The Government placed a draft revenue management bill with Parliament recently, which is still being debated. Other than the many clauses governing the collection and use of the oil funds, Clause 5 has become the most contentious.
As presented to Parliament by Government after cabinet approval, clause 5 is very clear and reads thus.
5(1) The assets of the petroleum account shall not be used;
(a) to provide credit to the government, public enterprises, private sector entities or any other person or entity, and
(b) as collateral for debts, guarantees, commitments or other liabilities of any other entity.
5(2) In order to preserve revenue streams from petroleum and ensure the object of this Act, there shall not be any borrowing against the petroleum reserves.
The obstruction to collateralising reserves is now a shackle around Government's accelerated development program. Post the budget reading the NDC Government has announced several infrastructure loans from Japan, China, Czech Republic and Korea. The Veep left Ghana last week, to Saudi Arabia, doubtless he will return with additional good news of support from the Arab neighbours.
Government would like Parliament to amend the clause to allow for future oil revenue streams to be used to borrow money for development, today. Deputy Minister Fifi Kwetey explains that the required amendment will allow for pledging the future annual oil revenue portion in the budget against loans.
Granted that this is the need, the minority NPP ranking spokesperson for finance has said that the NPP side has no objection to the idea of future revenue collateralisation. I prefer to think that we will pledge future net cash flows rather than revenues, but that is a small technical refinement.
To buttress its argument, Government refers to the NPP administration's use of a portion of Cocoa revenues to secure facilities to build the Bui dam. The NPP Government had previously also pledged the 10% carried interest of the Ghana National Petroleum Company to the multinational oil company, Vitol for oil deliveries in the past.
Clearly, the NPP party does not have a problem with securing future oil revenues as collateral. If they do, they lose the moral ground to argue for clause 5. But the NDC Government drafted clause 5.
A nation-wide contribution, culminated in crafting the bill to Parliament. The NDC Government is now faced with keeping faith with the people's wishes in clause 5 or re-phrasing the social agenda and describing the collated views from around country as “for advice only”. Herein its dilemma. But there really should be no drama at all.
There is nothing the matter with borrowing money and pledging whatever assets the lender will consider as secure and easily sold for cash in case of default. How much you borrow and how much security is attached is a matter of matching your needs to your potential assets. Ghana borrows all the time and we have developed the confidence of the Donor community and the International markets in our ability to repay.
What we have not achieved is the trust of the people who voiced determinedly in clause 5 that they are yet to agree with politicians that they can trust them with a free hand to use future reserves and keep enough in hand for coming generations.
In the draft Revenue Management Bill, 70% of all revenues (and this includes royalties, surface rentals, initial carried interest, corporate income tax payable from the National Oil Company, taxes in cash from upstream and midstream petroleum businesses, capital gains tax from sale of ownership of exploration, development and production rights, and more) form part of annual budget resources. The remainder 30% is split between a Heritage fund (30%) and a Stabilization fund (70%). Therefore of the total petroleum receipts, 9% is for the Heritage fund, 21% for Stabilisation and 70% for budgetary support.
All these receipts accumulate in the Petroleum Account. It is this account that is restricted by clause 5. Not only the portion of the oil.
Finally, we have the question of the absorptive capacity as a nation to take up so much and churn it into useful productive income streams.
Borrowing is simply not the end.
Do we have the potential to identify and acquire enough knowledge and learn to manage projects ourselves? To complete mega projects, build railway lines from north to south and build roads along the Eastern corridor, we need initial help. Once we have been helped, would we have built sufficient knowledge capacity to take on these projects ourselves in the future? Before we throw 100% of our GDP into the economy, we should have the absorptive capacity to become receptive to acquiring and assimilating external knowledge.
Corporate Ghana must develop organizational routines and processes by which they can acquire, assimilate, transform and exploit knowledge to produce a dynamic organizational capability, which can take advantage of the infrastructure made available by Government. This is best done by building on previous knowledge sets and acquiring innovative skills from research and development.
And Government must allow this to happen by not rushing its development agenda for political expediency.
Petroleum revenue will accrue on a gradual basis throughout a year. Rather than accelerated borrowing from day one, we should take the revenue as it comes and feed that into the economy, allowing our capacity to grow and take on the challenges as it learns from its mistakes. Gradually, we will become capable of doing the larger projects without external supervision.
Clause 5 must stand as the collective wisdom of Ghanaians and politics must take a back seat to financial and development prudence. Ghanaians have said in cause 5 that they are not comfortable with handing unfettered control of the petroleum revenue to politicians.
By Sydney Casely-Hayford, [email protected]