The new government of Ghana has decided to save the country from further embarrassment by withdrawing a bizarre order issued by the former Energy Minister & Vice Presidential Candidate of the former ruling party, NPP.
The order aimed to compel Eni and Vittol, two international petroleum companies operating in Ghana, to merge their already-producing oil field with a green field owned by Ghanaian startup, Springfield. Springfield was then to take up 55% of the combined field.
The whole idea was a bit crazy as the international companies had invested more than $6bn in their oilfield, a portion of which had been guaranteed by the World Bank against political risks in Ghana. Ghana had also issued bank guarantees for certain portions of the field’s output.
Springfield’s oil field, on the other hand, had seen less than $100m of investment by the time the order to merge came, and there was insufficient proof that it even contained enough oil to be commercially viable. Data from a recent appraisal effort raised more questions than answers.
Merging these two very different fields and giving 55% to Springfield would not only have amounted to a forced transfer of wealth from one private business to another, it would also have shortchanged Ghana as the country’s own stake would also have been diluted to Springfield’s benefit.
You can read more about this analysis in essays I wrote a while ago, links to which are provided in the thread below.
With this ridiculous order now out of the way, we can have a strategic discussion about local content and local ownership. What can the government LEGITIMATELY and SENSIBLY do to support local companies like Springfield that seek to enter the upstream petroleum business?
In answering that question, we must bear in mind that such companies will still raise the bulk of their capital internationally and many would sell equity to international investors.
The days of PURE nationalism in natural resource ownership and management are quite behind us. There are international rules of capital that cannot be easily discounted. Smart countries combine nationalism with international business savvy to advance their interests.
Springfield, for instance, raised all the money it has spent so far on its Afina block from investors all over the world. Albeit with a strong emphasis on Dubai, Switzerland, and Russia-based brokers.
In some cases, future production output was reportedly pledged. How the company sorts out these investors and secure enough funding to stay in the game would likely depend on how attractive the investment climate in Ghana becomes.
In that sense, the protracted dispute was not even in Springfield’s own interest or in the interest of the local insurance and real estate tycoons, among others, who had been so aggressively lobbying the new government to continue down the same ruinous path as the old government.
Had the previous government been more receptive to counsel and objective analysis, this mess may not have been created in the first place and Springfield may have accepted some of the offers that came their way in the beginning.
Let’s see how things unfold in the coming weeks.
