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Reflex Eco Group – Ghana News

Antony Sedzro (Local journalist)

sedtony@yahoo.com

Introduction

Ghana discovered oil in 2007 and actual production started in 2010 at Jubilee field in the Western Region, which is about 290km from the capital, Accra. The lead operator on the field is Tullow Ghana Limited with other partners being Kosmos Energy, Anadarko Corporation, Sabre Oil and Gas (a wholly-owned subsidiary of PetroSA) and GNPC. The field currently produces about 110,000 barrels per day (bpd) with one vessel-the FPSO Kwame Nkrumah.

Since then, a lot of other discoveries have been made on the Jubilee field. The Ghana government in May this year approved a second field-the Tweneboa-Enyenra-Ntomme (TEN) project. It will also be operated by the Jubilee partners and when it comes on stream, the partner’s estimate it will produce 80,000 bpd.

According to the lead operator in the field Tullow Ghana Limited, the development of the TEN Project will require the drilling and completion of up to 24 development wells which will be connected through subsea infrastructure to a Floating, Production, Storage and Offloading vessel (FPSO).

All these upstream activities require heavy project financing before the first oil from the field is poured in 2016, as planned. It is reputed that the Jubilee partners will spend a total of $4.6billion dollars before the first oil can be poured from the TEN field. If true, this figure could be far more than the total asset base of Ghanaian banks put together. The Jubilee field infrastructure was secured mainly through international banks and other finance sources.

Secondly, Ghana whose economy is set to grow at around 7.5% this year, is building a Gas Processing Plant in Atuabo in the Western Region, about 290 miles from the capital, Accra. The total cost of the project is put at $980million and is being funded by the Chinese government through the China Development Bank (CDB). The project has delayed many times due to funding issues. Ghanaian banks were not involved in the financing ostensibly due to the substantial amount involved.

Funding infrastructure in the hydrocarbons industry (oil and gas) is very capital intensive. For instance, Shell Nigeria projects to

Banking Sector

There are 27 universal banks in Ghana at the moment with fewer than ten being Ghanaian-owned. The rest are from other African countries notably Nigeria with the rest of the banks being foreign owned.

The Bank of Ghana increased the minimum capital requirement for all banks to GHC60million ($29.4million) in 2012. The foreign owned banks easily met this requirement because they received money from their parent banks. Although some of the indigenous banks met the minimum requirement early, others struggled and had to fall on capital placements from foreign sources before satisfying the requirement. A few takeovers and mergers took place like Access Plc acquiring Intercontinental bank, Ecobank Transnational took over TTB and Bank of Africa buying out Amalbank.

But Ghanaian banks lose out on big-ticket deals in the oil and gas industry due to their smaller scale and size.

Indigenous banks do not have bigger scale in terms of capital and asset size. This means whenever there is the need to undertake big-ticket transactions like funding the annual Ghana COCOBOD cocoa purchases or the mining sector or energy projects, the foreign-owned banks dominate.

Some of the reasons so far available for this problem are:

  • Low capital base/capacity of the indigenous banks
  • Capital-intensive nature of the oil and gas sector, especially Deepwater exploration. Jubilee partners’ supposed $4.6billion investment on the TEN project is an example.
  • Long lead time/gestation period between licensing, exploration and actual production of oil discourages banks from long-term project financing. Shell Nigeria estimates that it takes between 10-50 years between when a company is licensed to when actual oil production takes place.
  • Banks have short term focus and cannot fit in with oil sector’s long gestation period. They thus focus on government securities like bonds and treasury bills, and secured commercial loans to the formal sector.

 

What is being done about it?

The Bank of Ghana, the industry regulator, last month announced that the minimum capital requirement for new banks will be increased from GHC60million ($30million) to GHC120milion ($60million) henceforth.

This year, major international banks such as Citibank and JP Morgan indicated that they will open office in the country. This is a good development but these international banks should also invest in local banks or takeover some of them. This is because the banking industry is one of the most profitable industries in the country. The annual results of many banks released this year showed that many banks made over 100% profits. Ghana Commercial Bank for instance made a record 500% profit in the past year.

As the country’s economy, the second biggest in West Africa, starts to grow, the financial sector will play a major role and banks with big balance sheets stand to be the biggest beneficiaries.

 

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