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Ghana’s Oil And Gas Laws Breeding Corruption

By Kwabena Adu Koranteng
Headlines Ghanas Oil And Gas Laws Breeding Corruption
MAY 20, 2015 LISTEN

Studies have proven that laws regulating the oil and gas industry in Ghana have been developed in ways that breed corruption at the detriment of the nation. For instance, Contracts signed between Ghana and oil companies do not meet open contracting principles. These laws do not encourage mandatory contract disclosures. Besides, products of contracts are held confidential and secret from the general public.

Furthermore information on beneficial ownership is not disclosed. The national oil company, that is GNPC which consumes close to 50 percent of Ghana’s oil revenue is not properly regulated and has no financial transparency. Besides, citizens are not allowed to make publiccomments or contributions on contract signing.

These were revealed at a days workshop organised by Journalist Against Corruption in partnership with the Africa Centre for Energy Policy and Open Society in West Africa to train selected journalist on the suspected elements in the oil and gas laws that are breeding corruption or being applied by government officials to enrich themselves.

According to Mr Benjamin Boakye, Deputy Director at the Africa Centre for Energy Plicy(ACEP), these laws are operating at a time that most companies that have been awarded oil contracts in Ghana have no technical competencies and financial capabilities. He describes these clauses in the laws as a recipe for disaster if not eliminated.

In his presentation, The Executive Director of the center Dr. Mohammed Amin Adam said the Exploration and Production Bill bill in its current form would breed corruption.

He noted that though Section 10 (1) of the draft bill proposes an open and competitive bidding process for giving out oil concessions. Section 10 (2) gives the minister the power to ignore the outcome of an open and competitive bidding process and to do sole sourcing.

He stated further that Section 10 (3) also gives the minister the power not to even begin the bidding process in the first place if the minister thinks the efficient way to go is sole sourcing.

These contradictions, Dr Adam insisted cannot be acceptable in the new law.

He argued the norm that has to be encouraged is open and competitive bidding but the exceptions introduced by way of clauses only serve to undermine the bidding process.

"We are going to see the exceptions being the norm. Because of the rent seeking behavior of public officials; because of the secrecy and opacity, because of the vested interest in the industry, you will see that ministers will take the exceptions to govern the contracting process rather than the norm which is the best practice," he stated.

Dr Adam also questioned the rationale in not disclosing the beneficial ownership information of prospective winners of oil blocks in Ghana.

He said in Sudan, the new petroleum law demands that beneficial owners of oil blocks are disclosed. That should be incorporated in the new law, he insisted.

Though he agreed that Parliament has an important role to play in rectifying some of these anomalies, he expressed concern about the increasing division in the house.

He suspects the majority would use its numbers to rubber stamp bills before it and also accused the minority of not being thorough and vociferous enough to raise serious questions about the bills.

Meanwhile, The Natural Resource Governance Institute (NRGI) has cautioned the government of Ghana and stakeholders in Ghana’s oil industry to be mindful of the proposals and recommendations made towards the amendment of the Petroleum Revenue Management Amendment Bill which does not address longstanding issues of concern.

According to Mark Evans, Africa Economic Analyst with Natural Resource Governance Institute, The amendment of most concern is a change that allows revisions to the “benchmark revenue” figure when the Minister of Finance deems there has been a ‘”gross over-projection or under-projection” (Amendment 7). In practice this means that the government can alter the spending and saving strategy in a given year, weakening the rules in the PRMA. From experience we know escape clauses such as these must be clearly defined and restricted in law to rare instances. The proposed amendment does not do this. While this amendment might help the government to manage the current fall in oil prices, it is a decision to ease short-term problems that poses a significant risk to the long-term integrity of the rules. If revenues come in higher than budgeted, the spirit of the PRMA was not to give some flexibility to spend the excess revenues, it was to ensure these are saved for the future. This amendment undermines that objective.

He noted that a second set of amendments aims to change the fiscal rules to ensure that savings enter the funds every quarter (Amendments 3, 4 and 9). “While some have advocated for this, the key concern is how it has been implemented. The changes fundamentally alter the implementation of the PRMA, but few outside the ministry of finance are clear on the details. In the creation of fiscal rules, there is an important tradeoff between complexity and simplicity. Simple rules often leave less ambiguity and room for discretion, and help accountability actors to ensure the government is sticking to the rules”.

He indicated that the amendments proposed in practice now introduces a process that complicates both deposits and withdrawal rules around both of Ghana’s funds and appear to create conflicts in the act. “There is a risk that these rules will create a level of ambiguity and discretion that will also ultimately undermine the PRMA. Since 2011, the PRMA was much praised across the world, including by NRGI, for its role in creating a clear and consistent strategy for saving and spending of petroleum revenues.

It is important that this be maintained. While there may be a case for a review of the framework if oil prices remain low, this should be carried out with much greater consultation than we’ve seen thus far with the amendments on the fiscal rules. The fear is that these changes are being rushed through to manage short-term problems and will ultimately undermine Ghana’s efforts at managing “resource curse” challenges”.

“It is important to also begin learning from the lessons of the PRMA and the limits of its effectiveness. It is remains very difficult to analyze spending of petroleum revenues to assuage the Ghanaian public’s fears that the money is being poorly spent. Of equal concern is that the gains some areas of government spending have had from petroleum revenues have been offset by changes in the rest of the budget.

Over-indebtedness is also a well-known part of the “resource-curse” story. In Ghana the extent we ascribe this to oil or to election-year profligacy will continue to be debated. Nevertheless, over-indebtedness has undermined Ghana’s economic prospects and harmed the implementation of the PRMA”.

“How to avoid this in the future is something many will be thinking about. Many countries have struggled to transform their petroleum wealth into meaningful development outcomes. While the passing of the PRMA was an important step in confronting this challenge, it is by no means a sufficient guarantee. This highlights the importance of continuing to learn from these challenges. The Natural Resource Governance Institute will be supporting these discussions over coming months”.

It notes that the coming years would be important for the governance of Ghana’s natural resource revenues as the government continue to shape its response to a combination of overwhelming debt problems and the fall in oil prices.

“These decisions could easily undermine the integrity of Ghana’s strategy for managing common “resource-curse” problems—a strategy embodied by the Petroleum Revenue Management Act (PRMA). Currently before parliament are amendments to this act. Many of the amendments are important and reflect the government’s efforts to deal with longstanding problems; however there are some areas for concern.

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