GHANA: KOSMOS ENERGY UPDATE

C O N F I D E N T I A L SECTION 01 OF 04 ACCRA 001339 SIPDIS NSC WASHDC FOR MICHELLE GAVIN AF/W FOR NOLE GAREY AF/EPS FOR ELLIOT REPKO S/CIEA FOR DAVID GOLDWYN TREASURY FOR ADAM BARCAN WHITE HOUSE FOR USTR LAURIE-ANN AGAMA E.O. 12958: DECL: 12/15/2019 TAGS: ECON EPET PGOV EFIN KCOR GH SUBJECT: GHANA: KOSMOS ENERGY UPDATE REF: A) ACCRA 1226 B) STATE 120759 Classified By: Philip Cummings, Econ Chief, for reasons 1.4 (b) and (d) ¶1. (C) SUMMARY: The Bank of Ghana rescinded its account freeze order against Kosmos Energy LLC and its Ghanaian affiliate Kosmos Energy Ghana HC as of November 19. However, it left frozen the accounts of some Ghanaian individuals and organizations contained in the original freeze order. No charges have been announced in conjunction with the freeze. Police questioned the Jubilee Field consortium partners separately. Questions were largely non-substantive and focused on establishing when the participants were in charge of company operations in Ghana, their dealings with the E.O. Group under investigation for corruption, and in one instance the effect the investigations would have on Ghana receiving first oil by the fourth quarter of 2010. Government and business sources describe the investigations as a Ghanaian negotiating tactic. President Mills's hands-off leadership style, political party factionalization and ministerial stovepiping has led to Ghana's energy policy being increasingly directed by informal advisors with vested interests and scores to settle with the opposition, which is leading to growing business dissatisfaction with the Mills Administration. If Ghana continues on this path, we could see fiscal shortfalls in 2011 if first oil and first gas are delayed, and damage to Ghana's reputation as a safe destination for foreign direct investment. That said, we believe Ghana at base is still a country of rule of law. Elements of the GOG can jawbone expropriation, but they cannot force a Kosmos sale without a legal basis unless Kosmos agrees. END SUMMARY. -------------- Silent Thaw in November -------------- ¶2. (C) In a sparsely-worded directive dated November 11 but received November 19, the Bank of Ghana (BOG) unfroze ("defroze" in GOG parlance) the accounts of Dallas-based Kosmos Energy LLC and their Ghanaian affiliate Kosmos Energy Ghana HC. The accounts are held by UK-based Standard Chartered Bank and Africa-based Ecobank. The accounts were frozen in a directive of October 20 that was only received by banks two days prior to the unfreeze on November 17. No reason for the freeze, or unfreeze, have been provided by the GOG, despite Kosmos's queries to the BOG and Serious Fraud Office (SFO). In response to oral questions posed to the Criminal Investigation Division of the police, the company was told it had no right to know the reasons for the freeze and it was part of the criminal investigation. (COMMENT: the GOG universal response has been, in effect, "no harm, no foul." No assets or property were actually confiscated as a result of the freeze. It is worth noting that the accounts of Kwame Edusei, George Owusu, the E.O. Group Ltd., and other entities (REFTEL A) frozen together with the Kosmos entities were not unfrozen by this directive. END COMMENT.) -------------- Police Questioning -------------- ¶3. (C) The CID followed through with the questioning of the Country Managers of the Jubilee Field consortium partners (REFTEL A) in late November and early December. All of the oil companies related to Econ Chief and FCS Chief that questioning was brief (for some the wait time was much longer than actual questioning) and non-substantive. Questioning revolved around who the participants where and when they were in charge in country. All of the companies either rescheduled their appointed dates or they had their appointments changed at the last minute by the Ghanaian authorities. The questions were disorganized; Tullow's Ghanaian Country Manager was told there were criminal charges, and his British boss was told there were no criminal charges pending. Local counsel was present and Anadarko Petroleum Company (APC) flew in U.S. counsel as well for the interrogation. In each instance, a panel of five investigators led by a contracted attorney conducted the questioning. In most instances the investigators did not identify themselves. Additional officials could be discerned from behind a two-way mirror in the questioning room. Kosmos was told the time frame of the investigation was said to be ACCRA 00001339 002 OF 004 "2004 to about six months ago." Several of the American businessmen felt the process was the message, and that message was political intimidation. One participant thought the scene was right out of a B movie from the 1930s, resplendent with a hotlamp shined in their eyes. The sessions appeared to be captured on video camera. Tullow -------------- ¶4. (C) Tullow originally sent their Ghanaian national Country Representative to the interrogation, per police instructions. The police were upset, saying he was "not the right guy." They angrily sent him away and demanded that the British national in charge (General Manager of Tullow Oil Ghana) come in for questioning. The Briton was questioned more respectfully about general questions regarding the E.O. Group. Kosmos -------------- ¶5. (C) On December 12, Kosmos informed Post that the CID requested that Country Manager Kevin Black and several Kosmos Energy LLC executives based in Houston come in for additional questioning on December 24. Given the requested interview date and short-fuse timing of the request, the cost of flying Houston-based businessmen to Ghana (eventually to be paid by the GOG out of its share of oil revenues),and the energy company's conviction that this is nothing more than a pressure tactic by the GOG, Black declined the CID's invitation. Black also told FCS Chief that Standard Chartered Bank had also been brought in to speak to the CID in early December. Post is still trying to corroborate that claim with the bank. APC --- ¶6. (C) Anadarko said one of the questioners was the head of the GOG Securities and Exchange Commission (NOTE: Post cannot verify this claim. END NOTE). APC's U.S. counsel was familiar with the lead attorney, who he said practiced in San Francisco. Once the attorneys recognized each other, the APC Country Manager said the mood instantly transformed into a friendly chat. The lead did all the talking. He said that APC was not the target and not being investigated. He asked about the company's dealings with E.O. Group (none),how long he was in the job (4 weeks),whether he had any meetings with Kosmos since the ExxonMobil deal with Kosmos was publicized (no),and how the partnership was going between Anadarko and Kosmos (just fine). In particular, the investigators were very interested in whether the Kosmos dispute with the GOG would delay first oil in the fourth quarter 2010. Anadarko did not feel that was the case. The APC U.S. counsel ended with an informal conversation with the lead investigator, but APC averred that it did not know the content of the conversation. -------------- Hard Bargaining -------------- ¶7. (C) Former Energy and Finance Minister Paa Kwesi Nduom (STRICTLY PROTECT) told the Ambassador that the GOG had no strong case against Kosmos and that the GOG would lose if the dispute went to international arbitration. When asked whether the GOG has a legal right of first refusal of potential buyers of Kosmos's stake in the Jubilee Field, Nduom asserted "I wrote that agreement," and that the GOG has no clear right of first refusal if Kosmos decides to sell its stake to another party. Unilever CEO Charles Cofie (STRICTLY PROTECT) told the Ambassador that he believes most of the current effort, including CID questioning and account freezing, was just part of the GOG's negotiation tactics and not about a hard and fast illegality at issue. He asserted that a clique of officials at GNPC seek to have the GOG acquire Kosmos's stake at a bargain price to be flipped to the Chinese for personal profit. He added, however, that he did not believe that this was a larger GOG plan. -------------- Comment: No One at the Rudder -------------- ¶8. (C) It is clear to Post that President Mills is not behind the sharp-elbowed negotiations. We believe that Mills and ACCRA 00001339 003 OF 004 others may view Kosmos's departure as a chance to improve the GOG's position, but that they will work within the rule of law (while playing hardball). Both his widely-reported devolved management style, and the fierce factionalization within the ruling NDC party, have meant that a clique within the GOG (including unofficial energy advisors within the party) fills the void left by weak leadership and seeks to drive GOG decision-making in the oil and gas sector. They may be seeking a deal that benefits them personally. There are unsubstantiated rumors that Tsatsu Tsikata, considered the "father of the GNPC," has sought to aggrandize himself and his allies by negotiating side deals with Chinese lenders. Tsikata was convicted in fast-track court last year in a case that was seen by many as being politically motivated by the then-ruling party, and NPP supporters feel Tsikata is now trying to get revenge on the NPP for his felony conviction. ¶9. (C) Numerous interlocutors have shared their frustration with factionalism within the NDC and stovepiping between GOG ministries. There are no apparent attempts at interagency coordination aside from Cabinet meetings, which has left the GNPC and its behind-the-scenes backers with little supervision. Bills aiming to split the GNPC into regulatory and exploratory functions (NOTE: Currently the GNPC handles both. END NOTE.) were pulled from Parliament without explanation. The Minister of Energy recently told the IMF Resident Representative that the GOG lacks plans for the oil and gas industry development and the use of oil revenues. Unfortunately, this lack of coordination and poor planning ultimately may lead to delays in projected first oil and, increasingly, first natural gas, with obvious financial implications for the cash-poor government in 2011, a year before Presidential elections. Over the past year Post has noted a growing sense of business community dissatisfaction with the Mills Administration's stewardship of the economy. ¶10. (C) An important,and perhaps revealing, precedent this year was the Vodafone case. Last year, the NPP government sold the government-owned Ghana Telecom to Vodafone of the UK in what was widely seen as a last-minute attempt to inject much-needed cash into the government's coffers ahead of the Presidential election. This year, allegations were widely trumpeted about how the asset price of Ghana Telecom was greatly inflated, and the difference between the asset valuation and the cash the government actually received was pocketed by former President Kufuor in a suspicious one-on-one back-room meeting. Starting with allegations of wrongdoing in the media, it gained political steam. There were aspersions cast that the British firm had connived to cheat Ghana out of its patrimony for crass commercial gain and as an enabler of NPP corruption. The issue culminated in a GOG official investigation and increasingly shrill calls for renegotiation of the contract. Subsequently, the issue disappeared from the papers overnight, and has largely disappeared from discussion. Post believes that the GOG backed down on Vodafone because there was no case against the company. The public threats, however, have done real damage to Ghana's reputation. ¶11. (C) The Ambassador was told by Cofie (STRICTLY PROTECT) that he had heard the GNPC plan is to buy Kosmos's Jubilee stake for USD 3.5 billion, then flip the stake to the Chinese for USD 4 billion. (COMMENT: Why the Chinese would want to lend an amount less than the market price for the share to the GOG and then give the GOG more through a sweet profit margin of USD 500 million, and not purchase the share outright without involving the GOG middlemen, is unclear. The concept of a sale to the Chinese for personal gain, however, is being increasingly rumored in Ghana. END COMMENT.) What is clear, however, is that, so far, there is no evidence that any money, Chinese or otherwise, is available to finance a GOG purchase of Kosmos's asset. Current indications are that a recent deal with the China Development Bank is not funding for a purchase, although it may be oil-related. ¶12. (C) The media is in a feeding frenzy on oil and gas issues in Ghana. Much of the frenzy is a result of the GNPC conducting their negotiations (or planting rumors) with the international partners in the media. The coverage is mostly inaccurate, and largely unhelpful for investor confidence in ACCRA 00001339 004 OF 004 Ghana. There have already been press reports in October that international supermajors like Total and Chevron are staying far away from Ghana, citing the "Jubilee mess." Combined with the Vodafone debacle, the protracted dispute with Kosmos Energy clearly has the potential to sully Ghana's reputation as West Africa's most attractive investment destination outside of regional powerhouse Nigeria. END COMMENT. ¶13. (C) Post believes that at the end of the day, Ghana is still a country where the rule of law prevails. If a clique within the GNPC seeks to purchase Kosmos's stake at an artificially low price, Post believes they cannot force Kosmos to do so without Kosmos's consent to the sale (barring major revelations in the investigation and subsequent legal battle. The GOG insists it has a strong case, although Post has seen no evidence. We consistently draw on Department points (REFTEL B) to call for a legal and transparent resolution). They can investigate, and perhaps even harass (by demanding interviews on Christmas eve, for example) but there are limits to what they can do. Arrest, or even an asset seizure without producing evidence seems beyond the pale. It appears to Post that the asset freeze was withdrawn rather than making a formal case. GNPC can jawbone their purchase of Kosmos, but Post believes they cannot force the issue beyond rule of law without buy-in from the broader GOG. To do so in the absence of a deeply compelling legal case would ruin Ghana's reputation internationally, and we believe President Mills and others will not allow the GNPC to do that. TEITELBAUM