Mon, 18 May 2015 Business & Finance

Amended Oil Revenue Management Bill Better But....

By Adnan A. Mohammed || The Economy Times
Amended Oil Revenue Management Bill Better But....

Energy experts have applauded the government for the measures and policies being put in place in the management of the oil revenue.

The experts believe the current amended Petroleum Revenue Management Act (PRMA) before parliament depicts commitment on the side of government to ensure prudent use of the oil revenue.

Among the experts are; Dr. Amin Adams of The African Center for Energy Policy and Lawyer Ali-Nakyea Abdallah, a tax and energy expert who spoke to economy times in Kumasi last week at a two day workshop organized by GIZ and the Swiss Secretariat For Economic Cooperation in collaboration with institute of financial and economic journalists for selected journalists across the country.

However, they both agreed that there are still potholes in the amended bill which needed to be reconsidered. Among the issues are the provisions in the bill that allows the fixing of the flow meter on the fpso by the country, the 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).

Other institutions such as the Natural Resource Governance Institute (NRGI) and IMANI Ghana have also raised similar concerns of which they think the government and legislators must reconsider before the bill passed into law.

According to the NRGI, they believes that the coming years will be important for the governance of Ghana’s natural resource revenues. The government continues 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 PRMA.

NRGI has noted that, 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”.

It explained that, in practice this means that the government can alter the spending and saving strategy in a given year, weakening the rules in the PRMA.

It said, 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.

Looking at other set of amendment which 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. NRGI thinks, the changes fundamentally alter the implementation of the PRMA, but few outside the ministry of finance are clear on the details.

According to Mark Evans, Africa Economic Analyst at the Natural Resource Governance Institute, 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 said, the amendments proposed in practice now introduce 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 analyse 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.

Moreover, Policy researcher and think-tank IMANI Centre for Policy and Education says government’s expenditure pattern for oil revenues will not attain desired impacts in the absence of a long-term development plan.

They are view that, under the Petroleum Revenue Management Act (PRMA), revenue from oil that is earmarked as the Annual Budget Funding Amount can be expended on selected areas for amortisation of oil and gas loans, road and other infrastructure, agricultural modernisation, and capacity building.

Since 2011 government has spent about GH¢1.9billion in the selected areas.

Theo Acheampong , a Petroleum Economist and Fellow of IMANI had said the revenue is thinly spent on so many areas, making it difficult for government to realise the impact.

Mr. Acheampong, speaking in a seminar on accountability in the oil and gas sector, said the PRMA does not give room for prioritising the pro-poor sectors of education, health and agriculture.

“Efficiency of spending petroleum revenues still remains a challenge; ABFA funds are thinly distributed over many capital projects. This obviously will delay the socioeconomic benefit of these projects. Generally, the pro-poor sectors of Education, Health and Agriculture were not allocated significant portions of petroleum revenues within the time period under review (2011-14),” he said.

“To curb the spending inefficiency canker, spending of petroleum revenues should be based on an investment plan guided by a long-term national development or medium term development framework,” Mr. Acheampong added.

Education sector disbursements constituted a paltry 1.49 percent of total ABFA expenditure from 2011 to 2013, while ABFA disbursements to the Agriculture and Health sectors from 2011 to 2014 represented 14.4 percent of total ABFA expenditure.

Mr. Achemapong bemoaned the fact that even in the face of oil revenue, infrastructure development in the areas of health and agriculture are largely donor-driven -- a situation he said could jeopardise the country’s development of key infrastructure.

“Government should commit a substantial portion of the petroleum revenues to the Pro-poor sectors, as these sectors are pivotal in the pursuit of sustainable economic development,” he added.

“Infrastructure as a priority area received 56 percent of the total ABFA spending over the four years (2011-2014) while disbursement to the Road and Highway sector constituted 41.1 percent of total ABFA spending, despite the sector relying significantly on donor support.

Mr. Acheampong said it -s important that Ghana comes out quickly with a National Long Term Development Plan to guide the use and prevent misuse of natural resources.

There is therefore need to increase stakeholder engagements on how and what goes into the decisions and selection of the four project areas where petroleum revenues are to be applied by the ABFA funding.

He also asked for budgetary allocations to Accountability institutions such as PIAC, which is being starved of funding needed to enable it effectively monitor how petroleum expenditure and revenues are applied.