Oil revenue shores-up investment in road sector …PIAC report revealsBy Ghanaian Chronicle
5/18/2012 2:02:28 PM -
By Tim Hinchliffe
The Public Interest and Accountability Committee (PIAC) has launched its annual report on petroleum revenue management for 2011 in Accra yesterday with a revelation that revenue from petroleum helped the government to shore-up the investment in the road sector
The PIAC was established under the Petroleum Revenue Management Act (Act 815), with the objectives of monitoring and evaluating compliance with the Act by the government and other relative institutions in the management and use of petroleum revenues, according to the report.
In the report, the PIAC sought to use, whenever feasible, primary data and information from major institutions whose roles, responsibilities, and performances were subject to the operation of Act 815. The data was gathered directly from the agencies, through a combination of questionnaires and face to face meetings.
After oil was discovered in commercial quantity in June 2007, the Jubilee Field first began production in December 2010. The field is reported to have 800 million barrels of proven reserves, and an upside potential of about three billion barrels of oil.
With the discovery of oil, Ghanaians are hopeful to avoid some of the problems related to the sudden onset of oil wealth as experienced in other countries. Increased corruption, increased debt, competition and conflict over resource revenues are of major concern.
Local and international observers have raised a word of caution that Ghana's enviable track record of economic, social, and democratic development over the last 20 years, may be affected by the challenges posed by the oil find.
The government is expected to receive several billions of dollars in new oil revenues over the next two decades, and how these new revenues are managed would be vital to Ghana's continuing development.
Already, there have been inconsistencies between the oil revenue forecast and the actual total oil revenue. The forecast for 2011 was estimated GH¢1,250 million, but the total oil revenue was GH¢666.2 million. That is a difference of GH¢583.8 million.
According to the report, the forecasting methodology, as specified in Act 815, was not being strictly complied with, reportedly due to lack of historical price data on Jubilee crude oil. In forecasting corporate taxes, the Ministry of Finance and Economic Planning (MOFEP) also failed to consider the advice of the Ghana Revenue Authority (GRA) on the tax-paying position of the oil companies, which then raised problems of institutional coordination.
Furthermore, MOFEP's reliance on negotiating corporate taxes with oil companies based on moral suasion was not in tune with established international practice.
Royalties represented 27.7% of the reported oil receipts at GH¢184.4 million, while carried and participating interest was the largest revenue stream for the year, contributing 72.3% of the reported oil receipts at GH¢481.8 million.
The report found that there were wide disparities in petroleum revenue for 2011 between the forecast and the outcome. All the revenue streams fell short of their forecast, with the exception of carried and participating interests.
Corporate taxes, in particular, were not collected due to capital cost recovery provided for in the Petroleum Income Tax Law 1987 (PNDC Law 188).
The major cause of the revenue shortfall during the 2011 period was the non-payment of taxes, which were projected at GH¢603.76 million. The Ministry of Finance and Economic Planning explained that the non-payment of corporate taxes by oil companies resulted from 'carry-forward losses.'
PNDC Law 188 and the Petroleum Agreements signed with the oil companies on the Jubilee licenses provide a capital allowance of a 20% annual cost recovery for five years, starting from the year of production.
Thus, the oil companies were entitled to capital allowance of 20% in 2010, but with revenues not flowing in from the export of crude oil in the production commencement year, losses were reported. The reported losses were subsequently carried forward to 2011, which, in addition to capital allowances for 2011, thereby reduced any taxable profits for 2011.
The Ghana National Petroleum Company (GNPC) did not pay dividends to the government for 2011, because the corporation needed to plough back its profits to recover significant investments and operating costs associated with its participating interest.
The GNPC said it was not yet able to provide the PIAC with a report on the use of funds (GH¢315,390,698) received to cover its activities in 2011, due to an ongoing audit.
Despite the setbacks, petroleum revenues provided significant fiscal relief for the government to finance important development projects. If petroleum revenues were removed from the equation, there would have been a negative growth in road investments, and worsening growth for agricultural investments.
The average worldwide finding cost for Financial Reporting System Companies (FRSC) is $18.31 per barrel of oil equivalent. Considering the fact that the Jubilee fields hold some 800 million barrels of crude oil reserves and the finding costs of Jubilee reserves is about $6.92 per barrel, the Jubilee project is a competitive one.