VZCZCXRO1718
RR RUEHMA RUEHPA
DE RUEHAR #2604/01 3631326
ZNR UUUUU ZZH
R 291326Z DEC 07
FM AMEMBASSY ACCRA
TO RUEHC/SECSTATE WASHDC 5922
RUEHZK/ECOWAS COLLECTIVE

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), 
 
ACCRA 00002604  002 OF 003 
 
 
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 
 
ACCRA 00002604  003 OF 003 
 
 
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