‘Oil Can’t Be Managed With Prejudice’

- Prof. Ernest Aryeetey

By J. Ato Kobbie & Latifah Funke Ibrahim

The Vice Chancellor of the University of Ghana, Prof. Ernest Aryeetey, on Monday cautioned participants at the ongoing 63rd Annual New Year School and Conference at the University of Ghana, Legon to do away with prejudices, in order to learn from others.

He said it was to facilitate this learning process that the University had invited to this year’s school, one of the world’s best economist, Prof. Paul Collier, Director, Centre for the Study of African Economies, Oxford University, U.K., to shed light on the sector.

He said even though some of the issues in Ghana’s oil sector were Ghanaian in nature, it was important that they shed their prejudices in other to learn and come out with recommendations that would impact positively on the sector.

“Oil can’t be managed with prejudice,” the Vice Chancellor cautioned participants at the New Year School.

He said there are specific conditions that can lead to prosperity, just as there are others that can lead to the path of misery, expressing the hope that Ghana was choosing the path of prosperity.

The Chairman of the University Council, Prof. Justice S. K. Date-Bah, who chaired the opening ceremony, was hopeful that at the end of the conference, which he expected to be an exciting one would enable Ghanaians know whether the country was on the road to an oil curse, blessing, or in-between.

Prof. Justice Date-Bah said the conference, which is being held under the theme: ‘One Year of Oil and Gas Production: Emerging Issues’, offered participants with the right forum to know about the geology and geophysics of oil, petroleum accumulation, exploration and exploitation.

He said as a former Legal Advisor of commonwealth governments he was aware that countries went to great lengths “to craft the legal and fiscal regimes within which such exploration and production take place, to the mutual benefit of the host country and the foreign investor.”

In relation to Ghana, the Council Chairman pleaded with commentators and observers that they should “take the pains to understand the complexities of the petroleum regime before denouncing it or applauding, it is particularly easy to arrive at faulty judgments on the robustness or efficacy of the petroleum fiscal regime by taking an annual snapshot.

“For instance, because of the high risk nature of the investments in petroleum exploration, it is customary in the industry to allow rapid depreciation of the capital sank in,” Justice Date-Bah submitted.

He said that concession has the impact of diminishing the quantum of revenue flow from those elements of the fiscal regime which are profit-related in the early years of production adding that this does not however, affect the revenue accruing to the host country in the life-span of the fields.

He said it is to compensate for this that the framers incorporate royalties which are payable from revenues upfront, irrespective of the profitability or otherwise of the production, to ensure the host country has a stream of revenue from the first year.

Justice Date-Bah said it is in view of the high risk in the industry that revenue scheme under the fiscal regime is kept modest.

The Director of the Institute of Continuing and Distance Education at the University of Ghana, Legon, Professor Yaw Oheneba-Sakyi, wondered how different Ghana would fare in the management of its newly discovered oil and gas resource and particularly, the revenue that would be accrued from the sector.

Making reference to an Africa Report publication of February 1, 2010), he said the journalist wrote that more often than not, discussions among Ghanaians on the oil and gas potential revolved around their expectations that Ghana’s situation would be different from her other African neighbors.

Prof. Oheneba-Sakyi, who was presenting the Progress Report at the ongoing 63rd Annual New Year School and Conference at the University of Ghana, stated that many hoped that the oil resource benefit all Ghanaians and subsequently ensure that the resource indeed becomes a blessing rather than a curse to the nation.

Additionally, Prof Oheneba-Sakyi raised concerns as to Ghana’s ability to curb the Dutch Disease, the ability to balance agricultural production with the oil and gas production and to change the socio-economic landscape of the country ultimately.

Based on concerns around the petroleum industry among Ghanaians generally, he described the situation as quite dicey and said the situation called for a holistic examination of issues in the operations of the sector, saying that was what informed the choice of this year’s theme: ‘One Year of Oil and Gas Production: Emerging Issues’.

Professor Oheneba-Sakyi, citing some of the objectives of the New Year’s School and Conference, said it was to “educate the general public on important topical national issues, promote consensus building among people of diverse opinions and background, assess public opinion on pertinent issues in order to ensure good governance and provide the platform for initiating public policy as evidence by follow up actions on the school’s communiqué”

In an address on behalf of the Minister of Energy, the deputy Minister in charge of Petroleum, Hon. Emmanuel Armah-Kofi Buah, was optimistic that Ghana is better placed based on the positive and negative examples that abound.

He told participants that in line with government’s commitment to transparency and accountability, the revenues and expenditure related to the oil would be audited.

Hon. Buah disclosed to the New Year schhol participants that the World Bank was providing support for capacity building to the ministry.

He reiterated government’s commitments to an integrated aluminium industry, utilizing bauxite which is abounds in the country and informed participants also that the Ghana National Gas Company (Ghana Gas) had commenced business in earnest to harnessing the country’s gas resources.

Prof. Collier cautioned that it is not inevitable that the bad economic governance that has characterized other oil economies would be repeated in Ghana.

Describing the timing for the theme as very appropriate, and urged participants to be part of the critical mass that would ensure that Ghana got it right by making the oil resource a blessing and not a curse.

The Economist said the options available for the oil revenue is between savings and investments, cautioning that it was not good just copying countries like Norway, because the circumstances of the two countries are different.

He said since oil was a depleting natural resource, which won’t last forever, he cautioned that proper savings approach was adopted and also that some oil would have to be left on the ground.

“You can’t live on oil revenue forever,” he stressed, adding that what ought to be done was to invest in the domestic economy, spending some of the revenue on present consumption.

He said a challenge to the country is to build capacity to handle domestic investment efficiently.

Prof. Collier identified key challenges to domestic investment as: the quality of investment, the investment process (i.e. where and how to invest), and the management of volatility, which are linked with foreign reserves and hedging.

He said the Minister of Finance was faced with depleting oil resource, investing in domestic capacity building to improve capacity index, as well as volatility of oil prices, which he likened to three clocks running at the same time.

President John Evans Atta Mills, whose speech was delivered by the Chairman of the Council of State, Prof. Kofi Awoonor, stressed on the need to bridge the infrastructure deficit of the country through making the needed investments from the $3billion China Development Bank (CDB) loan.

He assured of processes to enhance local content and participation in the oil and gas sector, highlighting some intervention measures of government such as training of Ghanaians in oil related studies.

He cited also some technical and vocational programmes that are underway. He finally assured of government’s support to ensuring a peaceful elections.

The event, which had GNPC as key sponsor, featured the CEO of the national oil company as Guest Speaker. j.atokobbie@yahoo.com