Ghana is not deriving value for money from the infrastructure projects funded with oil and gas revenue as most of the projects have been delayed leading to cost over-runs.
Over the past two years, allocations under the Annual Budget Funding Amount (ABFA) have been mismanaged and spent inefficiently.
According to a new report by the Africa Centre for Energy Policy (ACEP), most of the over $541 million revenue received from oil in 2012 was drained by Government due to poor planning and spending decisions rendering most of the projects incomplete.
Launched yesterday in Accra by Mohammed Amin Adam, Executive Director of ACEP, the report said the Ghana National Petroleum Corporation (GNPC) and the Ministry of Finance had the highest percentage of revenue from the oil.
Titled: “The two sides of Ghana – How a good law may not stop oil money from going down the drain,” the report noted that GNPC was allocated over $230 million in 2012, representing 47 per cent of the total oil revenue for 2012.
Out of this, over $124 million was used for its equity financing while the rest of $106 million was used for investments.
GNPC’s oil expenditure breakdown
According to ACEP’s study, the GNPC spends over $9 million a year on its staff members with an average staff salary of $51,503.
“On a global scale, Ghana’s allocation of oil revenue funds is significantly higher and more selective toward government staff members than other international oil funds such as Tullow Oil or PetroSA, who employ over 140,000 workers,” the report commented.
The GNCP employs only 175 workers. Additionally, more money is spent by the GNCP on administration than social issues and public safety.
The GNPC additionally paid $165.8 million, as payment of loans to the Jubilee Partners, which was at an interest rate of 10.1 per cent.
Mr Adam stated that there have been misplaced priorities in the expenditure account, as administration costs amounted to 18 per cent compared to the 8 per cent invested in social needs and 4 per cent for public safety.
“Out of the amount for administration cost, $65,000,000 was given to the Office of the President while Education and Health remained under-funded.”
He expressed fear that the corporation has not demonstrated a capacity to invest these revenues efficiently.
“The GNPC’s ability to manage its share of oil revenue allocated to it has come under serious doubt,” he said.
This has caused other important areas to suffer. For example, the Ministry of Finance’s Budget and Policy Statement indicates that from 2012, only 2 percent of the budget was spent on education and 6 percent on health.
Nearly half the population remains illiterate, and the risk of extracting a major infectious disease is very high, according to the CIA World Fact book.
“Problems with roads and infrastructure continue to loom. Despite the 16 major projects that were supposed to be completed by 2012, 63 projects are delayed, incomplete, followed with poor diligence, have over-run costs, and many have come to a standstill, ACEP’s report finds.”
Additionally, Ghana’s poorest areas – the Central, Northern, Upper East and Upper West regions – have received the least amount of funding totaling only 6.7 percent for all four regions combined.
Compared to its African neighbors like Malawi, Tanzania and the DRC, Ghana’s cost overruns are at least 18 percent higher.
The ACEP projects that as a result of the rate of allocation, each of Ghana’s 63 projects will take 32 years to complete.
The Centre therefore recommended curtailing the discretional powers of the Minister of Finance, regarding priority areas such as oil revenue. According to Article 296 (c) of Ghana’s Constitution, “Persons exercising discretion apart from a Judge must publish by constitutional instrument regulations to govern the exercise of those powers.”
“The Minister of Finance must therefore comply with the provisions of the constitution before the presentation of the 2014 budget and policy statement of the government to parliament,” Mr Adam opined.
He further called on Government to present to Parliament the Fiscal Responsibility legislation in order to ensure that the management of public resources is guided by predictability, credibility and transparency.
Mr. Adam also stressed the need for a public investment management plan where projects funded from loans against future oil and gas revenues would be guided by transparent procurement processes.
Every three years, the government is required by law (Act 815) to review its priority spending areas on oil revenues. The next review is scheduled to take place in the 2014 budget discussion.
According to Mr. Adam, “The Minister of Finance must comply with the provisions of the Constitution before the presentation of the 2014 Budget and Policy Statement.”