Ghana’s oil cash shared like groundnut – Economists

• Posted on January 4, 2014January 4, 2014
• by Nana Kwesi Coomson
• Comment

With barely three years into the production of oil in commercial quantities in Ghana, renowned economists say revenue accrued from the oil sector has been spent on non-priority areas including art and culture, adding that oil revenues which went into road projects were shared like groundnuts, a major food staple in northern Ghana.

This is contrary to the Petroleum Revenue Management Act (PRMA) which in accordance with Sector 21(5), named four priority areas approved by Parliament for the Annual Budget Funding Amount (ABFA) expenditures for the period 2011-2013. These areas are: expenditure and amortization of loans for oil and gas infrastructure; road and other infrastructure; agric modernization and capacity building including oil and gas.

However, oil money was spent on art and culture, and other non-priority areas especially in the year 2013, a Professor of Economics at the University of Queensland, Australia, Prof John Asafu-Adjaye said this at a roundtable on the Petroleum Transparency and Accountability Index (P-TRAC Index) 2012 Report in Accra.

The P-TRAC Index is a project undertaken by the IEA to promote transparency and accountability in the management of Ghana’s oil and gas resources, and to enhance the level of responsibility on the part of policy makers.

The report was based on four aspects of the oil and gas value chain, namely; Revenue Transparency Expenditure, Expenditure Transparency, Contract Transparency and the Ghana Petroleum Fund.

To this end, Prof Asafu-Adjaye and oil economist, Dr. Mohammed Amin Adam, believe there has not been efficient management of the country’s oil revenue yet.

Dr Amin who is also the Executive Director of the Africa Centre for Energy Policy (ACEP), an energy think-tank organization, noted that in 2013 for instance, “$24 million was spread over 64 road projects, covering 2,124 kilometers; this is not efficient spending because each of these projects, if we maintain this rate of disbursement, will take not less than 30 years to complete and in some cases the cost of the projects has to be doubled or tripled.”

Similarly, many projects being funded with oil revenue have suffered time and cost-overruns; in some cases the costs have doubled or tripled, he added.

For instance, Dr Amin indicated that the Asankragwa road, which was awarded on contract at Ghc24 million in 2011, had ballooned to 42 million Euros.

In the latest report on the management of oil revenue titled, “The two sides of Ghana – How good oil revenue law do not stop oil revenues from going down the drain,” conducted by the ACEP, added that some road infrastructures which were partly funded from oil revenues and were at different stages of completion with a few actually completed were; emergency works on the upgrading of the Ho-Adidome and the Adaklu Xelekpe-Aduadi roads; reconstruction of the Navrongo-Tumu road; reconstruction of Asankragwa-Enchi road; emergency rehabilitation works on Dansoman main road in Accra; and reconstruction of the Berekum-Sampa road.

Dr Amin stated: “While the projects funded from oil and gas revenues may have long-term economic prospects in project communities, the short-term social and economic impacts during the construction phase have been severely limited, as contractors mostly bring workers, food and materials from non-project communities.”

“Ghana is therefore, not deriving value for money from the infrastructure projects funded with oil revenue as most of the projects had been delayed, operating under costly extensions and leading to cost overruns. The money is supposed to be used for investment to improve living conditions of the people,” he stressed at a training workshop for journalists held recently.

However, the ACEP Director commended the Minister of Finance, Seth Terkper, for incorporating the Centre’s concerns and recommendations in the 2014 budget.

Responding, Mr Terkper explained that the oil inflows could only be used as counterpart funding and that the Petroleum Revenue Management Act clearly spelt out how the oil money should be used, saying expenditures on such capital projects came from various resources and petroleum revenue would not be used exclusively for it.

On effective management of the hydrocarbon resource, Dr Amin noted that three areas including transparency about where revenue was going to invest, accountability on how much was received and efficiency on how the money was going to be spent was important.

According to him, it was not enough to provide transparency without putting the revenue into good use. This assertion was shared by Engineer Dr Robert Adjaye. As he put it: “Having the laws in the oil and gas sector does not mean that they will work”.

Dr Amin suggested to the management of the Ghanaian economy to consider spending the oil revenue on few projects in order to achieve a high degree of efficiency.

On expenditure transparency, Prof Asafu-Adjaye said to further enhance transparency; there was the need to provide more information on how the Annual Budget Funding Amount (ABFA) was spent, besides what was reported.

With the establishment of an independent authority to award contracts and licenses, some progress had been made in revenue transparency over the last year, specifically, in the area of frequency and availability of reports, he added.

“We advocate speedy passage of the Budget Act to enhance Parliament’s ability to conduct a comprehensive analysis of the Budget,” he said.

Prof. Asafo-Adjaye, therefore, urged the government to speedily pass the Ghana Extractive Industries Transparency Initiative, the Right to Information, the Petroleum Exploration and Production and the Local Content to further enhance transparency and accountability in the burgeoning oil and gas sector

Ghana’s Minister of Finance, Seth Terkper noted that, in the first nine months of 2013, crude oil production from the Jubilee field averaged 102,503 barrels of oil per day (bopd), compared with a projected output of 83,341 bopd and 71,997 bopd in 2012.

This he said work out to a total of 27,060,737 barrels for January-September 2013, compared with a full year estimate of 30,419,465 barrels and 26,351,278 barrels for the full year of 2012.

By the end of September 2013, Ghana National Petroleum Corporation (GNPC), state-owned oil production firm had made five liftings on behalf of the State. This totaled 4,977,922 barrels, which resulted in a total revenue of $533.86 million, the minister stated.

Author: Masahudu Ankiilu Kunateh