May 4, 2018//-There are currently four regulatory bodies to regulate different functions, companies and institutions of the energy sector.
Time has now come to reflect on if Ghana needs four regulatory bodies or can manage with less number.
After reviewing two documents, Advisory Briefing Paper on Gas Sector Regulations in Ghana by USAID submitted in April, 2015 (Consultant Nexant) and Gas Master Plan for Ghana by Economic Consulting Associates in June, 2014 here are my recommendations and comments.
While studying the regulatory scenarios of other countries – both developed and developing- is useful, we need to consider Ghana’s specific conditions in terms of the stage of Ghana’s energy sector development, competence and expertise of professionals available in Ghana, political, economic and social environment in Ghana.
After considering these factors, I am of the opinion that just two regulatory bodies – one for Petroleum sector (Oil and Gas) and second one for all aspects of Energy Sector excluding petroleum sector. I would have preferred just one super regulatory body for the entire energy sector.
However, considering the complexity and almost full-time aspect of monitoring the nascent oil and gas sector, I opted for two bodies.
Today there are four regulatory bodies and their functions are summarized below.
1. Petroleum Commission which regulates technical aspect of upstream.
2. National Petroleum Authority regulates economic and technical and economic aspects of downstream.
3. Public Utility Regulatory Commission regulates economic aspects of midstream and downstream.
4. Energy Commission regulates technical aspects of midstream and downstream.
While analyzing the functions of four regulatory bodies, it becomes apparent as described in both the documents (specially in Advisory Briefing paper) that today some functions overlap and can give rise to confusion and contradiction.
Since the size of Ghana’s energy sector is not huge and relatively easily manageable, there is no need to burden the economy with several regulatory bodies and also as mentioned earlier Ghana at present does not have the luxury of competent professionals to manage them.
I suggest the following two regulatory bodies for Ghana’s Energy Sector.
1. Petroleum Commission (PC) to regulate and monitor all the technical, economic and commercial aspects of upstream and midstream. They will be in charge of PSAs for oil and gas.
2. Energy Regulatory Commission (ERC) to regulate the rest of Energy sector excluding the regulatory functions reserved for PC.
There are several benefits by having just two regulatory commissions for Ghana. We will reduce the number of regulators and professionals to manage the functions of two bodies efficiently in comparison to manage four such bodies. Division of labor between technical and economic functions will also lead to develop greater expertise and competence to carry out the responsibilities assigned to the two regulatory bodies.
We will avoid the present overlap of functions by having just two bodies.
We will improve the productivity of the regulatory institutions by having two instead four since the amount of work needed to regulate the energy sector of Ghana is not so enormous to have four such bodies.
To avoid likely conflict of interest and also to streamline the regulatory functions, all the regulatory functions concerning environmental protection should be done by the ministry in charge of environment.
Since environmental protection requires special expertise, Petroleum Commission should not be burdened with that function.
It is true that the oil companies would prefer working with one ministry or body to facilitate faster decision making and also to secure needed permits, in this case it is better to assign environmental protection to a ministry which specializes in that.
Environmental protection being an extremely critical and strategic topic there should be no compromise in the name of expediting the permitting process or simplification of complying with and monitoring of environmental rules and regulations.
2. No need for complex regulatory system for gas sector.
Since the largest gas market is in power sector and remaining small share is in industrial gas sector, fixing gas prices for these two sectors will not be a complex exercise. Once there is agreement on what prices to pay for producers which is more or less arrived at by looking at the fuels used by consumers, fixing a fair price by regulators to consumers is straight forward.
Estimating cost of gas processing involves some data gathering regarding investment costs, operating and maintenance cost of the processing plant, and revenues to be obtained from marketing LPGs. Estimating transportation through pipeline cost is by this time a standard process for regulatory bodies well trained in regulatory functions.
The political input required in both cost element is what rate of return to be used to estimate the capital cost. Even here there are standard processes to estimate such rate of return. In short this is a simple and straight forward process which does not need enormous man power or efforts.
3. Why do we need investment to monetize gas production through LNG?
It is not clear why we need to lease floating liquefied natural gas (LNG) plant to move some of the future gas production, LNG receiving terminals and regasification plant onshore. Is it uneconomical to transport gas through pipeline as in the case of Jubilee? If it is the case, I can appreciate the need for LNG related investment. GMP does not discuss the economics of adapting LNG route to monetize some of the future gas monetization.
4. Can we update Oil Value Chain model developed for Ghana’s energy sector in 2009/10?
While studying human resources requirement for Ghana’s oil and gas sector as part of a USAID project in 2010, I had developed an Oil Value Chain model for Ghana’s energy sector.
It was presented to Energy Commission. Such a model gives an estimate of the total value generated in Ghana’s upstream, midstream, refining, marketing, and power sectors. It also gives the total government revenues from these different energy sectors.
Such a model helps the petroleum, power and finance ministries to assess the efficiency of different pricing policies (what price to pay for gas, oil prices to be paid to producers, oil prices to be charged to refiners, impact of subsidies on different petroleum products, price to be charged to different power sector users etc) and also to find out the quantum of revenue leakages. Information on the latter helps the government to plug the leakages and help improve government revenues from energy sector. From just one page, it is possible to learn about the cashflows of different energy sectors.
An oil value chain model can help the government to improve transparency of energy sector. It shows how much revenues should be generated on a normative basis and what actually is generated.
Such a comparison will show revenue leakages and will force the ministry or department concerned to remedy the problem. The model also helps the regulatory bodies to assess the economic consequences of their decisions and help them to improve their operations.
By Bhamy V. Shenoy
