Ghana becomes an oil nation

Ghana starts production from one of the largest recent oil discoveries in West Africa, transforming it into a significant oil-producer, but raising fears over the associated risks.

While the country, seen as a model of democracy in the region, has been counting its blessings because of the riches the oil will bring, it needs only to look to nearby Nigeria to understand the potential dangers.

In Nigeria and other countries, major oil production and the money that flows with it have been accompanied by widespread corruption and the neglect of other industries.

The oil curse, as some call it, could well take hold in Ghana, reversing development and political gains highlighted when US President Barack Obama visited last year.

But other observers argue that if anybody can handle it in the region, Ghana can, precisely because of the development that has taken place. The country is already a major producer of cocoa and gold.

It has produced oil in the past, but only in very small quantities by industry standards. The recent find has set off intense interest from investors, including from China.

"Ghana has the potential to avoid it, but still has a lot to do to avoid the oil curse," said Emmanuel Kuyole, Africa regional coordinator for Revenue Watch Institute, referring to dangers posed by the sudden wealth.

There is concern however that the country has not adapted its legislation quickly enough to cope with the windfall.

Commercial production comes just three years after the discovery of the oil -- and with proposed laws to regulate the industry still under debate in parliament.

"We ought to have better prepared," said Bright Simons, researcher with the IMANI Center for Policy and Education, a Ghanaian think tank.

"The whole programme seem to have been rushed. The rush does not benefit anybody."

Critics also argue that Ghana does not yet have the infrastructure to tap the gas that comes with crude production.

That means gas flaring will inevitably take place, observers say.

The concerns persist, despite the governnent of President John Atta-Mills having declared a policy of zero tolerance on the practice, which is widely viewed as damaging to the environment.

Kofi Ada, an opposition lawmaker and former energy minister in the previous government of John Kufuor, remains apprehensive.

"We have already seen indications of the resource curse... it frightens me," he said.

The oil was discovered in 2007 by US firm Kosmos and is estimated to contain some 1.8 billion barrels, one of the largest finds in West Africa in recent years. It will be pumped from the Jubilee field in the Atlantic Ocean.

Anglo-Irish firm Tullow, the lead operator for the field, says it will produce about 55, 000 barrels a day within the first few months before more than doubling output to 120, 000 bpd.

That would be a considerable output, even if only a fraction of Nigeria's two million barrels per day.

Alex Vines, head of the Africa programme for London-based think tank Chatham House, said decision-making linked to actual oil production would have to be more technocratic than political.

"The politics should be focused on finding the best use of oil windfall revenues," he said.

Another concern involves regulation, with activists fearing the energy ministry was not up to the task and would rely on the state-owned Ghana National Petroleum Company, which itself is an interested player in the sector.

Ghana will also be keen to avoid the unrest that has plagued Nigeria's main oil-producing region, the Niger Delta, where scores of attacks and kidnappings have occurred in recent years. An illegal oil industry has also thrived there.

Traditional chiefs in Ghana are already calling for 10 percent of oil wealth, in keeping with the royalty tradition in the mining sector in Ghana.

Investment in villages close to the oil fields was crucial if Ghana was to avoid a situation like the one in the Niger Delta, warned Kuyole.