*THE POSITION OF THE NEW PATRIOTIC PARTY ON THE MANAGEMENT OF OUR PETROLEUM
RESOURCES AND THE ACCRUING REVENUES*
*BY *
*NANA AKUFO-ADDO, NPP PRESIDENTIAL CANDIDATE*
The First Meeting of Parliament for 2011 has just begun. During this
Meeting, Parliament is expected to complete its consideration of the
Petroleum Revenue Management Bill. This bill is important because it must
meet two fundamental principles. First we must get the best return for our
citizens and secondly we must be internationally competitive. The importance
of this Bill therefore cannot be overstated since the future development of
our new oil and gas industry will be guided by the nature and provisions of
this legislation. It is thus important that all citizens give this bill the
closest scrutiny to ensure that our nation gets the best possible law. This
bill will set part of the framework for our efforts and our objective of
developing a society which addresses the issues of poverty and moves our
country forward. This is the motive for this statement.
I congratulate the Minority NPP Members of Parliament who vigorously argued
in favour of a bill that will ensure that the benefit of these resources to
the nation will be maximised. This must be done in a way that also
recognises the international character of this industry and the experiences
of those who have done it before us should be considered. As is well known,
parliamentary democracy allows the party in opposition the right to say what
it deems fit and appropriate but reserves the right of way to the party in
power. As a consequence, we would like once again to state our position on
the matters that we consider critical which have been proposed by the
Minority and have not so far found expression in the bill, as they have
rather tragically been defeated on the floor of the House. However, since
the bill has not yet been passed, we would like to offer for reconsideration
these very important matters that can determine the treatment of our future
revenues.
This statement is our policy position and reflects many of the ideas that we
have discussed with our various stakeholders and represents our view on how
the oil revenues of this country could be best managed.
First, the management of oil and gas revenues should be in conformity with
procedures set out in the Constitution of the Republic governing the
management of natural resources in the country. Article 269(1) of the
Constitution enjoins Parliament to establish a Commission to be responsible
for the regulation and management of the utilisation of any natural
resources, including oil and gas, found in the country. While the party
supports the enactment of a Law to manage the revenue from petroleum, the
definition of which includes crude oil and gas, it insists that a Commission
to do the regulation and management ought to have been established before
the enactment of the Petroleum Revenue Management Bill.
It is important to observe that, when the NPP Minority argued for the
establishment of a Petroleum Commission, the NDC Majority did not appreciate
this constitutional imperative. It is noteworthy, though, that, belatedly, a
draft proposal has been submitted to Parliament for the establishment of a
Petroleum Commission. The question is, did it have to take a struggle by the
Minority for the Executive to have acknowledged this basic requirement?
Second, the party is of the opinion that, chronologically, the bill on
Exploration and Production should have been the first to have been
considered of the petroleum bills. One cannot manage accruing revenues if
one has not earlier on explored and exploited a resource. That is
commonsensical. As it is now, we are putting the cart before the horse and
that may create sequential and procedural problems thereafter, not least
relating to retrospectiveness.
Third, the party holds the view that a Petroleum Fund, as provided for under
Article 175, should be established outside the Consolidated Fund and into
which all proceeds from the oil and gas revenues should be lodged. This will
create a situation where the use of petroleum revenue can be properly traced
and thus allow for transparency in the use of the revenue. It is, therefore,
difficult to understand the initial resistance by the NDC to this cardinal
principle.
Fourth, the party holds sacrosanct the view that monies from this fund
should not be used to support directly the normal budget. That explains why
the party canvassed the position to establish a special development fund
from the oil revenues. This will be the best way to prevent corruption and
unfocused use of the oil revenues, since such a fund will better lend itself
to tracking, monitoring and overseeing by Parliament and, indeed, by all
citizens and stakeholders.
Fifth, the Petroleum Fund should be used purposefully to help the process of
industrial transformation of our economy, which must be the overarching
objective of national economic policy. In this regard, the Petroleum Fund
should have four main sub-accounts or special purpose funds:
1. the Agro-Industrialisation Fund
2. the Infrastructure Fund
3. the Education, Science and Technology Fund; and
4. the Health Fund
The Agro-Industrialisation Fund should be used to help increase access to
capital for private businesses at a cost that is affordable to local
businesses to facilitate the establishment of industries, especially
agro-industries and value added industries for local primary products. The
Infrastructure Fund should be used to help provide the necessary
infrastructure in roads, railways, waterways, energy and potable water to
facilitate our efforts towards the industrial transformation. The Education
Fund should be used to help provide quality education and train our people
at affordable costs, while the Health Fund should be used to help provide
quality and affordable health care for the masses of our people. Health and
Education Funds are necessary for the full development of our human capital
to support our industrialisation effort. One of the keys to deepening this
process of industrialisation, however, is likely to be via the monitisation
of our natural gas resources. Examples from other nations have shown that
public/private sector partnerships have redounded to the socio-economic
benefit of the citizens of countries where this has been practiced. This has
to be examined further and is not addressed in this bill.
Sixth, monies from these funds should be used to finance projects derived
from a well thought out national development and economic transformation
plan contained in a National Budget and sourced from the Medium Term
National Development Plan of the National Planning Development Commission
approved by Parliament. This will allow for greater transparency and
orderliness in the utilisation of petroleum revenues. Whilst we are not
oblivious to the many deficits and gaps in our national development effort,
we contend that it will be most imprudent to spread our endeavours very
thinly across the entire spectrum of national development. We will not
achieve much by that.
Seventh, it is the position of the party that there is an inherent danger in
borrowing against future petroleum revenue or reserves as shown by
experiences from countries that have done so. The party therefore supports
the original clause IV in the bill that prohibits borrowing against
petroleum reserves by government. It is still a matter of considerable
bewilderment that the Executive which, after due deliberation by Cabinet,
proposed the original clause should in the course of the Legislature’s
consideration of the clause make such a dramatic volte-face and renounce its
own measure. We believe that the discovery of oil in itself provides ample
fiscal space and also enhances the credit rating of the country. This should
be exploited to attract the relevant investment instead of collateralising
against the future which could be very detrimental to the economy in the
long run.
The party is neither convinced nor persuaded by the resort to rather outworn
arguments about huge infrastructural deficits and the need therefore to
plunge deep into massive uncoordinated infrastructural developments.
Nigeria, Gabon, Mexico, Equatorial Guinea, Venezuela and some Middle Eastern
countries have pleaded the same cause. Without any blueprint for the
sustainable utilisation of its resources, they all began massive
infrastructural developments financed with short-term loans. Many
industrialised countries, with their eyes on oil, competed among themselves
to finance and construct infrastructural projects and import substitution in
these countries.
Some oil-producing countries in the 1970s used oil revenue as collateral for
loans, and without due consideration to revenue volatility normally
associated with oil price instability, borrowed to finance, in many cases,
several misguided spending programmes. The governments of these countries,
contrary to the principles of fiscal caution, ran huge deficit finances and
borrowed against future oil income to finance large-scale projects designed
ostensibly not only to boost economic activity, but as well to symbolise
government’s achievement and lift local and regional profile.
Where and when many projects are implemented simultaneously, the capacity of
the country to implement efficiently these projects for which loans have
been contracted becomes seriously challenged and, indeed, compromised. The
results have always been a high level of mismanagement and pervasive
corruption.
It is for these reasons that we consider it a tragedy to borrow against
future potential oil revenue to finance massive infrastructural projects
without in-depth consideration of availability of implementation capacity,
proper due diligence, economic viability and impact assessment. The $10
billion STX Korean housing loan, the largest single loan ever in Africa, is
a particular example. Just at the same time it was being debated in
Parliament, the President, Prof. J. E. A. Mills, connected with China to
negotiate several billions of dollars in loan pledges for infrastructural
and trade financing. Clearly this nation must sit up and exercise great
caution in order to forestall any future financial implosion. This is the
course we advocate. This certainly cannot be “the most foolish thing to do”.
It cannot be “baloney” as stated by Vice President Mahama. It is, in fact,
good common sense.
Eighth, the party believes that more accountability and transparency in the
management and utilisation of the resources from oil is better than less of
same because of the peculiar nature of oil and gas resources. The party is
also conscious of the public interest and concern in ensuring that the oil
and gas find becomes a blessing for the nation and helps improve the quality
of the lives of our people. In this regard, the party supports the
establishment of the Public Interest and Accountability Committee (PIAC) to
partner Parliament and the Auditor-General in ensuring that the resources
are managed in a transparent, fair and equitable manner and those to whom
the management of the resource will be entrusted are effectively held
accountable.
Ninth, the party supports the establishment of a Heritage Fund as proposed
in the bill and encourages Parliament to provide the necessary precautions
to ensure that its value is not eroded over time. It is important to remind
ourselves that the principle underpinning the creation of a Heritage Fund is
to provide for future generations whereas the principle of collateralisation
is to “make hay while the sun shines” or “to have your lunch and dinner at
breakfast”. The two concepts are diametrically opposed. We believe that
whatever resource we have as a nation should be sustainably utilised to
allow future generations also to benefit.
Finally, the party recognises the huge development deficit in the Western
Region and in principle supports the position of the Chiefs and People of
the Western Region. In this regard just as a Central Regional Development
Fund has been established for the development of the Central Region in
obvious recognition of its low level of development and the Savannah
Accelerated Development Authority (SADA) has also been established for the
development of the savannah areas of the country, a Western Regional
Development Authority should be established immediately to speed up
development of the region.
The critical issues are that utilisation of oil and gas revenues should be
based on a credible, nationally approved, long-term, development plan, which
can be monitored, to bring about structural transformation in the economy,
whose aim is to reduce Ghana’s growth dependency on a narrow set of
low-value agricultural commodities and other primary products which are
subject to the volatilities of the world marketplace. This plan should be
separate from the annual budget, which is based on the Consolidated Fund, in
order to avoid co-mingling with the regular government revenue.
The oil revenue spin-off should be used to strengthen the private sector in
the non-oil sphere, in particular, the agricultural sector, through tax
incentives and infrastructural development. Given the finite nature of oil
and its peculiar characteristics including its price volatility, it is
imperative to save some of the oil revenues for the use of future
generations. We believe in the arrangement that will enable government to
nurture and grow the traditional sectors of the economy and not kill them
off as has happened in the economies of those countries which we have cited.
We are of the strong opinion that this policy represents a far better option
in the use of our oil reserves and the accruing revenues for the benefit of
our citizens.
Posterity will judge the Fifth Parliament of the 4th Republic much by the
quality of its handling of the petroleum bills currently before it,
especially the Petroleum Revenue Management Bill. For the sake of our common
future, its Members should not be found wanting. This bill can begin to set
the stage for a new future, a new wave of development and a new set of hope
for all our people. Let us, therefore, consider the positives of our case
and let us give our future the best chance of success.
--
NPP Communications Directorate
NPP Headquarters, Asylum Down. Accra.
Dep. Director: Curtis Perry K. Okudzeto
(024-9679008)
