Alex_Mould_on_why_Ghana_is_richer_in_natural_resources_yet_poorer

Ghana Richer In Natural Resources Yet Poorer-Alex Mould

Ghana is said to be one of the nations in the world endowed with natural resources which could make its citizens richer and be among the category of developed nations like Malaysia, Singapore, Turkey, Brazil among others, yet the story is differently told since the start of resources extraction

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A former Chief Executive Officer (CEO) of the National Petroleum Corporation () and energy expert, Mr Alex Mould has offered some perspectives as to why he thinks Ghana is richer in natural resources but poorer.

In a Facebook post reacting to an article recently published by the Institute of Economic Affairs (IEA) on the subject, “Why is Ghana so poor yet rich underneath the soil,”

Mr Mould argued that for anyone to call on the government of Ghana, which is holding all natural resources in trust, to ask for more proceeds or stake from the operators and partners of the oilfields, “one needs to appreciate and understand the economics of and exploration.”

He said most production profiles fall after five to 10 years.

The argument

Ghana for centuries has been extracting natural resources commonly gold, diamond, bauxite and salt.

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This phenomenon, according to the arguments has aggravated many concerned energy experts, developmental economists and ordinary citizens to put pressure on governments’ and office holders.

Ghana is said to be one of the nations in the world endowed with natural resources which could make its citizens richer and be among the category of developed nations like Malaysia, Singapore, Turkey, Brazil among others, yet the story is differently told since the start of resources extraction.

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IEA’s suggested solution

The IEA, therefore, sought to raise very critical issues that need governments’ attention and profiled solution on how to maximize gains from oil and gas industry.

It stated that on February 14, 2019, the Ministry of Finance announced what is described as the biggest oil find in Africa, 450 million – 550 million barrels, with potential reserves of nearly one billion barrels of oil.

Fortuitously, this new “find” has occurred when Ghana has a President [Akufo-Addo] who has shown total disgust for colonialism and its underlying philosophy of extracting Ghana’s natural resources under insidious and oppressive contracts with a few crumbs left to the people of Ghana (the colony).

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The IEA added that at a recent meeting with the President of France, Emmanuel Macron, President Akufo-Addo indicated that this business of giving aid to Ghana while extracting its natural resources should stop.

He stressed the urgent need for Ghana to “go beyond aid” in its efforts to develop the economy. 

This new oil discovery provides our President with a “God sent” opportunity to change Ghana’s course of development for good. Recent studies have shown that with courage and wisdom, the new oil find can be used to create prosperity for Ghana, like Norway, a former fishing village or Dubai, a former desert village occupied by nomadic cattle herders, the IEA argued.

The IEA went ahead and suggested that Ghana requires a new model-contract which pays oil companies per barrel recovered from the ground or seabed. Like Qatar or Dubai, this model will provide huge foreign reserves for Ghana’s development.

Other poor African countries will learn and benefit from your [Akufo-Addo] example and leadership. This will be a mighty legacy, second to none

Read also: Why Is Ghana So Poor Yet Rich Underneath The Soil?

Mould’s perspectives

But providing an insight into the economics of the upstream oil and gas industry and why Ghana could not fetch more of the proceeds from the oil and gas production, Mr Mould, argued that, for anyone to call on the government of Ghana, which is holding all natural resources in the country in trust on behalf of Ghanaians, to ask for more proceeds or stake from the operators and partners of the oilfields “one needs to appreciate and understand the economics of oil and gas exploration.”

To him, to attract any investor into the industry, Ghana and the international oil companies (IOCs) need to agree on a rate of return that commensurate with the risk and which compares to similar projects around the world for which ‘these investor funds’ are chasing, that is, alternative investments.

“We need to be able to agree on the acceptable cost of development, how it is amortized over a specified period and the annual Operations and Maintenance (O&M) costs.

We need to then agree on a rate of return and how windfalls are shared, how and when these windfalls are reviewed.”

Prof Paul Collier’s point

The IEA article referenced a comment of Professor Paul Collier, the Director of the Center for the Study of African Economies at Oxford University at a recent lecture where he stated that the total cost of recovering a barrel of oil from the ground is about US$10. This includes exploration and other costs.

The former Director of Research at the World Bank, former Senior Advisor to Prime Minister Tony Blair on the Africa Commission, Prof.

Collier, advised that, “the only way poor African countries can turn their oil reserves into prosperity and develop first-class countries is by collecting the super profits called rents (US$65 – US$10 = US$55 per barrel); investing the rents into the future of their countries instead of allowing “foreign investors” to keep it.”

Mould’s counter

Apparently, Mr Mould an energy and financial expert hold a different view of the assertion of Prof Collier.

He explained that the US$10 cost, is an exaggeration and a simplification which may be related to the operational cost but “definitely not the complete cost especially in the first five years of the project.”

Alex_Mould_on_why_Ghana_is_richer_in_natural_resources_yet_poorer
Alex Mould

“Jubilee which is a world-class field, had a development cost of about US$12 a barrel and O&M cost of also about US$12, especially in the first five years (the recovery of the development cost was spread over five years), thus, making total cost was of about US$24/barrel for the first 5 to 6 years at least,” Mr Mould argued.

Additionally, the former GNPC boss said, each year thereafter there is continuous drilling to sustain production. Most production profiles fall after 5-10 years. Take for example the ENI-operated SGN fields. The production drops from 30,000 to 40,000barrels/day from inception to about 10,000barrels/day after five years.

That is why the economics is on the gas predominantly which remains at 170mmSCF over 20years.

In summing his argument, Mr Mould noted that, “you will need the production profile and the development /exploration costs as well as the annual O&M costs plus the incremental annual development cost over the life of the project to be able to know the split between government and Partners in Contractor group, in Ghana over the life of the field we approximate almost a 55/45% share respectively.”

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