The Problems With Ghana’s Proposed Oil Revenue Management Bill

INTRODUCTION

The process is underway to pass a law that will determine how we use

our Oil resources. We at IMANI, AfricanLiberty.org and African

Leadership Initiative) have been involved with the analysis of best

options for a while.

Our review of the Proposals towards the law reveals that the

provisions in the bill are likely to lead to the following:

1. Resource Curse phenomenon, as with Nigeria

2. Dutch Disease, where other industries will be neglected and may shrink

3. Political tension with dire consequences as people try to get

access to loosely guarded oil revenue

4. Agitation in the Western Region due to neglect and degradation

5. Serious dislocations in the economy

THE KEY ISSUE

We need to separate all Oil revenue from our current inflows, and

treat it as a special fund for special purposes. This ensures that

Governments are not slack in developing other areas of the economy and

collecting taxes, which will avoid the Resource Curse and Dutch

Disease.

Putting oil revenue in the consolidated fund or spending it as part of

our annual budget will bring us the problems others have suffered from

treating their oil revenue as another regular source of government

income.

We propose that an account be set up for all oil revenues, and a body

be setup, which ALONE will decide on which projects the oil revenue

would be used.

We propose that all oil revenue be directed at infrastructure

investments and development, because we currently have a $10 billion

deficit in investment for key infrastructure such as Water, Energy,

Health, Roads, Telecoms, and Schools.

Our projected revenue for the next 5 years from Oil is around $5

Billion from the Jubilee Field. We hope we will get more from Jubilee

and the other fields. Whatever happens we are not likely to get $10

billion in 5 years, and we need these critical infrastructure projects

badly, hence our proposal to devote all Oil revenue to that.

Investing the revenue in Infrastructural projects will soak up

liquidity and prevent inflation whilst boosting national productivity

and production, thus generating real growth. It will also have the

effect of sequestering the revenue from the rest of our expenditures

and thereby avoid the artificial rise in our currency value and the

neglect of other industries (Dutch Disease).

Another effect will be that the money will not be available for misuse

and corruption, we can’t prevent all corruption but this is our best

shot at limiting it.

It will also not enter the consolidated fund for politicians to fight

over getting access to it (which will have dire consequences for

national stability and security)

THE WORRYING PARTS OF THE PROPOSED BILL

1. RESOURCE CURSE PHENOMENON

We are likely to suffer this if we implement the following parts of the bill

Section 10: Allocations and Disbursements from the Ghana Petroleum Account

6) (a) Transfer from the Ghana Petroleum Account to the Consolidated

Fund for budget funding shall be in quarterly installment of

one-quarter of the Annual Budget Funding Amount, or as the Minister

may recommend.

(b) The total amount debited from the Ghana Petroleum Account for any

fiscal year shall not exceed the appropriation amount approved by

Parliament for that fiscal year in accordance with subsections (4) and

(5).

Section 11: Use of the Annual Budget Funding Amount

1) All use of petroleum revenue whether directly from the Ghana

Petroleum Account or from the Ghana Petroleum Funds shall be part of

the national budget and shall be subject to the same budgetary

processes and mechanisms that are necessary to ensure efficient

monitoring of such use.

3) Should a national development plan not be in place, the allocation

within the budget should give priority to:

A. The strengthening of the state’s institutional capacity in

governance, maintaining law and order, and enhancing public safety and

security as approved by parliament;

B. Agriculture and agro-business

C. Human resource development - education, health,

D. Infrastructure (roads, rail, water and sanitation)

E. Rural development,

F. Alternative energy sources,

G. Forest management and protection of water bodies.

These “projects” are ill defined and in our history we have tended to

have the most corruption waste and mismanagement applying money to

these areas. These are the same areas Aid money has failed to deal

with.

2. SAVINGS ABROAD

IV Central Features of the Proposal

10. (ii) Ghana Petroleum Funds intended as savings funds for two

purposes: in the short run to smoothen government spending,

and in the long run to preserve part of the value of the

oil capital while living on the interest.

iii. It is proposed that

• All withdrawals from the collection account shall be guided

by rules and guidelines and shall be integrated into the

national budget.

• All transfers from the collection account shall go either into the

Consolidated Fund to support the budget or into Ghana Petroleum

Fund(s) for savings.

• What is set aside as savings, if any, in the Ghana

Petroleum Funds shall be prudently managed by investing in

specific low-risk securities abroad, with allowance for Domestic

Strategic Investments on commercial basis, and by having an

investment board to provide oversight on how the funds are

invested.

We believe these will be counter productive,

Savings will yield interest over time; interest rates are very low

especially abroad. Investing in infrastructure will have a multiplier

effect on the economy and the net gain will be higher than savings

interest

Intergenerational equity

It is better to leave our children good education and health, better

roads and telecoms, than to leave them raw dollars, worse still, our

neglect of these areas (as we save the money) will lead to loss of

life which will be avoided if we give people health and education now.

3. DUTCH DISEASE, WHERE OTHER INDUSTRIES WILL BE NEGLECTED AND MAY SHRINK

Section 13: The Ghana Petroleum Funds: Ghana Stabilization Fund and

Ghana Heritage Fund

(2) The objectives of the Funds are to:

(a) Cushion the economy from the impact of unanticipated petroleum

revenue shocks, and safeguard macroeconomic stability.

(b) Cushion the impact on or sustain public expenditure capacity

during periods of revenue shortfalls whether caused by a fall in

prices of crude oil or natural gas, or through production changes.

(c) Generate alternate stream of income to support public expenditure.

(d) Provide a heritage, through the Ghana Heritage Fund for future

generations of Ghanaians from savings and investment income derived

from petroleum revenue.

Here it is proposed that we spend the Oil revenue, to “cushion the

economy from revenue shocks and safeguard macro economic stability”,

In other words use it as a buffer for masking failed economic policies

and breed laziness in the management of our economy by promising money

to fill the gaps. This will be the start of all the problems.

4. POLITICAL CONTROL AND INCREASED POLITICAL TENSION WITH DIRE

CONSEQUENCES AS PEOPLE DO ANYTHING TO GET ACCESS TO THE LOOSELY

GUARDED OIL REVENUE

Spending Decisions

Most of the public oversight should come through existing structures

of Parliament, Finance and Public Accounts Committees. It is proposed

that if their capacities are in doubt, then public oversight can be

strengthened by setting up an independent Public Oversight Committee

(POC) with the appropriate oversight of Parliament. The composition of

the POC will be structured to ensure competence and public legitimacy.

In addition,

• It is proposed that key spending and saving decision parameters not

be left to the discretion of government on year-to-year basis, but

rather come up for review periodically to accommodate changing

circumstances and development needs.

• The law does not make recommendations for cash distribution of

revenues to individuals or any fixed percentage payments to regions

outside of existing mechanisms of resource transfers within the

context of the national budget.

However, there may be a case for:

i. Specific mitigating regional or community interventions as deemed

appropriate and necessary.

ii. Strengthening fiscal decentralization and devolving some spending

decisions to local governments in order to better address specific

social and demographic needs, as in education, health, housing, water

and sanitation, transportation and public safety.

In any event, any such additional boost in spending through the

District Assembly Common Fund (DACF) or through periodic budgetary

allocations, say specific or block grants, should be accompanied by

clearly defined spending and accountability guidelines. We recommend

the use of block grants rather than changes to the DACF allocation.

Board

(1) The President on the advice of the Minister shall appoint the

Investment Advisory Board for the Ghana Petroleum Funds.

(2) The Board shall comprise of five (5) members, to be selected from

among persons of proven competence in matters of finance, investment,

economics, business management or law, including a senior officer of.—

(a) the Central Bank; and

(b) the Ministry responsible for finance and/or economic planning

(3) At least one of the officers shall be a female.

(4) The President shall appoint a member to be the Chairman of the

Board on the advice of the

Minister and the Governor

(5) Members of the Board shall be appointed for a term of two or three

years staggered, shall be eligible for reappointment for no more than

2 consecutive terms, and shall have security of tenure for their term

subject to the provisions of section 28(8) of this Act.

(6) In addition to the competencies mentioned in subsection (2), each

member shall be required to satisfy the criteria for a fit and proper

person contemplated in the Banking Act, 2007 Amended.

(7) The members of the Board shall be paid such allowances as shall be

determined by the Minister and approved by Parliament.

These provisions virtually give all the control to politicians who

will clearly use it to their best political advantage. That is likely

to increase tension because it will inevitably be used to consolidate

power, and create the problems mentioned in the first law of

petropolitics (attached)

5. AGITATION IN THE WESTERN REGION, FEARS OF NEGLECT AND DEGRADATION

There is no specific provision for taking care of the sources of the

Oil, (investing in those areas specifically). This in addition to the

problems we anticipate will lead to serious problems in the Western

Region, which produces the bulk of our national primary resources.

Expectations there are high, the youth there are mostly uneducated and

under-employed, the elders there have witnessed a lifetime of

extraction without equitable development. It seems we already have a

lethal mix; we shouldn’t ignite it with more insensitivity to the

western region.

6. PUBLIC OVERSIGHT COMMITTEE (POC)

A POC is proposed, we have compared this proposal to the earlier one

made of an OIL REVENUES COMMISSION, (see attached document). It is our

view that the POC here suggested is likely to be ineffective. it is

controlled largely by Politicians, Governments in power will

manipulate it.

Our Proposal is to have a body or regional representative similar to

the Council of State, but modeled after the GETFUND Board, with good

enough representation from politicians designed in a way that prevents

extreme manipulation. This is likely to be more independent and

effective in guarding our nation. The key issue here is national

cohesion, if we fail in the control of the resources we could

compromise our stability.

Section 43: Public Oversight Committee

(1) There is hereby established a Public Oversight Committee

(2) Functions

The functions of the Public Oversight Committee shall be to:

a) Oversee and advise Parliament on matters relating to the

management, performance and operation of the Ghana Petroleum Reserves

Accounts;

b) Advise Parliament in a timely manner on the appropriations from the

Ghana Petroleum Funds, or any proposed use of petroleum receipts as

proposed by the Minister;

c) In the context of the budgetary process, advise Parliament on

whether the appropriations of the Petroleum Revenues for public

investment are being used effectively to the benefit of current and

future generations.

d) In the context of the Economically Targeted Investments in the use

of some of the Heritage Fund, advise Parliament on whether the

appropriations for those investments are being used effectively and on

commercial basis to the long-term benefit of current and future

generations.

(3) Functioning of the POC

a) In conducting its activities, the Pubic Oversight Committee shall

take into account the overall objective that Petroleum Revenues are to

be used for the benefit of current and future generations of Ghanaians

and the principles for the management of all Ghana Petroleum Reserves

Accounts.

b) For purposes of advising Parliament, the Public Oversight Committee

shall consult widely relating to the use of Petroleum Revenues.

c) The Public Oversight Committee shall determine the rules of

procedure under which it will operate, and its decisions shall only be

binding if taken by a majority, with a quorum of seven (7) members.

d) Parliament shall approve and provide adequate funding for the

operations of the Public Oversight Committee, including appropriate

allowances for members of the Committee, through the budgetary

appropriation for the operation of Parliament.

(4) Membership

The Public Oversight Committee shall consist of ten members and shall

include the following:

a) 3 members of Parliament from three different parties, elected in

accordance with rules laid down by Parliament.

b) A former Governor or Deputy Governor of the Bank of Ghana who

effectively served

in office for at least 2 years.

c) A former Minister of Finance who effectively served in office for

at least 2 years.

d) 2 members nominated to represent economic think-tanks and civil-society.

e) A member nominated by the Council of Churches to represent

religious organizations.

f) A member nominated by House of Chiefs.

g) A former University Vice-Chancellor nominated by the Council of

Higher Education

(5) Tenure of Members and Eligibility for Appointment

a) Tenure of Members

i) Term of office of members shall be for between 2 and 4 years.

ii) A members appointed for a 2-year term may be eligible for

re-appointment but not for more than 2 consecutive terms, and shall

not be eligible for e-appointment after their second term. Members

appointed for 3-year or 4-year term shall not be eligible for

reappointment.

b) A person shall not be eligible for appointment if the person has

been removed from office,

has been convicted of a criminal offence, is on trial in a court of

law, has been declared bankrupt or insolvent, or has been an executive

member of a political party.

c) Members appointed to the Committee have security of tenure, and

unless otherwise provided for by law or for medical reasons, may not

be suspended, retired or removed from office.

(6) Economic Advisor to the Public Oversight Committee

Subject to the approval of Parliament, the Public Oversight Committee

may appoint as an expert advisor on economic and financial matters for

a tenure of two years renewable once, an academic or professional of

highest reputation and competence with the appropriate and relevant

competencies.

7. CONCLUSION

The Proposal itself raised the issues of concern, and stated that

these problems must be avoided; we are at a loss how the proposals

seem to go in ways that are almost guaranteed to create the listed

problems. The Proposal says inter alia -

1. The assignment is to propose a petroleum revenue management framework that:

(a) serves the best interests of Ghanaians,

(b) ensures that the use and management of petroleum revenues are

transparent and properly accounted for, and

(c) is informed by international best practices.

4. In putting together this proposal, we have been keenly aware of the

so called “oil curse” that has come to be associated with oil rich,

developing countries. This is the risk that, for many developing

countries oil resources have often become a source of great waste and

corruption, rather than a source of growth and of improvements in

standards of living. The overarching concern for many Ghanaians is

that petroleum wealth should be a blessing not a curse.

5. Proper and responsible management of the revenues should be the

answer to the curse. Other policies matter as well: Setting up the

right regulatory environment to guide the activities of all industry

players is important; so is having an effective fiscal regime that

determines the appropriate share of the petroleum revenues to Ghana.

8. The proposal also seeks to safeguard Ghana’s oil resources

and to ensure that the collection, accounting, use and

management of all the revenue due to the State are placed

within the context of transparent processes and accountable

institutions, with mechanisms to ensure adequate public

oversight (Accountability and Transparency challenge).

CALL TO ACTION

This is not intended to be a criticism of the current (or any)

government. It is in a spirit of contribution, that we bring the best

ideas to the table and insist that the people who run the country

either present better ideas, or do what is best for the country. We

are therefore open to debate and suggestion, in the hope that the best

ideas come up and are implemented.

Please send comments and questions to Mr. Kofi Bentil,

(kofi@imanighana.com) Convener & Fellow, IMANI & AfricanLiberty.org

/ALIWA Thought Leadership Forum.