26
Wed, Sep

GNPC SAVES GHANA OVER $20M NO LOSS OF $9M FROM OIL PRICING

Business & Economy

Checks by the Daily Statesman show that the country has not lost any revenue through the sale of the TEN crude oil, as suggested by media publications emanating from a letter from the Ministry of Finance. The letter had sought explanation about the pricing options adopted by the Ghana National Petroleum Corporation for the sale of the crude oil.

Checks by the Daily Statesman show that the country has not lost any revenue through the sale of the TEN crude oil, as suggested by media publications emanating from a letter from the Ministry of Finance. The letter had sought explanation about the pricing options adopted by the Ghana National Petroleum Corporation for the sale of the crude oil.

 

Also, the paper can state that the pricing method adopted by the GNPC was approved by the previous board, and used by Alex Mould, immediate past Chief Executive of the Corporation.

On the contrary, available facts rather show that through the prudent measures adopted by the current GNPC management in executing certain transactions, the nation is saving a whopping amount of over $20million.

This has been brought to the fore by a response to the letter from Finance Minister Ken Ofori Atta to GNPC Chief Executive Officer K K Sarpong, seeking clarification on the pricing option for the sale of the TEN crude oil.

Meanwhile, the Daily Statesman is reliably informed that authorities at the Finance Ministry are now fully satisfied with the detailed explanation from the GNPC boss to the concerns raised.         

                                                                                                           Minister’s letter

“The ministry has observed with great concern that the achieved price for the Ghana Group’s crude oil has fallen short of expectation, in comparison with Brent oil prices, sources from Bloomberg.

“For the TEN field, GNPC gives the offtaker the option to choose whichever 5-day moving average of prices to use for determining the value of the cargo. This price is determined within 30 days before the Bill of Lading (B/L) date. GNPC`s letters regarding TEN lifting states the price determination thus, ‘Any 5 consecutive quotations within a period commencing 30 quotations prior to Bill of Lading.

“This has given the offftaker, the latitude to choose lower prices of value TEN crude oil. Our analysis reveals that, in 5 out of 6 cases, TEN crude oils was priced lower that the lowest possible Brent crude oil price based on different 5-days moving average within the 30-days window before the B/L date. All lifting except the 5th, were affected by this low pricing phenomenon. The potential loss, based on the low case scenario, is approximately US$9.83 million.

“If GNPC had insisted on the highest possible price within the pricing window, the state would have gained a total of US$34.12 million more, as shown in Table 1. High case price scenarios yielded price variances between US$0.76/bbl and US$8.80/bbl. A total of US$8.76 million was lost to the state on the 3rd TEN transaction, for example,” the letter addressed to the GNPC boss in July stated.

                                                                                                           GNPC responds

In a 44-paragraph response sighted by the Daily Statesman, the GNPC explained that the Bloomberg source that was used as a reference by the Finance Ministry “is NOT a reference for trading crude oil by the GNPC and indeed producers/traders.”

The response drew attention to the fact that GNPC’s “crude oil prices is Platts Crude Oil Marketwire”, explaining that the prices quoted in the ministry’s letter could not be traced in it.

The letter further explains that since the TEN crude oil trades at a discount, “the Achieved Price” communicated by GNPC is net of this differential, and includes a fee for exercising that option.

“Your analysis appears to have ignored the discounts in respect of the TEN and SGN crude oils and therefore over estimated your calculated ‘losses,” the letter stressed.

It added that the “losses” alluded to by the Finance Ministry’s letter assumed “erroneously that GNPC is able to select the highest priced out pricing option ahead of time and impose on the buyer.”

                                                                                                         Review of pricing

Oil production from TEN started in August 2015, and as at April 2018 six parcels had been lifted by Springfield, Glencore and Litasco. Following the first lifting when crude oil prices had turned upwards, a further review of the pricing methodology was negotiated with Litasco.

The Litasco transaction covered supply of 60,000 metric tonnes of Heavy Fuel Oil (HFO) per month to Karpowership barge; procurement of two bank guarantees totaling $179 million on behalf of ECG in favour of Karpowership; and a loan of $100 million to BOST.

The rationale behind entering into the first two transactions, our checks show, was to avoid ‘dumsor’ at the time. Also, the BOST loan was needed to pay overdue debts and to avoid default that could damage the country’s image in the international financial market.

                                                                                                        Over $20m savings

The benefits that have accrued to the nation from the Litasco transactions include supply of HFO at a competitively priced premium of $6.5 per metric tonne for an annual supply of about 720,000 metric tonnes.

According to GNPC’s response to the minister, “Annual savings of USD1.8 million will be made at such price premium compared with previous supply by Trafigura.”

Another benefit is the provision of two guarantees that amount to $179 million at a cost of 3.25% per annum compared to 9% per annum charged previously, bringing an annual savings of $10.3 million.

There is also the financing cost of 5.25% (APR) on the $100 million loan to BOST. This is very competitive when compared to similar loans secured by government entities priced at 9% or more. This effectively results in savings of about $8.25 million over the two-year tenor of the loan.

Follow Us