IFC oil-projects in Ghana

Briefing for the NGO and WB Executive Directors’ meeting, 17th March 2009

In June 2007 exploration led to the discovery of the oil-field 'Jubilee' off the cost of Ghana. Kosmos Energy wants to invest 850 mn USD and Tullow Oil wants to give 1.2bn to the overall project costs of 3.2bn USD. In late February IFC’s board has decided to provide 100mn USD for Kosmos and 115mn USD for Tullow.

Before that decision was made NGOs have conveyed several concerns regarding this project. First, although Ghana recently managed peaceful transition of power, we have doubts whether there's adequate capacity of governance in place to handle the oil project and its revenues. Second, there are concerns about environmental and social issues. IFC only rated the projects as 'B'. And third after looking into IFC’s project pipeline we think that IFC still prefers fossil fuel projects.

The IFC board has decided positively after IFC had issued a statement that answered to NGO concerns. We feel that our concerns haven not been addressed properly.

Governance IFC acknowledges that the potential emergence of a large oil and gas sector does pose new political, regulatory, and governance challenges for the country. And they say that the World Bank actively engaged in helping Ghana to deal with these challenges. Ghana currently is getting assistance from several sides in writing its oil legislation.

The fundamental problem we see is that once again oil production starts in a large scale without the proper governance in place beforehand. The EIR identified sequencing of governance and production as one crucial issue. Here again IFC is just confident that everything will work out fine. That assumption went terribly wrong in Chad and has the potential to endanger the relatively stable political situation in Ghana.

We also think it is not enough to refer to the transparency requirements of a draft law. Although the companies have to disclose their payments to the government of Ghana under IFC regulations, it is also crucial that the public knows the contracts. A vague reference to parts of them already being in the public domain is no sufficient and regular disclosure. The World Bank for example doesn’t refer to leaked documents in connection with its own disclosure requirements.

The fact that the revenues will be 7-9% in Ghana’s government revenues as far as IFC guesses shows that the definition of a ‘significant project’ in this context should be altered as soon as possible. Ghana is lucky to have diverse sources of revenues. Nevertheless the extractive sector should be seen as one. Ghana’s revenues from mining and oil are very significant and all projects should be fully transparent.

Categorization The European Bank for Reconstruction and Development, most of all export credit agencies as well as several public and private banks regularly rate projects fort he extraction of petroleum and natural gas for commercial purpose as category A.

NGOs argue that the newly developed Jubilee field could significantly and adversely affect the marine environment including endangered species, coastal communities and economic enterprises. So the project meets the definition for category A in IFC’s policy on categorization. There’s no real substantive answer to that by IFC. The categorization of projects is a constant point of discussion and should be one of the issues under special independent scrutiny during the three-year-review.

Timing of EIA completion IFC argues that they reviewed the available documentation on the environmental and social assessments and determined that it was appropriate to allow IFC to assess the project risks. Meanwhile, there was neither a complete Environmental Impact Assessment nor even a complete baseline studies by the time of this decision. We doubt that financial assessments, that are only half-assessed and partly incomplete, would also lead to a positive proposal from IFC management. NGOs have clearly pointed out that without a baseline study and complete Environmental Impact Assessment this determination is arbitrary and lacks credibility. IFC’s reaction is astonishing, because they said in their board memo that they reviewed a baseline study that their other published material said does not exist. If it does exist, why was there no disclosure of that material? How can there be informed discussion and decision when crucial data aren’t publicly available?

Technical issues IFC’s arguments in favour of a second-hand single-hulled tanker converted as FPSO are questionable. A single-hulled tanker converted to an FPSO is dangerous because this is not the purpose the tanker was designed for, and there can be problems of metal fatigue, which can lead to a spill. There’s also the danger of an oil spill through collision with another vessel. An FPSO will be approached for loading/unloading by other ships in a high frequency. So the danger is much higher than with a tanker that’s just travelling on the ship routes and is entering a harbour after a longer journey.

Also the re-injection of drilling also is not sufficiently addressed in IFC’s response. Their remarks are even contradictory because first they argue that due to geological conditions there will be no re-injection and a paragraph later the state the possibility of re-injection of produced water.

Several of our concerns haven’t been addressed and still are pending like the assessment of oil spills, the inadequate assessment of cumulative impact etc.

Development and climate concerns We question whether the proposed investments are consistent with the worldwide efforts to fight climate change. The US ED at the ADB recently said in a board statement on their energy strategy: “The R-Paper should … generally preclude the ADB from financing coal-fired capacity in a country using a technology that has already been financed domestically in that country. Similarly we propose that the R-Paper limit ADB financing for oil- and natural-gas-fired power generation to situations in which private finance has been shown to be unavailable.” This is an approach that is relatively new for the US, but should also be considered by European shareholders of IFC.

The companies that operate the project in Ghana are heavily backed by investment firms like BlackRock, Blackstone etc. In the case of Kosmos Energy there's also the issue of potential tax evasion, because according to IFC's project summary "Kosmos Energy Ghana HC (“Kosmos” or the “Company”) is indirectly wholly owned by Kosmos Energy Holdings, a privately-held Cayman Island company." So IFC provides a relatively small chunk of the investment for a company located in a tax haven.

When we look at IFC’s pipeline we find two other fossil fuel projects that have just been disclosed. A crude oil fed power station in Colombia and the development of an oil field in Albania. Both projects are backed by private equity firms.

On the background of the financial crisis we question that it is wise to go on with business as usual in IFC’s approach to equity funds. Equity firms and funds have been one source and first victims of the financial meltdown. IFC’s constant engagement in this area should be reviewed independently both for its development effectiveness and its financial returns. A recent report by ADB’s independent evaluation body shows serious flaws in ADB’s equity management.