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2017 “Asempa” Budget: Key Take–Out on the Energy sector

  • SOURCE: | qwesa2big
  • Ken Ofori AttaOn Wednesday, 2nd March, the Finance Minister of the Republic of Ghana, Ken Ofori-Atta presented the government’s maiden budget for the year 2017 to Parliament and the nation at large. The budget, according the minister aims to “restore hope and steer the country onto a sustainable and inclusive growth path.” The budget touched on various sectors of the economy including the Petroleum and energy sector.

    However, the budget was greeted with mixed reactions from members of the governing party and the opposition. Citizens have however not been from the debate. Some have described the budget as bringing ease and respite to the ordinary citizen. Many also disagree with this view and expectedly so.

    Major reforms were outlined in the Petroleum, mining and energy sector

    –          Petroleum sector

    The minister projected a total receipt of GH¢2.4billion from the petroleum sector. This according to the minister is estimated at 1.2% of GDP, which is a slight increase of 231% over 2016 outturn.

    Royalties expected from the sector is estimated at GH¢616.8m, accounting for 39.1% of taxes expected from income and property.

    On the Ghana Petroleum Fund and Contingency Fund, the minister projected GH¢300.7m to be saved in the funds. Whiles the Sinking Fund is expected to be drawn-down by GH¢716.1million.

    The Benchmark Revenue price for crude oil, according to Ken Ofori-Atta, is estimated to be $56.142 per barrel at end of 2017 with a Benchmark output of 43,875,920 barrels (120,208 bopd) and 32,512,497 MMBtu for oil and gas respectively.

    It was further projected that the petroleum revenue for the year amounted to US$515.64m, with Benchmark Revenue at US$242.08m.

    However, the minister requested for the petroleum revenue distribution formula to be maintained, though, the time for review has elapsed. The formula is indicated below;

    o    30% of Net Carried and Participating Interest to GNPC

    o   70% of Net receipts to the ABFA (after GNPC’s)

    o    30% of Net receipts to Ghana Petroleum Funds (after GNPC’s)

    o   30% of amount allocated to GPF to the Heritage Fund

    o   70% of amount allocated to GPF to the Stabilization Fund

    Notwithstanding this request, the minister as per the powers vested in him by Section 21(5) of the PRMA 815 to review the priority areas of spending from the ABFA which is projected to fetch an amount of GH¢342m, the new priorities as capped by the minister are as follows:

    o   Agriculture

    o   Physical infrastructure and Service Delivery in Education

    o   Physical infrastructure and service delivery in health

    o   Road, Railway and other critical infrastructure development

    On oil and gas, the minister reiterated the government’s commitment to work with Jubilee partners to address production shortfall in 2016 which resulted mainly from the damage on the FPSO Kwame Nkrumah. To salvage this situation, the minister disclosed the adoption of a three phase approach to convert the FPSO to a permanent spread-moored.

    He further revealed that the first gas production from the TEN fields to the Gas Processing Plant for processing is expected in first half of 2017.

    The minister revealed GNPC’s engagement with partners to develop integrated technical and commercial schedule which is expected to kick start in second quarter of 2018.

    In order to clear the doubts in many minds of Ghanaians, the minister clarified the government’s commitment to fund the free SHS policy from the ABFA and other domestic revenue. This was in sharp contradiction to the Senior Minister’s decision to fund the policy with the Heritage Fund.

    Tax incentive on petroleum products

    In fulfilment of the government’s promise to citizens on abolishing some taxes which were deemed “nuisance,” the finance minister indicated government’s decision to scrap some taxes on petroleum products. This include the abolishing of excise duty on petroleum and reduction in special petroleum tax from 17.5% to 15%.

    –          Energy

    The minister revealed the government’s commitment to solving the challenges that has bedeviled the sector energy sector. In this vein, certain measures were proposed for consideration by the House. The minister recounted that energy sector levy as proposed at the beginning of the year with an estimate of GH¢3.2billion, but an actual of GH¢3.3billion was realized for the 2016 accounting year. This however, could not solve the energy challenges which confronted the nation.

    The measures proposed by the minister to deal with this setbacks however include tax incentives; capital market development initiative that will ensure that companies in the energy sector are enlisted on the Ghana Stock Exchange within five years into operation; credit risk assessment framework to guide the sector; establishment of Financial Stability Council to oversee debt management of the state institution; and restructuring of the energy sector by bringing all hydro power generations under VRA and the thermal power generations under a separate entity that will be privatised.

    A projected amount of GH¢241.2 have been allocated this year to ease the plight of electricity consumers. The major measures expected to bring about relief to the ordinary citizen include;

    Energy tax incentives

    –          Reduction in National Electrification Scheme Levy from 5% to 3%

    –          Reduce Public Lighting Levy from 5% to 2%

    Policy reforms

    –          Streamline the Energy Sector Levy Act, 2015 (Act 899) to accommodate all the existing legacy debts for banking and the private sector, which include energy sector debt, Bulk Distribution Companies (BDCs) and other energy sector related debts

    –          Streamline revenues of Energy Sector Levy to ensure  certainty of cash inflows for debt servicing

    –          Liaise with commercial banks to issue bonds in (back of) support of streamlining ESL revenue for immediate liquidity

    The minister further indicated the government’s stance on the Compact II. He indicated the government’s commitment to resolve the controversy over its implementation through a national dialogue.

    Power generation

    On power generation, the minister projected to increase the generation capacity by 1227MW which include: 370MW AKSA project, 107MW GPGC, 350MW CenPower project and 400MW Early Power Project among other. Additionally, the minister indicated to upgrade the system of ECG and NEDCO to improve quality of power supply to consumers.

    –          Mining

    On the mining sector the minister bemoaned the underperformance of the sector in 2016. He however, projected a decline in the average gold price from US$1,249 per fine ounce to US$1,219 in 2017. This according to him is due to the strengthening of the US dollars.

    The minister proposed a local content policy that will enjoin minimum percentage of mining companies’ shares to be enlisted on the stock exchange within five years into operation.

    www.reportingoilandgas- Kwabena Tabiri

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