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A decade of an oiled economy: The ups and downs

  • SOURCE: | qwesa2big
  • EXPECTATIONS were high when Ghana discovered oil in commercial quantities a decade ago in 2007 under former President Kufour.

    Ghanaians and oil experts were indeed of the view that proceeds of the oil find would expand the country’s national income base and eventually be utilised in addressing its teething developmental challenges.
    Dutch disease ruining Ghana’s economy?
    Understandably, there were those who feared that Ghana could suffer from the Dutch disease, where the nation’s attention would be diverted to the oil sector at the expense of other sectors of the economy, leading to a decline in the contribution of the neglected sectors to the economy.
    Indeed, the decline in prospects of agriculture over the past years was enough to justify the fears of Ghana suffering from the Dutch disease.
    Some experts have blamed spending priorities of successive governments for Ghana’s predicament, stressing that “even without oil one would expect governments to devote a significant portion of the nation’s GDP to agriculture.
    “What we expect to see is for governments to use revenues from oil and gas to catalyse agriculture, invest in increasing production and improve the skills of young people to be able to work in the agricultural sector,” said Media Capacity Development Officer with the Natural Resource Governance Institute (NRGI) in Uganda, Mr George Lugalambi.
    This rather pessimistic outlook of the discovery was borne out the several decades of under-utilisation and mismanagement of Ghana’s gold, bauxite and other mineral resources. After exploiting these minerals for over 100 years, this country cannot boast of much, in terms of their development outcomes.
    The Governance Framework
    As part of its avowed determination not to repeat the sordid mistakes made in the mineral sector over the decades, the then government, soon after the discovery, organised a five-day Oil for Development Conference in February 2008 to gather input from various stakeholders for the framing of national policies and legislations to govern the emerging oil and gas industry.
    The country however appeared to have lost momentum following the 2009 political transition, such that, not a single petroleum-related law had been passed before first oil from the Jubilee Field in December 2010. The delay in the passing of new laws and regulations led to the signing of contracts with International Oil Companies (IOCs) under the outdated Petroleum Exploration and Production Law of 1984 (PNDC Law 84) which the February 2008 conference had deemed obsolete because of changes in the industry.
    The inadequacies of PNDCL 84 were brought to bear when it proved incompetent in addressing a dispute over GNPC’s claim of ‘right of first refusal’ at a time when Kosmos Energy sought to offload its stake in Jubilee to ExxonMobil. It further manifested itself in the matter involving a supposed Kosmos liability for spilling some toxic mud in its operational area.
    The Petroleum Revenue Management Act (PRMA) 2011, (Act 815) was the first petroleum sector law to be passed. It is indeed an anomaly to have passed that law ahead of the replacement of PNDCL 84 in August 2016. The PRMA was followed by the Petroleum Commission Act 2011, Act 821, which established an independent regulatory body – the Petroleum Commission of Ghana. The Local Content and Local Participation Regulations, 2013(LI2204) followed in 2013 to ensure that the expertise, goods, and services of Ghanaians are employed or engaged in most petroleum related activities.
    Petroleum receipts so far
    Between 2011 and 2016, a total of US$ 3.427 billion revenue has been generated with the ABFA (70 percent of net petroleum receipts allowable for spending through the budget) so far receiving US$ 1.473 billion.
    The Ghana Petroleum Funds i.e. the Stabilisation Fund, and Heritage Fund, have cumulatively bagged US$902.43 million for the same period; while the Ghana National Petroleum Corporation (GNPC) has received a total of US$ 1,057billion.
    Dealing with accountability in the oil and gas sector
    While oil discovery presents enormous opportunities for economic growth and poverty reduction, it also has a huge propensity to erode transparency, accountability and entrench corruption.
    The establishment of the Public Interest and Accountability Committee (PIAC) under Section 51 of the Petroleum Revenue Management Act 2011, (Act 815) with the main objective of monitoring and evaluating the usage of the petroleum funds by government and other relevant state agencies was therefore an important step aimed at strengthening accountability in Ghana’s oil and gas sector. PIAC, which is composed of people selected from civil society, including faith-based groups, traditional authority, NGOs, and professional associations, provides avenues for public information and participation in the management of oil revenues in line with defined national goals.
    PIAC, as an oversight body, has since raised some concerns about the management of the oil revenue by government among which includes what it describes in its 2015 Annual Report as the poor management of the volatility effect of petroleum and other commodities prices on the budget, which it attributes to the low capping of the stabilisation fund.
    Some civil society organisations, like the Integrated Social Development Center (ISODEC), the Civil Society Platform on Oil and Gas (CSPOG), Africa Centre for Energy Policy (ACEP), among others, have also led the charge in critically assessing the petroleum sector with a view to helping to identify and address weaknesses. They also have served as checks on the actions of state institutions, international oil companies and other stakeholders directly or indirectly in the value chain.
    Local Content and job creation
    It is rather unfortunate that, not even a barrel of the millions of barrels of oil so far produced by the Jubilee Field has been refined locally. Ghana continues to sell its oil in its crude state to be refined abroad, and spends money importing finished petroleum products for domestic use.
    It is heart-warming to learn that the Tema Oil Refinery (TOR) has started refining crude from the TweneboahEnyerraNtonme (TEN) fields.
    In the second quarter of 2016, Cabinet ordered the Ministry of Transport to transfer operations of the PSC Tema Shipyard and Dry Dock Company to the Ghana Ports and Harbours Authority (GPHA). It was the hope of government that the Shipyard would attract the needed resources in the long term, to venture into the building of Floating, Production, Storage and Offloading (FPSO) vessels for the oil and gas industry even as it continues to provide services to the ports and harbours and related sectors in the short to medium term.
    The Tema Shipyard, one of the largest in Africa, has the capacity to do ship repairs and refurbishment, dry-docking, shipbuilding, steel fabrication, and general engineering. Just as South Korea and Japan are leading Asia with sophisticated shipyards, Ghana can also lead Africa, with the necessary and adequate capital investment. The attendant benefits, beyond job creation, are enormous.
    Still on local content in oil, gas and even the mining sectors, Executive Director for the Centre for Extractives and Development Africa (CEDA), Mr Emmanuel Kuyole says there are several job openings for Ghanaians in key sectors of the economy.
    Mr Kuyole has recently charged government to identify areas within the mining, oil and gas sectors were jobs could easily be created.
    There have been concerns about the weak integration of Ghana’s mining sector with the rest of the economy. This has largely been due to weak local content in mineral production. To address the problem, the minerals and mining regulations were promulgated in 2012 and have been under implementation since then.
    Experts who justify the emphasis on local content maintain that it represents a shift in policy from taxes as benefits from mining to more practical ways of integrating mining with the rest of economy.
    “We need to ensure that the extractive sector is just not revenues and taxes but that the sector is leveraged upon to improve upon the economic development, to create jobs and so become one of the levers for pushing government’s industrialisation agenda,” Mr Kuyole stated.
    He pointed out further that “the only way we can achieve our industrialisation agenda is to have a strong local content and value creation strategy.”
    “There is the need to gradually shift government’s focus from relying on taxes to local content so that goods and services that are required are provided and also local Ghanaian participation is ensured. Then we will be creating jobs.”
    Beyond that, with regard to value addition, government is able to tax the local companies for the much-needed revenue.
    Boost for ‘One District, One Factory’ initiative
    According to Mr Kuyole, for government’s ‘One District, One Factory’ programme, there are areas in the mining sector where “we can find low hanging fruits in the extractive sector.”
    He pointed out that there are goods and services that the mining companies procure on yearly basis, so government should take advantage of such opportunities to create jobs for the masses.
    Further, in the mining sector, there are regulations on some items and services that all mining firms are required to procure locally, and so over the past years government could be checking how many of the firms are sourcing their services from Ghana.
    “If they do so, how many indigenous companies have the capacity to supply those goods and services to the mining firms?” he asked.
    Mr TheophilusAhwireng of the Petroleum Commission, said the journey since 2007 has been challenging yet beneficial, with production increasing from the previous 100,000 barrels of oil to the present 200, 000 barrels per day.
    He said several human capacity building and skills development programmes have been undertaken to increase local participation and also ensure technology transfer.
    Mr Ahwireng said there have been several benefits such as the reservation of goods and services for indigenous companies leading to an improvement in the quality of life of these communities resulting from the jobs created.

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