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07.12.2010 Feature Article

Ghana’s Oil Future Revenues as Collateral for Loans - Not so fast

Ghana’s Oil Future Revenues as Collateral for Loans - Not so fast
07.12.2010 LISTEN

Just a little maths. At a low annual interest rate of 2% and an expected annual revenue flow of $500 million, we would have to securitize our future oil revenue for 25 years or more to raise approximately $10 billion e.g. for the STX project alone.

In other words without a cogent National Development Plan indiscriminate borrowing against our oil revenues will tie our hands. We should be careful how we approach the use or lack thereof of the oil revenues in Ghana. It is too early in the game to think of using future oil revenues as collateral for loans. We are yet to receive a dime from our new found national resource and we are all over ourselves about mortgaging the future earnings.

We are all aware of how loans are procured for the Nation and the potential of individuals greed to sell off the country, As a country we have shown a lack of sophistication in procurement of loans and we have shown a lack of an ability to monitor or police these loans to ensure that they are used for whatever they are intended for.

Ghana's petroleum wealth at any point in time is held in three assets: the proven reserves, the revenues in the transitory petroleum account, and finally the savings in the funds. Clause 5 seeks to protect two things. First, the potential securitization of the proven reserves which includes the entitlements of the private oil companies as well as the savings for the future generations. To the extent that only portion of the reserves would finally be converted into government revenues, pledging the reserves in whole or in part can be a hazardous exercise. How do we limit how much of the reserves successive governments can borrow against and for how long.

Throwing caution to the wind and thinking that the only way we can develop as a nation is through acquiring loans is dangerous. We have no clear development national agenda. What we have seen is that loans are procured in a knee jerk fashion without a clear understanding of how each loan fits in the overall national development plan.

Loans are not gifts. They subject the borrower to all kinds of terms and conditions depending on the loan structure. We should hold off collaterizing our oil reserves, see how production goes and the trend thereof , see what kind of revenue streams will come through, monitor the use of that money, set up a comprehensive national development plan, tailor the utilization of the money to these development plans and above all lets do all of these in a transparent fashion.

As the saying goes, Rome was not built in a day and we should not be in a hurry to think that we can all of as sudden do everything at once. Why do we all of a sudden think that we shall perish today if we do not get loans to develop the country pronto. This debate should not be drawn along party lines but what is in the best interest of the Nation. The Nation will not be served well if we mortgage our future in this fashion and become victims of the new neo-colonization. We are in a position to take our destiny into our own hands with this oil find and we should not hand it over to any neocolonialist interests in the form of being puppet recipient of their loans. These lenders are basically coming in, cutting deals by offering us very low-interest loans or outright giving them grants money, whatever it is, and they are in effect, creating a new colonial system.

We are all aware of the politics in Ghana. The political atmosphere in Ghana is a winner takes all game. This philosophy will force any party in power to get the maximum loans and squander them to remain in power and we will have nothing to show for it. Trust me this will happen. You may argue that nothing will prevent any government from getting loans even without the oil as collateral but with collateral such as oil caution will be thrown to the wind “Prudence is likely to win greater electoral favor. “What seems to be at play here is more of the penchant to appropriate public wealth into private wealth and to do so in a hurry through massive public spending, than the desire to build a good society, because good societies cannot be built in a hurry, and cannot be guaranteed by reckless spending.” On quote

This oil belongs to all of us. We should be prudent about how we use it. Those shouting from the roof top about using our future oil revenues as collateral for loans should not forget we have had other natural resources and have made nothing of them. What has happened to our revenues from our timber, gold, bauxite, diamond, cocoa to mention a few. What is our experience from the manipulation of these other national assets? Today our gold industry is owned by foreign companies. Our cocoa is smuggled to Ivory Coast and we pardon companies who do the smuggling. The oil will go the same way if we are not careful.

Is there a place for using future oil revenues for loans? Yes there is. But it must be within the context of a National Development Plan and not based on the whims and caprices of any group of people or of political persuasion. There must not be a blanket statement in the oil bill about using future revenues as collateral. Instead each consideration of a loan must be individually debated, viewed in the broad context of national development, its urgency debated before a consideration of whether that particular loan qualifies for such a waiver. I propose that in the next five years we should refrain from using future oil revenues as collateral for loans. This period will at least give us breathing space to understand the industry and see what revenues will accrue, have an understanding of how to apply the revenue to our development. Ghana will not perish from the surface of the earth if we apply caution and learn now to crawl before running. Ghana is poised for greatness but this greatness will elude us if we are arrogant and mindless of our future.

"Perhaps the two traits which have impressed me as those most characteristic of the African native are his lack of apprehension and his lack of ability to visualize the future." Maybe Lord Luggard was right after all?

Submitted by Yaa Serwaah
ɔbaa basia a okarii ntansa kɔtɔɔ gyatatire

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