At present, a lot seems to have been said concerning the actual path of production of Ghana’s oil and gas resource. This is well attributable to the growing awareness of the perverse phenomenon of the “resource curse” that has proved beyond reasonable doubts its destructive impacts on resource-rich countries.
At different end, the country has again experienced an extraordinary and surreal display of fortitude with regard to the control of shares in her Jubilee field. This is evident in the jostling for the working interest of Kosmos Energy by ExxonMobil and GNPC. This gives details of uncertainties that have ostensibly shrouded the country’s coordinated efforts to ensure efficient commercial production and maximization of revenues.
In recent months, the exact formula or criteria for the distribution of extractive industry revenues (specifically the oil sector) to both the central and the sub-national levels has generated heated debates and unsubstantiated contentions. Local communities and district assemblies in producing areas are seriously scrambling for their share of approaching oil revenues. It is important to note that issues surrounding the sharing of revenues in the extractive industries have precisely been the bane of optimal allocation of natural resources revenues targeted at poverty reduction. The failure to ensure equitable distribution of revenues is at the base of the increased instability that producing regions are experiencing especially in Nigeria. Ethnic groups including the Ogoni People hold the view that the costs in terms of environmental damages, institutional deterioration and economic inequality far exceed the benefits of relatively high oil revenues. These among others have sparked the vandalism of infrastructure for oil production, violence and kidnapping with the Movement for the Emancipation of the Niger Delta (MEND) blamed to be perpetrators of these dreadful acts.
In Ghana, few have been said concerning the state of the oil revenue distribution at the sub-national level. However, the mining sector experiences justify the fact that the country is not new to issues that border on the distribution of extractive industry revenues across the levels of government. It is worth stating that Ghana does so at her own risk if revenue assignments especially to the sub-national entities are treated as prosaic.
ISSUES PERTAINING
Depending on returns of investment, the Minerals and Mining Act 2006 (703) sets royalties between 3 and 6 percent of value extracted. In the mining sector, Chapter 22 of the 1992 Constitution and the Administrative Fiat of 1999 regulate the distribution arrangement of revenues across levels of government. The arrangement has it that of the royalties gained, the Office of the Administration of Stool Land which retains 1 percent further distributes to producer regions (4.95 percent), producer traditional council (1.80 percent), and customary land title holders or the stool (2.25 percent). This represents the country’s typical sub-national level revenue distribution in the mining sector.
The fact that mining communities are beset with intractable poverty levels is an indication that these distributions of revenues have not served its intended purpose. Either the right amounts are not made available or revenues find their way lining the pockets of corrupt officials and groups. This makes it difficult to fathom that over 100 years of mining, poverty still persists in communities in producing regions. The burning question that stands to be posed is that what have been the challenges to this missing link between revenues and poverty reduction efforts?
The major issues have been the lack of monitoring of allocations and accountability mechanisms apart from the fact that district assemblies do not have the capacity to use revenues that accrue to them. To a large extent, Stools and Traditional Councils lack the upstream information to monitor whether or not they are receiving the correct amounts from the regional branches of the Office of Administration of Stool Land. There are also no accountability mechanisms to ensure prudent management of extractive industry revenues. The country does not have procedures especially to check handling of funds in the districts assemblies and traditional authorities.
I am drawing lessons from the mining sector to inform revenue distribution in the emerging oil and natural gas sector. As it holds now, there are no specific criteria set for the distribution of oil revenues that the country would garner simply because the Ghana Petroleum Revenue Management Proposal proscribes any disbursement of special revenues whether to communities or producing regions. The Public Agenda Newspaper reported on June 25, 2010 that there is a controversy as regards distribution of revenues. It reported that “Controversy over government's position on disbursement plans for future oil and gas revenue almost marred a regional sensitization workshop on the extension of the Ghana Extractive Industries Transparency Initiative (EITI) to the oil and gas sector held in Takoradi last week. At the heart of the controversy, is whether or not districts regarded as closest to the oil find and therefore likely to be negatively impacted by oil and gas exploration and production activities will receive some extra revenue allocation to mitigate these impacts, as is done for mining communities” Ghana ought to be extra careful in handling these sensitive issues since it can simply send the country into tailspin. Two separate issues can be identified here. First, the country is even irresolute whether or not to allocate oil revenues to coastal communities and districts let alone determining the amount sub-national governments stand to get from the oil revenues. It is a known fact that the hosting of extractive activities whether onshore or offshore in a territory generates by itself economic, social and environmental costs. In this context, compensating and distributing revenues to producing regions and communities are more than legitimate.
It is about time this issue was resolved to nip possible uprisings and unwarranted claims in the bud. Though the political economy of extractive industries revenues is idiosyncratic to each country, Ghana ought to learn lessons from oil-producing countries including Papua New Guinea, Mexico, Bolivia, Indonesia, Brazil and Nigeria. Ghana cannot use the case of offshore production as an excuse to sideline the concerns of certain communities and producing districts that may be affected by exploitation and production. SETTING THE RECORD STRAIGHT In the first instance, Ghana and for that matter government should set the record straight as regard whether or not there would be statutory earmarking of oil revenues to communities or producing regions. This should be done by weighing the pros and cons of the whole issue after allowing expectations of people in the communities closest to the oil find to grow. The government should as a matter of urgency start an extensive dialogue with communities that are close to the oil find and the related districts to establish an agreeable formula or criterion for the distribution of revenues. Or to make clear to the local people that they are not in any positions to receive special revenues. The basic antidote to the paradox of plenty in the mining sector is the issue bordering on transparency at the sub-national level. This should as well be extended to the impending oil and gas sector. The missing impact of extractive industry revenues on poverty in the country is as a result of inadequate provisions to monitor payments and expenditures. As a result, the flow of revenues throughout the chain of beneficiaries should be subjected to full-scale openness and access to information.
The lack of transparency at the upstream level affects directly transparency at the lower levels. For instance in Bolivia and Indonesia, the total amount available for re-distribution cannot be computed by sub-national governments (SNGs) independently, because the production amounts and the related revenues are shared as the law prescribes (Extractive Industries Revenues Distribution at the Sub-National Level: The experience in seven resource-rich countries by Matteo Morgandi and prepared by Revenue Watch Institute, 2008).
Ghana should track streams of revenues that go to the lowest tier of beneficiaries. This will be done by ensuring an acceptable accounting system to enhance the understanding of the spending behavior of local governments and as well pave the way for evaluation of development outcomes of projects financed by extractive industry revenues.
The success of the above strategies to equitable revenue distribution is dependent on strong and workable regulations and legislations. In the mining sector, the payments made to the local institutions are not required by law and this has weakened their capacity to assert and enforce a right to receive them. The country should regulate revenues to sub-national governments and other beneficiaries in the mining sector and the impending oil and gas sector, if any. CONCLUSION It is very significant that government moves to assuage doubts and possible fears of acrimony surrounding this issue especially when the Ghana Petroleum Revenue Management Proposal does not consider the allocation of revenues whether by derivation, statutory formula or by undifferentiated strategy to concerned communities and districts. According to the proposal, Part 3 section 18 states that “Despite sections 17 and 18 statutory earmarking of petroleum revenues for any special considerations is prohibited”. It further states in section 19 (2) that “Where petroleum operations are on-shore, compensation to affected and displaced communities and appropriate royalty payments shall be in line with compensation and royalty payments under other relevant laws of Ghana”. There is no gainsaying that there are certain provisions in the proposal that are hanging and does not have direction. What relevant laws would be used in this regard? Is it royalty payments under the Minerals and Mining Act 2006 (Act 703)? The country should not be deceived into believing that offshore production would not have direct impact on communities closest to the oil find. We should shed light on the right issues at hand.
I believe special revenues should be earmarked to cater for the welfare of groups of people and communities affected by production. Is the oil sector going to experience the same “paradox of plenty” as the mining sector?
These are very elements in the extractive industry that should be addressed with a sense of urgency if Ghana wants to maximize revenues in both the mining and the oil and gas sectors. These key issues considered would make the dream of making the extractive industry an engine of development realistic.
The author, Stephen Yeboah is a freelance writer and the National Co-ordinator for Osagyefo Network for Rural Development (OSNERD), an NGO based in Kumasi [email: stephenyeboah110@yahoo.com]
