body-container-line-1
20.12.2014 Opinion

Utilising Ghana's Oil Revenue – Part Two

By Daily Guide
Utilising Ghana's Oil Revenue 8211; Part Two
20.12.2014 LISTEN

Alex Mould – GNPC Boss
'This is the second part of the story DAILY GUIDE is publishing on the utilisation of Ghana's oil revenue since the country first struck oil in large quantities four years ago.

The first part looked at how the country's oil revenue has been utilised in relation to its budget over the past four years.

The second part highlights the Ghana National Petroleum Corporation's (GNPC's) utilisation of its share of the oil revenue and what the petroleum fund has accumulated so far.'

The discovery of oil in commercial quantities in 2007 and the commencement of production of the Jubilee Field in November 2010 did not only register as the most significant event in the history of the country, it also brought a lot of joy to Ghanaians who looked up to see their country become an oil producing nation and enjoy the returns of the oil boom.

Indeed over four years of oil production, Ghana has already started reaping returns from her oil discovery in terms of revenues.

Revenue from the oil fields has become a new source of income for the Government while boosting the country's economic growth, rated as one of the fastest in the world.

One can say that with the Jubilee Field, the floodgates appear to have opened to further investments and exploration activities in the rapidly transforming oil sector for the benefit of the people.

Government in the early 1980s established a statutory and legal framework for petroleum exploration as well as institutional capacity in order to accelerate the country's Exploration and Production (E & P) efforts to further buttress its resolve to make the oil discovery beneficial to the citizens.

This led to the enactment of the Ghana National Petroleum Corporation Law, 1983 PNDC Law 64 and Petroleum (Exploration and Production) Law, 1984, PNDC Law 84. The PNDCL 64 established the Ghana National Petroleum Corporation (GNPC) as a statutory corporation with commercial functions to handle the country's E & P activities.

So how has the institution charged with the mandate of handling the country's E & P activities operated so far?

GNPCs Revenue Management
Of the total amount of US$207.96 million transferred to GNPC in 2011, 63.7% (US$132.48 million) was spent as Equity Financing Costs to honour GNPC's commitments to the Jubilee Partners in respect of its share of development and production costs, according to the annual reports of the petroleum funds presented by the Ministry of Finance.

An amount of US$30.31 million, constituting 14.6 per cent of the transfers, was spent on the acquisition and processing of 2,612 sq km of 3D, plus other related G&G studies whilst an amount of US$28.12 million (13.5 per cent) was spent on the fabrication and installation of the 14km gas pipeline and other related costs. The rest of the transfers (US$17 million or 8.2 per cent) was spent as staff cost and general operational & administrative expenditures.

For the 2012 fiscal year, a total amount of US$230.9 million (GH¢416.89 million) was transferred to the GNPC from the Jubilee Crude oil receipts for 2012 against a budget of US$225.85 million (GH¢361.90 million). Thus, there was a positive deviation of US$5.1 million (GH¢54.99 million).

Of the total transfers to GNPC, transfers in respect of Equity Financing Costs amounted to US$124.63 million (GH¢224.21 million), representing 54 per cent of the total transfers. The equity financing payments are made to honour the NOC's commitments to the Jubilee Partners in respect of its share of development and production costs.

The remaining US$106.32 million (GH¢192.68 million), representing 46 per cent of the transfers, was allocated to GNPC as its 40 per cent of net Carried and Participating Interest.

Of the total transfers of US$230.95 million to GNPC, an amount of US$125.82 million was spent as Equity Financing Costs to meet GNPC's share of expenditures in relation to development and production costs with the Jubilee Partners and the remaining amount of US$105.13 million was expended on the gas project, organisational development, staff costs, and administration expenditures, among others.

In 2013, of the amount of US$186.09 million received by GNPC, an amount of US$84.24 million had been disbursed by the end of September 2013, leaving a balance of US$101.95 million. When added to the cash-on-hand at the beginning of 2013 (US$61.67 million), this puts the cash available as at the end of September 2013 at US$163.63 million.

Ghana's Oil Funds
Ghana's Stabilisation Fund (GFS) and Ghana Heritage Fund (GHF) are the results of the Sovereign Wealth Funds (SWFs) established for the purposes of budget stabilisation and savings for future generations.

These funds have already received allocations which have in turn been invested in debt facilities to help economic development.

In 2011, a total amount of US$69.21 million was transferred to the Ghana Petroleum Funds.

In 2012 the GSF amount of US$54.8 million earned an investment income of US$4,679.02 whilst the GHF amount of US$14.4 million earned an investment income of US$1,214.68 in 2011.

The time weighted return on the Ghana Petroleum Funds from January to September 2013 was 0.491 percent, compared with 0.28 percent net of bank charges for 2012. The time weighted return was 0.370 percent for GSF and 0.805 percent for GHF over the period.

By the end of the third quarter of 2013, GSF had returned investment income of US$783,869.51, compared with an income of US$205,008.40 in 2012. GHF, on the other hand, earned an investment income of US$658,314.26 (an increment of US$601,115.54 or 1,050.92 percent over the 2012 position). The return on both the GSF and GHF amounted to US$1.442 million, compared with US$ 0.286 million in 2012. As already indicated, an amount of US$316.09 million was transferred into the Ghana

Petroleum Funds during the first nine months of 2013, compared with US$24.12 million and US$69.21 million in 2012 and 2011 respectively. Of this amount, GSF received US$221.26 million while GHF received US$94.83 million, based on the formula provided in the PRMA.

Criticisms
Many have criticised government over how it has used the oil revenue since Ghana began oil production. According to them, they could not identify any specific project that the government has used the oil money to execute.

Benjamin Boakye, Director of Projects, Africa Centre for Energy Policy (ACEP), told DAILY GUIDE that 'We have not fared well since four years of oil production in the country. In terms of transparency we have done well but when it comes to accountability, there is a major challenge.'

The challenge, he said, has come about as a result of how government has invested the oil money, stating that spreading the oil money thinly across so many projects does not auger well for the country's development.

'We must choose a specific project which we can identify as oil money project instead of spreading it on so many projects, which makes it difficult for us to track,' Mr Boakye said.

He said there were instances when the oil revenue had been spread beyond the chosen or prioritised areas, adding that 'Some time they tell us part of the money has been used to fund a specific project but you go and would not find the project they are talking about. That is the challenge we have with accountability.'

Mr Boakye predicted doom for Ghana if government continues to spend the oil money the way it is doing now.

'If we go the way we are going, then we are not too far from the oil curse. However, if we amend our ways and spend the money judiciously then we can reverse the trend. But as it is now, we are not too far from the oil curse,' he said.

By Jamila Akweley Okertchiri & Cephas Larbi

body-container-line