30.04.2009 Editorial

Ghana's oil find: Benefits and Nightmares

By Daily Guide
Ghana's oil find: Benefits and Nightmares
30.04.2009 LISTEN

Many Ghanaians were happy when news concerning the discovery of oil in commercial quantities in the Western Coastal area of Ghana was announced.

The obvious expectation was that Ghana would soon join the group of the world's oil-rich countries and obtain revenue from the industry to boost its economy.

Available statistics indicate that hydrocarbon and mineral resources account for over 50 percent of government revenue or export proceeds for many countries blessed with these mineral resources.

In Ghana, it is estimated that solid minerals account for about 33 percent of total exports, 11 percent of government revenue, 5 percent of GDP and 7 percent of corporate tax earnings.  

Notwithstanding the high revenue expectations from mineral resources, there is also a “paradox of plenty” or “resource curse”. For example, some countries like Canada, Chile, Botswana, and Norway with prudent and transparent management practices have benefited from their natural resource wealth whereas a large majority of countries like Nigeria, Ghana, Chad, Liberia, Sudan, Cameroon, Gabon, Angola, Uganda, Democratic Republic of Congo etc, though rich in minerals resources, continue to be poor.

The unfortunate development is that some of these “resource curse” countries have used their revenue to fuel conflicts rather than for development.

The abysmal economic performance of these resource rich countries has confirmed the global perception that corruption is rife in the extractive sector, especially, the oil industry. 

Observations and pronouncements by some prominent individuals like Lloyd George - British Prime Minister, (March 1920), support the perceived corruption in the oil industry.

According to him, “Oil profits generally seem to find their way by some invisible pipeline into pockets”.

A US Ambassador, Joseph Mussomeli, noted that “It is not a dream. The question is, will the dream of oil turn into a nightmare of oil?”

It stands to reason that an oil find can deliver some benefits; however, with the high prevalence and pervasiveness of corruption in the Ghanaian society, Ghana cannot be assured of such benefits, if certain preventive measures are not put in place to regulate and/or control the industry.

This fear is further heightened - by what has happened in the solid mineral sector.

A review of over 100 years of mining activities in Ghana and the lessons drawn so far indicate that the mining sector has been plagued with the 'resource curse' including corruption.

For example, in spite of the varieties of solid minerals that have been mined over the years, poverty and environmental degradation remain major challenges in our mining communities.

A careful comparison between Obuasi in Ghana and Johannesburg in South Africa tells you how deprived Ghana's mining communities are.

The global call for transparency and accountability in the extractive sector, led to Ghana signing on to the Extractive Industries Transparency Initiative (EITI) in 2003. 

Transparency and accountability are hallmarks of any good governance process - it ensures that there is active participation of the people in resource utilization, thus minimizing leakages and inefficiencies in the system.

Since the oil industry is a new area for Ghana, steps have to be taken to ensure that internationally acknowledged best practices in respect to transparency and accountability are observed in order to avoid a situation where the oil companies together with the foreign and local partners would deny Ghanaians the benefits they stand to gain from oil and gas production.

Studies have shown that developing countries that are known to be rich in hydrocarbons are plagued with corruption and environmental pollution. Paradoxically, most extractive resource-rich developing countries are found in the bottom third of the World Bank's composite governance indicator rankings. Again, on the Transparency International Corruption Perception Index (CPI), 2007 - most of the countries found at the bottom of the table are rich in mineral resources. This is indicative of high prevalence of corruption in these countries.

What is frightening is that there is a perception that corruption is making Africa's oil industry lose billions of dollars as a result of revenues vanishing into the pockets of foreign companies and as a result of bribery, public office holders do not enforce environmental impact assessment plans.

Furthermore, the disturbing news is that, despite the non-existence of the planned intervention programmes, like the National Regulatory Authority Bill; a National Petroleum Policy; and Transparent bidding procedures and negotiation in Ghana, some of the oil companies (Tullow oil and Kosmos Energy) are rushing to go into production for which they have applied for a loan of $215 million from International Finance Corporation, a member of the World Bank Group.

The current world economic situation and the desire of National Democratic Congress (NDC) government to quickly deliver its campaign promises might push them to rush for oil money.

Again, it is envisaged that the world's richest countries may not be able to support developing countries because of their economic situation.

The NDC government led by His Excellency, President Atta Mills has promised Ghanaians that they will ensure transparency and accountability in the management of oil revenues.

The President categorically said he would not hesitate to punish investors who take undue advantage of the people of Ghana. In view of the President's statement and commitment, and concerns that citizens would lose influence once license are issued to the companies, I wish to recommend the following:

The government should not rush into oil production by attracting investors under any terms or conditions that are not favourable to the people of Ghana. For example, government must avoid awarding contracts in haste without taking into account the contents and the processes involved in the project implementation, in order to promote corruption-free oil industry and also ensure that the country gets the full benefits from the oil find.

The government should avoid the stability clauses in some of the agreement which allow companies to pay a particular percentage of revenue irrespective of global increases in prices of minerals on the market.

The government should put in place the structures and legal framework that would promote transparency and accountability, thus, prevent 'resource curse,' a common phenomenon found among many oil rich countries in Africa.

Award of license to licensees should be made public and competitive; to ensure free and fair award process meet internationally accepted best practices.

It is known that companies in the extractive sector enjoy huge capital allowances. In view of this, the government needs to have competent officials who can ascertain profits and make sure that the right taxes are paid to the government.

The government must ensure that all public officials involved in the oil industry declare their assets and subject their declaration to verification.

Finally, citizens especially those in the extractive communities should endeavour to use the findings of the EITI reports on Ghana so far to demand transparency and accountability in the application of mineral royalties by demanding for guidelines for the utilization of the mineral royalties.

By Gilbert Sam