There is a determined effort out there to create the impression there was no judicial determination of the dispute involving the French Bank, Societe Generale (SG) and the Ghana National Petroleum Corporation (GNPC) which was heard in a London High Court of Justice in the United Kingdom (UK) between 1999 and 2001. Apparently, this impression became even more manifest in the wake of some of the answers provided by a former Chief Executive Officer (CEO) of the GNPC, Dr. Amos Ofori-Quaah to questions posed to him by the Counsel for the Sole Commissioner on Judgment Debts during the former's recent testimony at the Commission.
The Counsel for the Commission had asked Dr. Ofori-Quaah how the problems of the hedging transaction between SG and GNPC were related to the Drillship, Discoverer 511, and Dr. Ofori-Quaah in response, said "apparently, as a result of the hedging, there was an indebtedness. GNPC was indebted to Societe Generale to the tune of $40 million with $7 million interest and cost, so the total was $47 million. The case was in court. Societe Generale had sued GNPC in court on this matter".
"Where was this court?", probed the Counsel for the Commission. "In London. At the same time the case was running in the court, they were also trying to settle outside of the court. So eventually, the rig had to be sold to pay off the indebtedness of GNPC", replied Ofori-Quaah.
The Counsel for the Sole Commissioner continued to probe further: "Was this debt payment related to a judgment that was obtained by Societe Generale against GNPC?". In response, Ofori-Quaah said "To the best of my knowledge I have never seen any judgment."
"You have never sighted any copy of the judgment?", queried the Counsel for the Commission. "Not to the best of my knowledge", repeated Ofori-Quaah.
Dr. Ofori-Quaah was further asked whether "to the best of your knowledge before the Deputy Minister K.T. Hammond was asked to go and handle this settlement, had there been a judgment or was the settlement done before the judgment?". "To the best of my knowledge. No. I don't. I have never sighted anything in the terms of a judgment", emphasized Ofori-Quaah.
Apparently, it was this encounter between the Counsel for the Commission and the former GNPC CEO which provided the ammunition for some media and political circles to speculate and insinuate that former Minister of Energy, Mr. Albert Kan Dapaah and his deputy, K.T. Hammond had engaged in some dubious deals relative to the payment of $19.5 million to SG in settlement of the dispute between the SG and GNPC which was before a High Court of Justice in London, United Kingdom. Indeed, the entire Kufuor Administration, and particularly, Nana Akufo-Addo, the Attorney-General and Minister for Justice, were accused of having "swindled" the country over the SG/GNPC palaver.
To bring clarity to bear on the issues at stake, The New Crusading GUIDE takes a trip down memory lane to recapture exactly what Kan Dapaah told the Nation about the outcome of the SG/GNPC dispute at a press conference held in Accra on August 8, 2001.
"On 6th June this year, the London High Court ruled in favour of Societe Generale for the full $40 million sum, together with interest and costs totaling a further $7 million; bringing Mr. Tsikata's total indebtedness to the bank to $47 million. In order to get its money, the bank decided to sell the drillship and to pursue the GNPC for any balance, should the proceeds of the sale not be able to cover the full amount of indebtedness. Faced with imminent loss of the drillship, the government dispatched the Deputy Minister of Energy, on June 13, to London and Paris to try and reach a negotiated settlement with the bank. The Deputy Minister was also to ensure an orderly sale of the ship to obtain proper market price, if it became inevitable that it had to be sold ", articulated Kan Dapaah.
He continued: "After almost six weeks of intensive negotiations Societe Generale agreed to accept $19.5 million in full and final settlement of Mr. Tsikata's indebtedness to the bank. The bank however, would not release the ship from arrest until the settlement figure was paid in full and immediately. Under the circumstances, the Government directed the Deputy Minister to sell the drillship at the best price that could be obtained on the international market. Consequently, the ship was sold to Frontier Drilling of Norway for $24 million, with the formal transaction for the sale being concluded on 17th July 2001".
It is obvious from the preceding submission by Kan Dappah that there had never been a claim that the $19.5 million paid to SG was as a result of a specific ruling/order by a court. Indeed, all along, the nation and the media were told in clear terms that while there had been a June 6, 2001 court ruling of $40 million plus interest of $7 million in favour of SG, the $19.5 million paid to SG was as a result of "almost six weeks of intensive negotiations" after the June 6, 2001 Court judgment, a copy of which is published/scanned on the frontpage of today's edition of The New Crusading GUIDE.
The said June 6, 2001 judgment delivered by Justice Thomas in the High Court of Justice, Queen's Bench Division( Commercial Court), read as follows: "And upon the Defendant having failed to comply with the order of Mr. Justice Thomas dated 5 June 2001 and the Defendant's amended points of Defence and Counter-Claim having been struck out pursuant to the said Order; and upon the Claimant having abandoned its Claims under paragraphs 3,4,and 6 of the Prayer to the amended points of Claims; it is this day adjudged that the Defendant do pay the sum of US$40,820,781( or sterling equivalent as at the time of payment ) together with interest to be assessed and costs to be the subject of a detailed assessment".
To be fair to Mr. Tsatsu Tsikata, it must be put on record that he had questioned the circumstances which led to the delivery of the June 6,2001 Judgment in favour of SG. At his "counter" press conference held in Accra on 6th September, 2001, he contended that SG had obtained the June 6, 2001 Judgment because " there was no representation by or on behalf of GNPC...".
He recalled that GNPC's Lawyers had made some applications before the court, affidavits filed in support, including one by him (Tsikata) but GNPC was subsequently instructed by the Kufuor Administration to notify the Corporation's external solicitors who were representing GNPC in court that " the case would no longer be handled by them but by the Attorney-General's Department in Ghana".
"The solicitors for GNPC therefore obtained permission from the court to withdraw from acting for the Corporation. The important applications they had made to the court were therefore not pursued. Obviously, taking advantage of this situation, Societe Generale applied to the court to make certain amendments to their case and then, thereafter, applied for judgment against GNPC. There was no representation by or on behalf of GNPC, and judgment was entered against the Corporation", clarified Mr. Tsikata.
Mr. Tsikata underscored that GNPC had been contesting the claims of Societe Generale since the bank instituted their action in 1999. He recalled that a statement of defence and counter-claim were filed on behalf of GNPC. These steps, according to him, "were based on the fact that Societe Generale had provided negligent advice to the Corporation with regards to the strategy it recommended for the Corporation to hedge its anticipated production of oil and gas from the Tano Fields".
He claimed "an important element of the GNPC case was the testimony of an expert on derivatives based in Chicago, Dr. Culp, who wrote a report showing that Societe Generale had acted negligently in its advice to GNPC…".
Mr. Tsikata also drew attention to the fact that Societe Generale had lost two previous lawsuits against the Corporation in the United States of America (USA). According to him, before SG brought their claim in the London High Court, they had earlier in 1998 filed a suit in the United States- in the District Court in Houston- seeking an order to have the GNPC drillship, D511, moved to the US and detained by them upon conclusion of its contract in Mexico.
"This suit was brought against the US Company that had chartered the drillship as well as GNPC. The case of Societe Generale was thrown out and when they appealed to the Court of Appeal in New Orleans, they were again unsuccessful...", emphasized Tsikata, adding that "it emerged at those proceedings that Societe Generale had sought legal advice about taking action in Mexico, where the drillship was operating, or in Panama where the drillship was registered, and they realized that they could not succeed in either jurisdiction if they filed a suit".
The Discoverer D511, which GNPC under Mr. Tsikata's management had used as mortgage in their hedging transaction with SG, was eventually arrested and detained in Oman where SG, as registered mortgagees obtained an order for the "precautionary arrest of the vessel Discoverer 511( the Vessel) in respect of SG's claim against the Vessel's owners, Ghana National Petroleum Corporation (GNPC)".
A July 9, 2001 letter sighted by The New Crusading GUIDE which was jointly signed by Brian Kaye, Head of Commodities, Societe Generale and K.T. Hammond, Deputy Energy Minister, representing GNPC, and addressed to the President of the Commercial Court, Ruwi, Muscat, Oman, referred to the " legal proceedings currently in existence before the Commercial Court in Oman" and informed the Court that " It has now been agreed between SG and GNPC that the Vessel shall be released from the precautionary arrest. The Court is hereby requested to release the Vessel from such arrest, on the basis that the exact timing of the release shall be fixed in consultation with Messrs. Trowers & Hamlins. Messrs. Trowers & Hamlins are authorized by SG and GNPC to arrive at an agreement with the Commercial Court and/or the Royal Oman Police regarding the timing of the release of the Vessel from arrest".
"It is also agreed by GNPC that they have no claim against SG arising out of the precautionary arrest of the Vessel and GNPC accordingly hereby consent to the release of the counter-security which was provided by SG to the Court in connection with the precautionary arrest of the Vessel", concluded the letter to the President of the Commercial Court, Muscat, Oman.
Seasoned oil Industry Analysts have questioned Mr. Tsikata's confidence of a possible legal victory in the London litigation simply because SG had failed in its attempts to get the drillship arrested and detained in the United States, Mexico and Panama. They underscored that apart from jurisdictional challenges or hurdles in the USA, Mexico and Panama, the litigation in London was broader than the specific issue of the "status" of the drillship relative to the settlement of the dispute. In the London Commericial Court, the wider issue of GNPC's $47 million indebtedness was the focus of litigation, and not the "narrow" issue of "arrest and detention" of the mortgaged drillship. As it were, eventually the order for the arrest and detention of the drillship was obtained in the jurisdiction of Oman, and not in the United Kingdom.
The Oil Industry Analysts also found it intriguing that Mr. Tsikata appeared to have put so much faith in the purported testimony of an expert on derivatives based in Chicago, Dr. Culp relative to the "negligent advice to the Corporation with regard to strategy it(SG) recommended for the Corporation to hedge its anticipated production of oil and gas from the Tano Fields".
"The critical questions are these ; whose anticipation was it that Ghana would strike oil and gas in commercial quantities in January 1998 and on basis of which GNPC entered into the hedging transaction with SG in the first place? Was it not clearly a risky gamble to hedge a non-existent resource? Was it within the competence of SG to determine or project ' start-up date for production' of oil and gas at the Tano Fields? Who was really in charge of affairs at GNPC at the time of the hedging transaction and who had the capacity to monitor and evaluate progress in the area of exploration, production and development of Ghana's oil and gas? GNPC or SG? ", posed the Oil Industry Analysts.
Reference was made to Mr. Tsikata's own 15th December, 1998 memorandum to the Chairman and GNPC Board of Directors on “Societe Generale Transactions" in which he admitted that “there was no reason to believe that the projected start-up date for production from the Tano Fields would not be met. As things turned out, however, by the end of 1997, it was clear that the projected start-up date of January, 1998 was not being realized and that the pyysical transactions intended to underlie the positions were not going to be in place. The end of 1997 was also when oil prices began to decline significantly....With the continuing uncertainty over actual start-up date for production, Societe Generale would not expand the credit line to address this price situation pending the start-up of production. They required the positions to be closed and this was done in July, 1998". It is significant to note that Ghana discovered oil and gas in commercial quantities in June 2007 and began commercial production in December 2010, a far cry away from Mr. Tsikata's “projected start-up date for production of January 1998" !
"At the time of the closure of the positions, the decline in overall value was at the level of US$ 35,203,700.00. However, as GNPC had earlier received premium income of almost US$ 5 million the total amount due to Societe Generale came to US$ 40,181,155.00", revealed Mr. Tsikata to the GNPC Board on 15th December, 1998. It was this indebtedness which had grown to US$47m by the time the London High Court delivered its June 6, 2001 in favour of SG.
During his September 6, 2001 press conference, Mr. Tsikata disclosed that discussions regarding settlement of the claims of SG had gone on both before their court actions and after. “These discussions had not reached a conclusion. Societe Generale's settlement proposal was for US$ 20 million. This led to counter-proposal from the GNPC Lawyers for a US$ 12 million settlement payable in instalments from the EXPECTED COMMENCEMENT DATE OF PRODUCTION FROM THE TANO FIELDS. Societe Generale Lawyers asked for certain clarifications on this proposal and that is where things stood".
Enter the Kufuor Administration on Janaury 7, 2001. GNPC was found in a state of complete mess, financially and administratively. The Corporation had lost focus and deviated from its core function of exploration, development and disposal of hydrocarbous. Over the years, it had extended its operations into other non-core areas like cocoa farming, salt and gold mininig and telecommunications. The Corporation was also saddled with a large portfolio of non-profit making assets including drilling rigs and marine equipment that served “no practical economic purpose".
It was against this backdrop that the Kufuor Administration initiated a programme to restructure and re-focus GNPC. According to the Executive Summary of "GNPC STATUS REPORT AND PROJECTS : 2001 - 2008" (HANDING OVER REPORT) presented by the Board and Management of the Corporation to the Mills Administration on January 15, 2009, "In December 2001, the Government concluded the implementation of its decision to restructure the Ghana National Petroleum(GNPC) . The over-riding objective was for the Corporation to focus on its core business and make the Organization more efficient and productive. Non-core activities undertaken by the Corporation were to be discontinued and the Corporation right-sized to carry out its mandate. The Corporation embarked on its new mission in January 2002".
As part of the "conditions- precedent" for the "new mission", the Kufuor Administration decided to quickly settle the dispute with SG. The Minister of Enegry, Albert Kan Dappah, as part of the restructuring exercise, also submitted a memorandum to the Cabinet on May 8, 2001, requesting his colleagues to consider and recommend certain propositions. Kan Dapaah recalled that " with the view to restructuring the operations of the GNPC, the Government recently set up a Committee to review the Corporation's activities, both core and non-core. The object of this is to restrict the operations of the Corporation to its core objects of exploring and developing hydrocarbons".
He noted that the interim report of that Committee issued on May 3, 2001 "was greatly alarmed that several of the Corporation's drilling rigs and marine assets were maintained at great cost to the nation without any equivalent revenues accruing to it and recommended immediate action on the disposal of these assets".
The Committee, according to Kan Dapaah, had observed that since 1991/92, when most of those marine assets were purchased, they had not been put to any use by the GNPC. "They have also earned very little revenue. The D 511 drillship is about the only exception, which has earned the Corporation US$14.6m. What is critical in the Committee's observation is that notwithstanding the fact that these assets are not earning any revenue for the Corporation, a staggering amount of US$248,430 is expended every month to maintain them. In addition, all the rigs have no current insurance covers. They serve no practical economic purpose".
"In view of the Committee's observations, and the parlous state of the Corporation's finances, and indeed the drain on the national economy, the following recommendations are hereby made for Cabinet's consideration: (i): The Ministry be given the authority to immediately dispose of these non-profit making assets; (ii) : A Committee be put together by Cabinet to work out the modalities for the disposal of same", concluded Kan Dapaah in his May 8, 2001 Memorandum to the Cabinet.
The Cabinet subsequently granted approval and the drilling rigs including the drillship, Discoverer D511 were disposed off. The disposal of the latter of course followed a different trajectory in view of the fact it had become part of the SG/GNPC litigation in the UK and had been arrested and detained in Oman.
The Kufuor Administration having opted for an out-of-court negotiations to settle the dispute between SG and GNPC, directed the Attorney-General and Minister for Justice, Nana Akufo-Addo to initiate action to bring the litigation in the London High Court to a speedy end. It was within these circumstances that the Power of Attorney and a Resolution was put together; and duly signed by the then Acting Chief Executive Officer (CEO) of the GNPC, Dr. Amos Ofori-Quaah to empower K.T. Hammond, Deputy Minister for Energy represent the interest of the GNPC and the Government of Ghana (GoG) in the settlement of the dispute with SG.
"Why are some pro-NDC media circles and party/govt functionaries crying foul that the Kufuor Administration opted for an out-of-court negotiated settlement of the dispute between SG and GNPC? In anycase, was Mr. Tsikata and the GNPC lawyers not in settlement negotiations with SG and their Lawyers parrellel to the litigation in court? What was wrong if Nana Akufo-Addo, after examining the merits and demerits of the case within the context of general government policy direction, decided to cut our losses and run? How was the earlier Tsikata/GNPC counter-proposal of US$12m settlement payable in instalments from the EXPECTED COMMENCEMENT DATE OF PRODUCTION FROM THE TANO FIELDS going to lead to an early resolution of the stalemate with SG? Did the EXPECTED COMMENCEMENT DATE OF PRODUCTION come to pass? Didnt Ghana begin to produce oil in commercial quantities in 2010, after the commercial discovery in 2007? How realistic and practicable was the 'Tsikata/GNPC counter-proposal’, in the face of the hard reality?. The Kufuor Administration was damn right in cutting our losses and running from the 'SG albatross" the GNPC's ill-fated, poorly-crafted hedging business had placed on the shoulders of both the Corporation and the Country and no amount of rationalization and/or distortions will indict that Administration for the action it took in rescuing GNPC from financial and managerial abyss in 2001", emphasized a highly placed source at GNPC who preferred not to be identified.
Please stay tuned for more exposures on GNPC's past operations and the sage surrounding the SG/GNPC hedging transaction.
Source: Special Investigations Team (SIT)/New Crusading Guide/Ghana
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