Kojo Bentsi-Enchill, Senior Partner and Head of Energy & Natural Resources, Bentsi-Enchill, Letsa & Ankomah, on oil-backed borrowing

Lenders need to take into account recent legislation affecting security interests over oil and oil revenue.

PETROLEUM REVENUE MANAGEMENT ACT: Security interests for lenders can only be created after Ghana’s petroleum revenue has passed through the Petroleum Holding Fund (PHF), created under the Petroleum Revenue Management Act, 2011, Act 815 (PRMA), and the consolidated fund. The PRMA provides that petroleum revenue be paid directly into the PHF. Where the loan facility includes offtaker agreements providing for the lifting and sale of oil by a specified party, the payment mechanism is the same. All revenues must be directly paid to the PHF. The only exception to this – the National Oil Corporation’s equity financing costs – needs to be expressly approved by the government.

From the PHF, the annual budget amount goes into the consolidated fund. It is then directed into debt servicing and collection accounts at specified banks. It is for these accounts that security is created.

The PHF is the property of the Republic of Ghana and the law prohibits borrowing against and the use of the PHF as collateral for debts and guarantees of any kind. Disbursements from the fund can only be made to the consolidated fund, the Ghana Stabilisation Fund, the Ghana Heritage Fund and certain special exceptions. It cannot be attached by the courts, and any contract encumbering the fund by way of guarantee, security or mortgage is null and void.

The net result is that the initial flow of oil revenue is out of reach of lenders and security interest. Collection accounts, debt service reserve accounts and the like can only be created after the oil revenue has passed through the government’s coffers.

PETROLEUM COMMISSION ACT & GNGC: The notable development in the case of the Ghana National Gas Company (GNGC) is the absence of legislation. The GNGC, a 100% state-owned LLC, has been incorporated as the body responsible for natural gas projects. Its creation is a de facto invasion of Ghana National Petroleum Company’s (GNPC) jurisdiction. As a matter of law, however, no amendments have been made to the petroleum law’s definition of crude oil and gas or a combination of both. Thus, financial transactions involving GNGC require GNPC’s permission to be legal. Meanwhile, GNPC’s regulatory control over gas has essentially been taken over by the Petroleum Commission. SUPREME COURT & INTERNATIONAL BUSINESS TRANSACTIONS:In Attorney-General vs. Balkan business and economic transactions need parliamentary approval and left it to the attorney-general to develop guidelines on what constitutes a major transaction. In addition, under article 181, parliament must approve of loans between the government and international lenders. However, oil-backed loans to the government that are not considered major transactions do not need parliament’s consent, though it is hard to conceive of loans that would not be deemed major transactions.

According to article 268 of the constitution, parliament must approve of all petroleum agreements as dispositions of natural resources. However, concerns have been raised over regulatory delays relating to the granting of consent for the disposal of participating interests and assignments, directly or indirectly, wholly or partially in petroleum agreements. This has been illustrated by the government’s withholding of consent to the security package for refinancing to Kosmos Energy to gain leverage in their dispute.

Furthermore, the draft Petroleum Exploration and Production Act (PEPA) states that a petroleum agreement allows for the financing of petroleum operations with loans from third-party lenders, which will then be considered sub-contractors and is therefore subject to the withholding tax on the interest payments. The interest rates for the loans shall not exceed the lowest market interest rates available for these loans. In addition, the government has the right of first refusal to acquire, at a fair market value, a contractor’s participating interest in a petroleum agreement. The PEPA, however, had yet to pass through the parliament as of August 2012.