo this and go back to the 2014 era.

3.0 specific comments by ACEP

Let’s look at the specific issues raised by ACEP.

3.1 Gas Commercialisation

GNPC had the Gas Project from 2007-2011. Then GNGC picked up the Gas Project in July of 2011 and had all the infrastructure mechanically completed in November, 2014; and fully commissioned in April, 2015.

It is also worth noting that the financing was provided by the China Development Bank (CDB) facility and not GNPC’s ‘parental benevolence’. Another noteworthy point is that the Jubilee partners provided ‘free gas’ to help defray costs of installing the gas infrastructure.

3.2 GNPC has a Better Balance Sheet

“GNPC can use its Balance Sheet to Finance GNGC’s Projects,” ACEP.

This is not a good or sufficient reason for making GNGC a subsidiary of GNPC. The fact is, both GNGC and GNPC have one parent – the government of Ghana (GoG). It is the GoG that affords both agencies the security for any financial transaction in the sector.

3.3 Gas Master Plan Recommendation

ACEP should consider checking recommendations of the Gas Master Plan (2016) again. A gas masterplan is essentially a composite document that provides a roadmap for achieving the most cost-effective solution for infrastructure design (Design Optimisation) based on gas supply and demand forecasts; and minimisation of operating cost for operational planning (Operational Optimisation).

It is indeed a working document that needs regular updates as conditions change, particularly the supply and demand forecasts. The 4-year-old GMP is hardly fit for purpose and requires an update. For instance, none of the supply and demand data are applicable. The infrastructure plan is also obsolete and needs revision. However, some of the recommendations and procedures are still worth considering. It will also require an expanded scope to include operational optimisation.

Let’s look at the exact wording of the current GMP with respect to Institutional Alignment, as presented in the executive summary and detailed in section 7.2.1 of the report’s body.

The recommendation is simply to adopt the Turkish model of Botas Gas Company.

This is what it says:

“It is recommended that the approach adopted in Turkey, which involved the petroleum pipeline company Botaş – a subsidiary of the state petroleum corporation TürkiyePetrolleriAnonimOrtaklığı (TPAO) – being the sole developer and operator of Turkey’s gas transmission and distribution infrastructure, is also appropriate for Ghana’s gas sector; at least, in this early stage of development. Botaş acted as gas aggregator and wholesaler, and was the entity that invested in and operated an expanding national transmission and distribution pipeline system. 

“In Ghana’s case, this role can be divided between GNPC and GNGC, whereby GNPC will be the aggregator and wholesaler of the gas and GNGC, as the wholly owned subsidiary of the GNPC, will be the owner and operator of the infrastructure…

“As the sector matures, the GoG may consider unbundling the services along the gas sector value chain”. 

Thus, contrary to the assertion made by ACEP, the recommendation of the GMP says:

  1. The approach adopted in Turkey, where Botas is the sole infrastructure developer and operator, aggregator and wholesaler. This is an Integrated Operation.
  2. We can unbundle these aggregated functions and divide them between GNPC and GNGC.

Reason given: To improve sector coordination and facilitate investment and financing.

So, item a) above clearly speaks to an integrated system as proposed by Ghana Gas. Item b), however, speaks of a segregated system.

ACEP’s recommendation goes back to a subsidiary arrangement that the current government changed 3 years ago.

The reasons provided as noted above are two-fold: to improve sector coordination and facilitate investment.

First of all, the case for improved sector coordination envisaged by the GMP has not happened from an operations continuity viewpoint.

Let’s look at a practical operational case that occurred on 25th April, 2020. There was an operational upset at ENI’s Onshore Receiving Facility (ORF) in Sanzule. GNGC Operators, VRA Operators and ENI Operators were all in the operation zone in the western region, but had to wait for GNPC’s Commercial Manager to give approval from Accra before the very important work of contiguous gas delivery for power generation could go on. This could have affected 60% of the country’s power generation, and is hardly an efficient coordination.

The other reason of investment facilitation has also not materialised for 5 years. So, there is clearly no reason for a subsidiary arrangement – if that was even a valid criterion.

  • OCTP Expansion of the Takoradi and Tema Regulating and Metering Facilities

The first phase of the Takoradi Tema Interconnection Project (TTIP) was completed in August 2018, and this allowed reverse transport of gas from Takoradi to Tema via WAPCo’s system. The second phase, which expands WAPCO’s gas handling capacity in Tema, is expected to be completed in June 2020. The project was pre-financed by the OCTP partners (where GNPC holds a minority stake) as part of the Sankofa project development cost, which ultimately is being paid through increased gas price by end-users. This was a condition precedent in the OCTP contract. The total project as at 30/3/2020 was US$178m, US$56M (30%) of which was expended on GNGC’s facility in Aboadze. This is the extent of indirect contribution by GNPC to GNGC.

  • Gas Price

The current ENI commodity price submitted by GNPC and the ministry to PURC for computation of the Weighted Average Cost of Gas in the country is US$6.1408/MMBtu (equivalent to US$31M/month for a supply of 170,000 MMBtu/d for 30 days), when it really should have been around US$9.59/MMBtu (equivalent to US$49M/month, for a supply of 170,000 MMBtu/d for 30 days). This means the Ministry of Finance has to make up the shortfall of about US$18M/month for GNPC. Thus, even with the GNPC’s balance sheet that ACEP is touting, it has to seek financial rescue from the Ministry of Finance every month.

3.6 Capacity to Manage Gas Projects

It is not clear which gas projects ACEP is referring to that GNPC has managed and acquired the requisite capacity. But for a certainty, here is the list of projects managed by Ghana Gas:

  1. Jubilee-Atuabo offshore gas gathering pipeline: This is a 12-inch diameter, 59 km offshore pipeline from the Jubilee oil & gas field’s FPSO to the Atuabo Gas Processing Plant. The pipeline has a deep-sea portion of 14km, and shallow water component of 45 km. This pipeline brings raw gas from the Jubilee field for processing onshore at the Atuabo Gas Processing Plant. Completed in 2013, the pipeline is owned and operated by the GNGC.
  2. Atuabo Gas Processing Plant: The plant has a design capacity to process 150 mmscfd of raw gas into lean gas and Natural Gas Liquids (LPG and Condensate). The plant is owned and operated by the GNGC.
  3. Atuabo-Aboadze onshore transmission pipeline: This is a 20-inch diameter, 110km onshore gas transmission pipeline to bring the lean sales gas from Atuabo to Power plants at Aboadze. This pipeline, completed in 2013, has a design capacity of 400 mmscfd.  The pipeline is owned and operated by the GNGC.
  4. Associated gas infrastructure for metering and distribution – this includes an Initial Station at Atuabo, a Distribution Station at Esiama (the start of the branch line to Prestea), and a regulating and metering station at Takoradi.
  5. Essiama-Prestea lateral pipeline regulating and metering station – this is a 20-inch diameter, 75km long lateral pipeline connecting Essiama to Prestea.

Furthermore, since March 2017, Ghana Gas Engineers & Technicians assumed full operatorship of all the infrastructure, saving the country GH¢15M/month in operating cost.

3.7 Gas Processing Plant Expansion

ACEP also contends that expansion of the Gas Processing Plant is 6 years behind schedule.

That simply cannot be possible. Even the first plant, currently in operation, was commissioned 5 years ago (April 2015). How can the second plant be 6 years late? Thus, ACEP expects the second plant to have been in service a year before the first!

  • Consistency with World Models

The fact is the National Gas Company of Trinidad and Tobago is an integrated gas company with aggregation, shipping and operation as core mandate. The processing function is performed separately by NGC’s subsidiary Phoenix Park Gas Processing Ltd. (PPGPL), which concentrates on the separation and fractionation process. This is simply because the processing operation has grown very large and it makes sense to unbundle it from the transportation unit. But it still remains a part of the national gas company, NGC. Indeed, PPGPL’s operation is 13 times bigger than that of Ghana Gas, with capacities of 1950 MMscfd and 150 MMscfd respectively. This clearly underscores the point that you bundle the services (processing and transportation) when operations are small (typically in the early stages of operation for efficiency reasons), and you can unbundle when there is significant growth in operations.

The Trinidad Gas Model has been so successful that it has been the template for development for most emerging economies (not the Turkey model, as suggested in the GMP).

Finally, we encourage ACEP to work with all stakeholders in development of the gas sector and provide meaningful suggestions they have to the appropriate ministry.

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