BoG to ‘vomit’ $223m

• Posted on November 28, 2016
• by Nana Kwesi Coomson
• Comment

– As PIAC demands refund of misapplied oil revenue

THE Public Interest and Accountability Committee (PIAC) is demanding a refund and retrieval of over $300 million of petroleum revenues.

According to PIAC, the monies have been misapplied and should, therefore, be refunded.

This includes $222.93 million that Bank of Ghana (BoG) swept from the Annual Budget Funding Amount (ABFA), an outstanding surface rentals owed by the upstream companies to the government with applicable penalties, which stood at approximately US$722,000,  a $75.30m loan GNPC gave to Ministry of Finance and $3.46m Oranto/Stone Energy’s rental indebtedness, among others.

PIAC is, therefore, demanding that BoG refunds $222.93 million, the equivalent of GH?666.06million it withdrew from the ABFA.  

It said refunding the amount would be in line with how 30% of the Sinking Fund of the US$100 million that was also swept, was restored by the BoG. 

These formed part of the recommendations contained PIAC’s Report on Management of Petroleum Revenues for 2015. 

Breach of law

The report stressed that the non refund of $222.93million, together with the remaining $70million of the Sinking Fund would be a violation of Section 21 (4) 10 of the Petroleum Revenue Management Act (PRMA).

PIAC advised that in order to forestall future sweeping of any outstanding money in the ABFA account by the BoG, the Minister of Finance should take immediate steps to differentiate the BoG’s monetary survey requirements from those of the public accounts when classifying the government’s accounts for liquidity, investments and other statutory purposes.

PIAC cautions govt

The report cautioned the Ministry of Finance to desist from spending more than the required ABFA allocation, which is in total violation of Section 18 of the PRMA.

In order not to abuse the utilisation of petroleum revenues on many social interventions, the report charged government to be mindful and transparent in the choice of projects, particularly those that are not sustainable.

$722,000 rentals not paid

According to the report, the Ghana Revenue Authority (GRA) must initiate the process to recover all outstanding surface rentals owed by the upstream companies to the government with applicable penalties, which stood at approximately US$722,000 as the end of 2015. 

$3.46m Oranto/Stone Energy’s indebtedness

Similarly, PIAC emphasized that no effort should be spared to retrieve the Oranto/Stone Energy’s indebtedness to the government of Ghana in respect of the non-payment of the 2012 surface rental of US$67,438.36 which as at December 2015 had also accumulated penalties of US$3.46million in accordance with Section 3 (4) of the PRMA.

$75.30m govt owed GNPC

PAIC charged Parliament to prevail on government to refund to the Ghana National Petroleum Corporation (GNPC) the total amount of $75.30 million being the special advance paid to the Ministry of Finance in 2014 and the financing cost of the Western Corridor Roads project in 2015.

It said Parliament must ensure that the practice whereby GNPC is asked to release parts of its allocations from petroleum receipts to government without prior approval from Parliament is halted. 

“Government must desist from directing GNPC to provide guarantees to other state owned entities and to ensure the recovery of payments already made as a result of the inability of state institutions like Tema Oil Refinery (TOR) and Bulk Oil Storage and Transport Company Limited (BOST) to pay for the transactions which GNPC has guaranteed,” it adds.  

The report requested the Ministries of Petroleum and Power to ensure that all outstanding receivables in respect of lean gas sold to Volta Reiver Authority (VRA) which stood at US$227.78 million as at the end of December 2015 is paid as a matter of urgency so as to guard against the Ghana National Gas Company (GNGC) falling into the never-ending cycle of indebtedness prevalent in Ghana’s energy sector.  

“This will also help ensure that the GNGC is in the position to pay the GNPC for raw/wet gas exported to the Atuabo Gas Processing Plant”, the report said.

PIAC calls for national dialogue on ABFA utilisation

PIAC called for a national dialogue/debate on the ABFA utilisation to inform the priority areas to be selected by the Minister for the next three years. 

It said the proposed dialogue must start immediately and must be informed by a detailed evaluation of how the approximately $1.5 billion that has been allocated to the ABFA over the past 5 years has been utilised and its impact. 

Expenditure on priority areas 

PIAC said it has observed in the past five years that the government does not adhere to the selected priority areas and tends to spend the ABFA on other areas that are not strictly under the four priority areas. 

It, therefore, called for clear guidelines and definitions of the selected priority areas to avoid amorphous expenditure.

Capacity building

According to PIAC, the capacity-building, including oil and gas under ABFA expenditure, has not, in practice, resulted in the enhancement of indigenous expertise and know-how in the oil and gas sector as required in the Local Content Regulations. 

It has, therefore, requested the Minister of Finance to redirect his focus in the building of capacity in oil and gas related activities.

Oil cash for Agriculture

Given the strategic importance of the agriculture sector to the Ghanaian economy, PIAC recommends that a sizeable proportion of future petroleum revenues (higher than the 11% so far disbursed to the sector over the past five years) should be channeled into the sector to help transform the sector and boost productivity. 

PIAC sees the proposed 378% year-to-year increase in the allocation to the agriculture modernization priority sector in the 2016 Budget as a step in the right direction and urges the Minister of Finance to ensure that the allocated amount gets disbursed on time and used to support interventions in agricultural mechanisation and post-harvest losses technologies.

In order to promote the growth of the Stabilisation Fund, the capping policy must ensure a long period of accumulation of transfers into the Fund to withstand fiscal shocks that may be caused by fluctuating oil prices. 

Cap on the fund was initially reduced from US$250 million to US$150 million and then reduced to US$100 million. 

The continued depletion of the Stabilisation Fund, whose closing book value at the end of 2015 was just US$177.4 million, weakens its capacity to help sustain critical public expenditure, especially in times of lower than expected oil prices.

The Stabilisation Fund, which was established under the Petroleum Revenue Management Act (Act 815), was to provide budgetary support in times of shortfalls in expected petroleum revenues, but the Act was later amended to allow excess monies in the fund, i.e. beyond US$150 million, to be moved into a sinking fund for debts repayment purposes.

The Fund had a balance of US$379.19 million in 2014 when the Finance Ministry announced a cap of US$250 million, which allowed the excess amount to be channeled into a contingency fund to allow for debt servicing.

A year later even as petroleum revenues fell, the Finance Minister lowered the cap on the fund to US$150 million, and transferred the excess to the Sinking Fund to be used for debt servicing.

For the third year running, the Finance Ministry, in the 2016 mid-year budget review, announced a reduction of the cap to US$100 million which would mean that the excess would be transferred to the sinking fund for debt servicing again.

Government will thus move an amount in excess of US$74 million into the sinking fund, as its bid to raise another Eurobond this year has been met with demands by investors for excessive yields.

This can be achieved by a higher capping of the Fund than is the case now

In order to help mitigate the impacts of the volatility of crude oil prices on the world market and following the successful hedging programmes being implemented by Tullow Ghana Limited and Kosmos, the government should consider resuming its hedging programme on crude oil export.

By Elvis DARKO, Accra