Is Ghana's oil wealth slipping away?

The country has missed out on an estimated US$10billion in petroleum revenues due to its current contract framework, according to Executive Director-Centre for Natural Resources and Environmental Management (CNREM), Solomon Kwawukume.

He attributed this shortfall to the country’s reliance on the hybrid system for its oil contracts – specifically from one of its three operational fields, the Jubilee Field.

As an advocate of the Mineral Production Sharing Agreement (PSA) approach, Mr. Kwawukume argues the PSA model could have yielded significantly higher returns for Ghana.

The PSA is a widely adopted contract system in many oil-producing countries, which often results in a more favorable distribution of revenues between the host country and oil companies.

“The current hybrid system is not serving Ghana’s best interests,” Mr. Kwawukume said in an interview on the sidelines of a seminar organised by Environment for Development (EfD) in Accra, adding that: “If we had implemented the PSA, we could have captured a greater share of the oil revenues”.

The Jubilee Field, which began production in 2010, is one of Ghana’s most significant oil discoveries.

According to the Public Interest and Accountability Committee’s (PIAC) 2023 Annual Report, the country had earned a cumulative revenue of US$9.85billion as of 2023from its three producing fields.

The Jubilee Field contributed the highest revenue of US$475.2million at end of the 2023 fiscal year, against the country’s crude oil production declining for the fourth consecutive year in 2023. Production dropped from a high of 71.44 million barrels in 2019 to 48.25 million barrels in 2023, representing an annual average decline of 9.2 percent.

However, Mr. Kwawukume contended that the contractual arrangements under the Hybrid System have been less beneficial to the nation compared to what could have been achieved with a PSA.

“We must repeal this obnoxious expositive law (Act 919, the Hybrid System Law) because it is not good for us. We need to shift to Production Sharing Agreements as many advocates have pushed for – including the former Chief Executive of the Ghana National Petroleum Corporation (GNPC), Dr. Amos Ofori Quaah,” he stated.

The ‘Ghana Royalty Tax/Hybrid system’ is said to be a fiscal based system infused with minority state participation (represented by Ghana National Petroleum Corporation (GNPC)) on the basis of about 10 -15 percent carried interest equity participation.

The Minister of Finance, Dr. Mohammed Adam Amin, in his former capacity as Executive Director-African Centre for Energy Policy (ACEP), is quoted to have told the US Congress Sub-Committee on Africa, Global Health, Global Human Rights and International Organisations during a presentation in 2013 that “(Hybrid System) contracts are characterised by and subject to undue influences and corruption”.

The Director for EfD Ghana, Prof. Wisdom Akpalu – also speaking in an interview, bemoaned how the country’s natural resources have been managed over the years. “It looks much like our resources are to the benefit of a very few elites, while the majority of Ghanaians wallow in poverty”.

He said there is a need to ensure transparency in management of the country’s natural resources, with the enactment and strict implementation of “the right laws”.

“Let’s take corruption and politics out of our natural resources, and I believe we will be able to generate sufficient revenues or rents to move this country forward,” he stated.

“Our resources are pathways to developing this nation, and if we don’t build the right institutions to ensure that these resources deliver, we’ll get to a point where we will all be regretful – and it might be too late at that point,” he cautioned.

Prof. Akpalu also maintained that the adoption of a PSA model will generate more benefit to the country than the current arrangement in place.