RESOURCE NATIONALISM IN GHANA

UNCLAS SECTION 01 OF 03 ACCRA 002604

SIPDIS

SENSITIVE

SIPDIS

E.O. 12958: DECL: N/A
TAGS: ECON EINT EINV EMIN ENRG GH
SUBJECT: RESOURCE NATIONALISM IN GHANA

REF: STATE 150999


1. (SBU) Summary: Resource nationalism in Ghana has not been a major

concern for the extractive industries since the nationalization
of mining interests in the 1970s. The policy was reversed in
the l980s under the Rawlings administration. Per the 1992
Constitution, mineral resources are the property of the State
but development of those resources is not confined to
government entities. Private, foreign firms dominate the
natural resources sector and their participation is generally
welcomed with open arms. To the extent that there is debate
over the distribution of income derived from natural resource
exploitation, it is primarily generated by local communities
seeking their Qfair shareQ of profit from, or access to,
extractive activities. However, there is no apparent organized
pressure on the GoG to re-negotiate agreements with the
extractive industries. End Summary.

OIL
--------------

2. (SBU) The Ghana National Petroleum Corporation (GNPC) oversees
exploration and exploitation rights to Ghana's potential oil
and gas resources. The Petroleum Exploration and Production
law requires investors to provide GNPC a 10% stake in an
operation at no cost. In addition, firms pay a negotiated
royalty (generally between 4% and 7.5% depending on the level
of risk) on gross income and a 35% income tax on profits.
Ghana currently produces about 1,000 barrels per day through a
joint venture between GNPC and Lushann Oil, a U.S. firm. A
number of other U.S. firms have rights in offshore
concessions.


3. (SBU) Kosmos Energy shares rights to two offshore blocks where
commercial quantities of high-quality crude may have been
found. Kosmos is in the process of setting up a local office
and is extremely upbeat about the cooperation they have
received from the GoG. QI have never seen a place that has
wanted to do business so much,Q noted an executive from an oil
exploration and production company that is currently soliciting
the GoG for the rights to take the lead on developing the
recent discovery. He described the Ghana National Petroleum
Company as a Qgood organizationQ with whom his company has a
cooperative relationship.


4. (SBU) As a participant in the Extractive Industries Transparency

Initiative (EITI),the GoG has expressed a commitment to
develop its resources in a manner that widely benefits the
country as well as investors. With regards to oil, the GoG is
engaged at very senior levels in broad consultations with
producers such as Norway and Canada, as well as development
partners on sound management of revenues if/when they start
flowing.


MINING
--------------


5. (U) In 2006, gold accounted for $1.2 billion worth of exports.
According to the Chamber of Mines (an industry association
funded by member mining companies) $781 million of that money
was voluntarily repatriated into the country. In addition to
gold there are manganese, bauxite, and other small-scale
deposits being exploited.

Mining Agreements
--------------

6. (U) When the GoG launched its Economic Recovery Program (ERP) in

1983, it hoped to Qattract investment into exploration for new
mining ventures and encourage expansion in existing mines.
(UNCTAD report) The private sector has taken the lead in
mining development while the Minerals Commission, a GoG agency
established in 1992, has primary responsibility for the
administration and regulation of the utilization of mining
assets. Incentives offered to mining companies include
accelerated capital depreciation along with generous customs
and import duties exemptions for mining equipment.


7. (SBU) Per the Minerals and Mining Law, Section 43(1),the GoG
shall receive a 10 percent stake in mining operations at no
cost but a 2006 amendment appears to reduce the stringent
intent of the earlier version of that requirement. Post is
aware of one company that did not give GoG a 10% stake and an
executive from that company explained that provisions of the
Law can be Qconverted within the investment agreement.Q It is
not clear whether there may have been some other concession
offered to the GoG by the company.


8. (SBU) Under the Minerals and Mining Law of 2006 (Section 25),

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royalties range between 3% and 6% and are determined by a
profitability measure. In practice, one company reports paying
3% and states that other companies have similar agreements. A
higher rate applies if the mining activity takes place in a
forest reserve area. To operate in non-virgin forest reserves
that have been subject to timber activities results in a
royalty rate of 3.6%. Companies may also pay corporate taxes
at standard rates.


9. (SBU) Ten percent of the royalties the government collects from
mining are turned over to the district assemblies and
traditional rulers of mining communities to implement
development projects. The chief executive of The Chamber of
Mines, among others, believes the percentage going to
communities should be higher.
There does not appear to be any significant mainstream
agitation for fundamental changes to the Minerals and Mining
Law.


Mining Challenges
--------------

10. (SBU) Gold mining companies are benefiting from high gold prices
but
are challenged by rising production costs, the energy crisis,
and illegal mining by small-scale "galamsey" miners. Mining
companies do not generally cite royalty or tax requirements as
a problem for their businesses. For example, at a recent
public meeting held by AngloGold Ashanti, the COO in charge of
Africa Operations described threats to profitable operations in
Ghana. Among the factors leading to a 7% third quarter
increase to $357/oz. in gold production costs were wage
increases, higher power tariffs and higher
fuel/consumable/maintenance costs. Higher royalty payments
accounted only for $2 of the total $24/oz. cost increase in the
third quarter of 2007. This was a result of a 6% increase in
production, not from a change in terms of royalty payments.
The company did not express concern about possible changes in
the terms of royalty payments.


11. (SBU) During the recent energy crisis, the GoG told mining
companies
to reduce power consumption by 25%. According to a Newmont
Mining representative, his companyQs options were to cease
processing operations, since it was not technically feasible to
continue on a reduced power schedule, or generate its own
power. Newmont and the three other major gold mining companies
collaborated to construct a $50 million, 80MW diesel-powered
electricity generation plant in Tema. Per Newmont, the
supplemental energy was six times more expensive than that
which was supplied by the GoG.


Galamsey Mining
--------------


12. (SBU) Illegal small-scale mining, popularly referred to as
galamsey,
is a major problem in the gold sector. Galamsey mining is
carried out by those who encroach on the fringes of concessions
or descend mine shafts with the assistance of
family/friends/former co-workers who have access to the site.
Aside from being illegal, galamsey mining threatens the safety
of all miners because uncoordinated efforts can result in cave-
ins. More directly, galamsey miners have attacked security
personnel and police who interfere with their activities.
Mining firms have also been known to react with force, which
compounds the problem.
AngloGold Ashanti stated that continued galamsey mining
activity could force the closure of at least one of its sites
in Ghana.


13. (SBU) Newmont mining also has operations in Ghana that have
been affected by galamsey mining. One executive described it
as a Qbig concern.Q He believes the galamsey miners are
organized by a Qwhole industryQ that provides credit for
individuals to buy mining supplies in return for a specified
quantity of gold. The illegal miners often operate with
impunity; when an open-pit mine operator finishes blasting rock
to gain access to ore, galamsey miners will rush in to process
the rocks themselves. Should thEF VQ:n a right to engage in what they see as a
traditional activity. Unresolved land tenure issues further
complicate the situation. The establishment of the large

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surface mines has forced the relocation of large numbers of
people. Newmont's mine, for example, displaced 10,000. Even
if those displaced are compensated and given new and perhaps
improved housing, they do not necessarily accept that the land
is no longer rightfully theirs. The mining companies are
attempting to curb galamsey mining through both security
measures and corporate social responsibility programs that are
geared to improving the quality of life in mining communities.
To date, these efforts have had little or no effect on reducing
galamsey mining.

DIAMONDS
--------------


15. (SBU) Ghana Consolidated Diamonds Ltd. is the only example of a
major
extractive industry that is state-owned. In this case, it is
state-owned not because the GoG wants to retain ownership.
The firm is in dire financial straits and diamond
reserves are modest. No private buyer has been found since
privatization efforts began in 1983, although Post understands there
is currently one interested party.

Comment
--------------

16. (SBU) Ghana will hold presidential elections in December 2008.

President Kufuor is ineligible to run again. Regardless of
which party wins the election, there will probably be a change
in the board of the Ghana National Petroleum Company, including
its managing director, as well as key Ministerial Posts.
However, major candidates show no evidence of being eager to
make dramatic shifts in the current approach of seeking to
attract foreign and domestic private participation in natural
resource development in Ghana.


17. (SBU) Galvanization of local groups around environmental and
social
issues as they relate to extractive industries may in the
future push the GoG to seek a larger share of profits from
investors if royalties and corporate social responsibility
activities do not show more tangible results.

BROWN