OIL AND GAS IN GHANA, ANYTHING NEW?

OIL AND GAS IN GHANA, ANYTHING NEW?

Predictions, and indeed the physical find of oil and gas in Ghana did not start today. However, the issue of the oil find in Ghana in the Western part of the country in the immediate few years, has become very topical and crucial. As expected, news about the expected huge production figures has hiked the interest and importance of this new oil find in Ghana. There is an anticipated oil and gas boom, and a corresponding and concomitant economic boom. Indeed, over-zealous citizens, foreigners, and sometimes politicians are predicting an “economic miracle” or an immediate positive “economic turn-around” for Ghana. The anticipation of a quantum leap in economic development in Ghana is huge. Oil and gas are expected to provide a vital and reliable support to Ghana’s efforts and the country’s dream of becoming a middle-income nation by the year 2020. It is not difficult therefore to notice the reason for the “near euphoria” and the “oil fever” that have gripped the people of Ghana, and indeed foreign investors, as Ghana prepares to produce oil and gas in appreciable quantities.

ASPECTS OF THE OIL AND GAS BILL

Oil and gas production have produced “huge economic benefits”, but they have also created new and “difficult-to-handle” problems in most parts of the world, especially in the developing world. We need not move too far to learn of the problems that oil and gas have brought to the economies and social lives of the people in some of the countries that produce them. Nigeria has been copiously cited internationally as an example of where an anticipated economic boom following oil discovery and production, has turned out to be an economic and social nightmarish experience. The “oil curse” as some choose to call it, has become both an empirical experience and a useful advice, or if you like a useful warning to countries, including Ghana.

Happily, Ghana is well aware that any loose and casual approach to the issue of oil and gas, any ill-preparation before the oil and gas begin to gush out in huge economic quantities, and any improper use of the revenue from oil, can spell economic destruction, social despair, and national chaos. No one likes this to happen to Ghana, and no one is prepared to believe that this will happen to Ghana. Indeed, everyone wishes and expects that Ghana will not in the near and distant future, cited as one of the victims of the much talked-about and much-dreaded “oil curse”.

And happily and positively Ghana is taking steps to avoid an “oil curse”. There is currently a process to pass a law that will determine how to use revenue from the country’s oil and what agencies will be responsible for the control and disbursement of the oil revenue. A preliminary Draft Proposal on “Ghana Petroleum Revenue Management” by the Ministry of Finance and Economic Planning, suggests that legal, financial and social policy structures and regulations are being put in place in the form of an oil and gas bill, to help regulate the revenue and other benefits that will accrue from Ghana’s oil and gas production. According to the document, all oil producing countries are faced with some fundamental choices. These are listed in the Draft Document as follows:

(i) How to divide oil revenues between “what to spend now”

and what to save “during the period when there is still some production taking place.

(ii) How to allocate spending in the budget (the budget challenge), and

(iii) How to manage the savings (savings challenge), if any

The Ghana Petrol Revenue Management Preliminary Proposal also indicates as follows:

“The proposal also seeks to safeguard Ghana’s oil resources and to ensure that the collection, accounting, use and management of all the revenue due to the state are placed within the context of transparent processes and accountable institutions, with mechanisms to ensure adequate public oversight (Accountability and Transparency Challenge)”

The Draft Document states that issues raised and covered in the proposal are guided and regulated by the following twelve (12) points:

(i) What makes up petroleum revenues?

(ii) How much revenue should we expect?

(iii) Who should collect the revenues?

(iv) Should we account for petroleum revenues as part of the general revenues or as special revenues?

(v) How much should go into government coffers for current spending, how much to save?

(vi) Should we restrict budget users, and if so to what?

(vii) Should we establish savings or oil fund(s)

(viii) Who should manage the savings fund(s), if any, and how?

(ix) Who may authourise withdrawals from these accounts, when and how?

(x) How do we ensure transparency and accountability in the use and management of petroleum revenues?

(xi) What measures must be put in place to ensure public oversight?

(xii) Should there be additional legislation, rules and guidelines to further protect oil revenues, prevent abuses and maximise the benefits to all Ghanaians.

It is clear from the above questions and proposals that Ghana is not oblivious of the potential improper use of revenue from oil, if financial and legal measures are not taken to control proceeds from the oil production. The country is also not oblivious of the fact that if the right approach, attitudes and legal and financial rules and regulations are not drawn and followed, we will not evade the “oil curse”. Indeed there is a clear demonstration, at least, from the Draft Document that corruption needs to be avoided in the oil sector, to ensure national progress and national development.

Clearly then, we are beginning to see and to sense the approach by government and its relevant state institutions, and stakeholders, to the proper use of the anticipated revenue from the country’s oil to support the economy. What should be expected now is the role that Non-Governmental Organisations (NGOs) and Civil Society Organisations (CSOs) will offer towards the proper, efficient and judicious use of Ghana’s oil.

ADVOCACY AND RESEARCH BY NGOs

Relationship between government and local communities

A major problem in oil producing developing countries is the misunderstanding, mistrust and acrimonious relationship between the state and the ethnic and regional communities within the geographical locations where the oil is produced. The local people within the areas in the country where the oil wells exist have often tendered to ask for some social, economic and financial attention from government. This has not been a pleasant request to governments of some oil producing developing countries. Some of these governments see those requests as compensation claims that are too much to meet. Revenue from oil, some governments insist, is revenue for the entire country.

The almost entrenched stance by some governments on one hand, and the local people in the locations where the oil is produced, on the other, has often resulted into tension, civil unrests and social disorder. There has been needless loss of lives in some of such situations.

We need to learn lessons from countries such as Nigeria. We need to begin now to work out strategies and mutually acceptable relationships and agreements between government and the people within the geographical locations in Ghana, where the oil production is going to take place. To my mind, this is an important issue that will demand research and advocacy by NGOs and stakeholders. We need to address some anticipated questions, which may include the following: What are the anticipated issues and demands that will come from the people within the geographical locations where the oil is produced in Ghana? What should be done now, and in the future, to avert a possible misunderstanding between government and these communities?

Corruption in the oil industry

Corruption is rife in most countries in Africa. However, it appears that corruption is even heightened when oil is discovered and produced in a country. This is a very unholy and unacceptable union. Where there is oil and corruption together, the gains of the oil revenue do not benefit the people and the national economy. The attraction to oil production by corruption is a very disturbing phenomenon. But the empirical situation is that oil boom breeds corruption. This is at least a popular and acceptable belief or notion, especially in Africa and the developing world. The Draft Document on Ghana Petroleum Management tacitly recognizes the potential for misuse and possibly corruption to emerge and destroy the gains from the oil industry in Ghana. The document has put forth some financial and regulatory structures to ensure a transparent collection and use of the oil revenue. Advocacy groups need to be vigilant in mounting surveillance to ensure that the structures are working, and the financial and legal rules and regulations that will guide the oil industry are rigidly followed. The strong voice of SEND-Ghana in relation to the disbursement of the HIPC Funds, to me, has been commendable. In the past few years SEND-Ghana has waged a relentless advocacy aimed at ensuring that the money from HIPC was used to benefit the poor areas of the country. Indeed there had been a strong HIPC Watch demonstrated by SEND-Ghana. It is my view and anticipation that a strong Oil Watch will be demonstrated by NGOs in the country to monitor the oil industry. The activities of this Oil Watch should include research into the operations, gains and disbursement of the oil funds and the effect of the oil revenue on the quality of life of the people of Ghana. It should also include advocacy for fairness and transparency in the use of the oil revenue.

Oil money: Part of government budget or support for specific projects

The Draft Document on Ghana Petroleum Revenue Management seems to suggest that oil revenue will be used to support government cash inflows. Some NGOs have already indicated their strong opposition to the use of the revenue to support any government cash inflows. To these organisations, the Funds from the oil revenue will better serve the interest of the people of Ghana if it is not made part of government cash inflows, and thus not used as part of the annual budget. To them, the oil revenue will greatly help in the development of the country if it is channelled into specific infrastructural projects. Other NGOs are more concerned with how transparently the money will be used than whether it will be part of government cash inflows or not. This issue could prove to be a strong challenge to NGOs and advocacy group. A harmonisation of opinions and strategies, and a concerted effort and pooling of efforts and resources in relation to research and advocacy on the oil revenue will be very helpful.

Oil revenue and education

A major factor in development is education. It is my view that an educational fund be setup into which a percentage of the oil revenue and taxes from all activities in the oil industry will be put. This fund can either run separately or be part of the GETFund. The Fund for me, should be discriminatory in its funding and support. Regions, districts and local communities which have been identified as deprived in terms of educational facilities and infrastructure should receive the bulk of the money from the fund. This is a sure way of achieving equitable distribution of educational opportunities. The eventual gain will ensure an over-all quality of life of the people of this country.

Capacities of advocacy groups

It is anticipated that several issues will emanate from the oil industry that will require the lobbying and advocacy skills of NGOs and advocacy groups to help solve. The challenge is for advocacy groups to build their capacities, resource their organisations, and possibly pool their resources together to ensure effectiveness.

Conclusion

Revenue from Ghana’s oil is not going to be inexhaustible. Indeed the oil itself will not flow in unlimited quantities. Prudent use of the revenue will ensure a long-lasting gain from the industry. Investment in useful infrastructure, and investment in the human capital development of the country will be the most useful and prudent way to ensure effective utilisation of the revenue. Above all, a resolute watch on government in relation to the use of the revenue will be most important.

By: Dr. A.B.T Zakariah

Deputy Registrar

University for Development Studies

Ghana, West-Africa