February 26, 2010 | Forbes

Ghana’s Dubious New Partner

Over the last decade the United States has successfully transformed its foreign aid efforts. Dollars aren't simply being delivered to corrupt regimes, helping keep them in power with nothing expected in return. Instead aid money is increasingly tied to serious reforms the countries must embrace to enhance the rule of law, enforce contracts, attract foreign capital and stamp out corruption.

But recent actions taken by the government of Ghana deserve deeper scrutiny from Washington. What's unfolding on the ground in West Africa threatens to waste hundreds of millions of American taxpayer-funded aid dollars and undo hard-won reforms. It also threatens to supercharge China's continued rise in the region, at the expense of U.S. geopolitical and business interests.

Here's what's happening. Until a few years ago Ghana had no oil or gas production. Then the 2007 discovery of the offshore Jubilee Field–one of Africa's biggest oil strikes ever, with more than a billion barrels of recoverable reserves–put Ghana on the global energy map.

The Jubilee Field was made possible by Dallas-based Kosmos Energy, which pioneered a number of unconventional search strategies and innovative deep-water drilling techniques as it tried to exploit the offshore block. After the Jubilee discovery, Kosmos sought to sell its 23.5% stake in the oil field. It hoped to recoup its shareholders' investment and, in the process, turn the project over to a firm that would be capable of developing its potential.

After months of negotiations a deal was reached with another U.S. firm, Exxon Mobil, for about $4 billion. Under Ghanaian law, approval for the sale cannot be unreasonably delayed, withheld or denied so long as the new party is capable of carrying out the terms of the concession, which Exxon Mobil, the largest privately owned company in the energy industry, clearly is.

But this month Ghana's energy minister, Joe Oteng-Adjei, sent a letter to the Texas-based firm saying the proposed acquisition would not receive the government's consent. Instead Ghana's state-run energy firm would be the only entity allowed to buy the Kosmos stake. While the minister promised the Ghana National Petroleum Co. would pay a “fair market value” for the asset, that value would certainly be sent plummeting if there was only one bidder.

What explains this bizarre move by the Ghanaian government? China signed an “Agreement on Economic and Technical Cooperation” with Ghana at the end of 2009 and wants the Kosmos assets for its state-owned China National Offshore Oil Co.

This development in Ghana is part of a larger pattern. China is now the second-largest consumer of oil after the United States, and the regime in Beijing is keen on securing access to energy supplies. It has been very active in Africa in recent years, even going so far as to hire former President George W. Bush's brother Neil to lobby for Chinese energy interests. One-third of China's hydrocarbon imports already come from Africa, and it is the only region likely to see significant new production in coming years.

However, China's expertise in deep-sea drilling is limited. So in this case, as in others, China acts as a scavenger, muscling into the finds of others and using government connections and payoffs to get its way.

American policymakers should get engaged–quickly. Allowing the Chinese to pressure the Ghanaians to run roughshod over a contract would be a terrible blow to Ghana's generally good governance, and particularly to its rule of law. The country had been a major success story, with an exemplary reputation on contracts and property rights.

While much of Ghana's progress can be traced to the sound macroeconomic policies adopted under former President John Kufuor, the country has also been helped by hundreds of millions of dollars of development aid extended it by the U.S. through the Millennium Challenge Corp. This program rewards recipients for reforming their laws and business practices to encourage investment and growth. And it has worked in Ghana–until the Chinese started moving in.

Now the Ghanaians threaten to undo years of progress and make a mockery of millions of American taxpayers' dollars in the process. Americans, after all, have a right to demand that their money not be sent to a country that cavalierly tears up contracts with U.S. businesses.

What's more, China's lack of experience in deep-sea operations–to say nothing of the poor record of Chinese companies in Africa on both environmental protection and labor relations–will likely mean a delay in development and production and a loss of much-needed foreign exchange for its would-be Ghanaian partner. If allowed to proceed, the new deal would represent a blow to American interests in Africa, deterring much-needed investments not only in Ghana–where they are still needed for the country to create jobs and other opportunities for its growing population–but also across the continent.

An open question is whether Ghana's current leaders are fully cognizant of the gravity of what they are doing or if they even care. As a partner with major political, economic and historical ties with the West African country, the U.S. owes it both to itself and its Ghanaian friends to try to use every lever of influence to prevent the imminent prospect of incredible riches from turning into a veritable curse that will haunt relations for years to come.

Dr. J. Peter Pham, senior fellow and director of the Africa Project at the National Committee on American Foreign Policy in New York, is also vice president of the Association for the Study of the Middle East and Africa.

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