Is Kosmos’ payment of fine on moral or technical grounds?

Following Kosmos Energy’s spillage of 706 barrels of low toxicity substance at its drilling fields in West Cape Three Points in 2010, a five-member ministerial committee recommended that the Texas-based oil and gas exploration company pays a fine of US$35 million. In sharp response, Kosmos referred to the fine as baseless and unlawful. The oil industry as such witnessed law application controversies. It is important to stress that both the government and Kosmos Energy have agreed the impasse over the disclosure of sensitive information without government consent and payment of the fine for spillages is resolved. There is however an important issue that needs some considerations. Kosmos Energy as part of its filing with the US Security and Exchange Commission (SEC) when it applied to sell 30,000,000 common shares, said “as part of such agreement and with respect to one particular issue, we agreed to pay GNPC $8 million upon signing the settlement agreement and $15 million upon the first to occur of certain liquidity events, including the successful completion of this offering”. Kosmos Energy explained the details of these payments by stating, “these included disagreements over sharing information with prospective purchasers of our interests, pledging our interests to finance our development activities, potential liabilities arising from discharges of small quantities of drilling fluids into Ghanaian territorial waters, the failure to approve the proposed sale of our Ghanaian assets and assertions that could be read to give rise to taxes payable under the Ghanaian Tax Law in connection with this offering”.

It goes without saying that indeed Kosmos Energy has agreed to pay the fine imposed on it by the ministerial committee. Of particular consideration is whether or not Kosmos’ payment of the fine corresponds to the amount as rightly recommended by the ministerial committee set up by the government. Making critical assessment of Kosmos Energy’s statement to the SEC, there is no doubt that the oil company has disregarded the actual amount it was supposed to pay. Kosmos, taking from its statement, is making $15 million to cover both the 706 barrels of toxicity oil mud it spilled on the high seas and sharing information with prospective purchasers without government consent. The total amount of $23 million being paid by Kosmos to the GNPC and government is even below the amount of $35 million imposed on it by the committee.

The deserving question to pose is that is Kosmos Energy’s payment of the fine premised on moral or technical grounds. In September last year, Kosmos in its letter to the Attorney General and Minister of Justice, the president and the Minister for Environment, Science and Technology said the fine was “totally unlawful, unconstitutional, ultra vires and without basis” and argued that a minister had no power under the Ghanaian Constitution or any other law of the country to impose a fine on any person in the event of an oil spillage. It is absolutely clear that the ministerial committee had no power under the Ghanaian law to impose the $35 million fine. This explains why Kosmos Energy’s payment is well below the right amount. Did they [ministerial committee] have the power to impose that fine?

It is instructive to know that Kosmos Energy’s payment of the fine is rather premised on moral grounds and not technicalities. The payment of the fine is to the effect that Kosmos aspires to continue and sustain its operations in the jubilee field. As a responsible oil company, Kosmos ‘feels’ it has to pay ‘something’ to government. On technical grounds, was the country using the Petroleum (Exploration and Production) Law of 1984 (PNDC Law 84) to hold Kosmos culpable for its negligence. Certainly not! It can be said that the ministerial committee wielded no power to charge Kosmos especially when the spillage occurred. The PNDC Law 84, the only regulatory framework available, was not strong enough to hold the oil company responsible for the oil spill. There are, for now, no specific regulations governing the upstream and midstream sectors in Ghana. This has led to the incorporation of many regulations on an ad hoc basis within petroleum agreements.

May be it’s a dream come through for the ministerial committee for being able to push for a huge amount to compensate for the environmental breaches. Was the formation of the committee necessary when it could not get the amount it recommended?

The hefty amount paid by Kosmos Energy has the tendency to quell all concerns that are possible to arise regarding the right payment of the fine. Not only has this case set a bad precedence where other oil companies could emulate but has questioned the power of the ministerial committee to hold oil companies culpable when there are environmental damages. And until the country enacts stringent regulatory frameworks, oil companies in the Jubilee Field will continue to capitalize on this weakness. The country is yet to pass the Petroleum (Exploration and Production) Bill into law to regulate the operations of oil companies. The regulatory framework should be without loopholes and ambiguities to properly regulate oil companies. An independent regulator is yet to be seen in the industry when the Petroleum Commission Law gets the President’s assent. It is also important the country formulates an impressive oil response plan to counter any spillages. Ghana ought not to be oblivious of the fact that oil companies prefer to pay a relatively low penalty for non-compliance with environmental standards rather than invest in costly pollution monitoring and control.

Should Kosmos Energy’s $15 million be enough to cater for the environmental damages caused? What power did the ministerial committee have to impose the fine on Kosmos? What laws were applied to hold Kosmos Energy responsible for the spillages? The issue is that Ghana is being slack in instituting right regulatory frameworks to check on oil operations. Starting commercial oil production without strong exploration and production laws is exactly what the resource curse stands for.

The author, Stephen Yeboah is a freelance journalist and National Coordinator for Osagyefo Network for Rural Development (OSNERD), an NGO based in Kumasi. [Email: [email protected]]