The “paradox of plenty”, “the King Midas problem”, or what Juan Pablo Perez Alfonso, the founder of the Organization of the Petroleum Exporting Countries (OPEC), once called the effects of “the devil’s excrement” have gained explicable but awful recognition in the global exploitation of oil and mineral resources. This explains the fact that expectations that the “black gold” would bring riches and economic development are far more misplaced.
With the special ceremony of naming the Floating, Production, Storage and Offloading (FPSO) vessel after Ghana’s first President, Dr. Kwame Nkrumah in Jurong Shipyard, Singapore, the country is even more optimistic that its oil is ready for commercial production later this year. And indeed, the term “the paradox of plenty” is nothing new to the economy of Ghana considering the negligible contribution of gold and other minerals to the improvement of livelihoods of the rural areas. The country is awaiting oil production in the last quarter of this year without any sound practices in breaking the resource curse. Considering contemporary issues, it would not be surprising if Ghana repeats the same mistakes as it is happening in Nigeria, Equatorial Guinea, Venezuela, Kazakhstan, Angola, Timor-Leste and even Sudan. Inarguably, Ghana’s economy is teetering on the brink of the “paradox of plenty”.
This article exposes the reasons behind the statement that Ghana is not ready for commercial oil production this year. The statement could only be challenged if Ghana within the limited time left adopts rigorous strategies with regard to bringing out strong and applicable legal and regulatory frameworks, transparent and professional revenue management law, and controlling and mitigating environmentally hazardous activities both onshore and offshore.
Legal and Regulatory Framework
From the standpoint of bizarre expe riences in the mining sector, it seems that little has been done to break constitutional obstacles in the application of laws to regulate the oil and gas industry. Yes! oil is ready. What of the legal and regulatory frameworks that would govern the sector from the excesses of exploitation, production and transportation of hydrocarbons. It is important to note that the issue of regulating the hydrocarbon industry has precisely been the dilemma of many oil-producing economies especially in the African region. Whether or not the legal and regulatory framework that may soon be enacted into law by parliament would have the requisite capacity is a different case altogether. The country should make no mistake by preparing ad hoc regulatory framework that would govern the oil sector considering the limited time to start commercial production.
The reported discharge by Kosmos Energy in the Jubilee field should not come as a surprise to the country. According to Joy news, “The committee is deeply worried that Kosmos could be spilling, at least, six times every year if the recorded cases in its exploratory activities are anything to go by” (Source: Joy News, May 18, 2010).
This issue I believe is only deemed sensitive because Ghana does not have a clear constitutional footing to hold Kosmos responsible. All the country can do for now is to simply form a committee to investigate and exact a fine on the US-based oil company. How long would the country continue to form committees in dealing with spillages in the extractive industry? This explains the fact that Ghana should never renege on its responsibility of bringing out strong and applicable legal and regulatory framework for the oil and gas sector.
Catering for Environmental Damages
The environmental consequences in oil developments are substantial. Apart from the fact that oil poses serious risk to human health, the stages of exploration, onshore and offshore drilling, refining and transportation exact huge cost on ecological stability. The US Energy Information Administration has once reported that “Nigeria does not have a pollution control policy and the laws that do exist are not enforced.
The legal and regulatory framework should help address and mitigate risks on the environment. Again, the country ought to adopt an Environmental Management Framework (EMF) that would transcend mitigating environmental risks to addressing social risks. The farmers and fishermen that would bear the brunt of oil extraction must be protected from potential livelihood inabilities. The EMF is very necessary as the impacts of oil exploitation on environment safety are very obvious. There is, therefore, the urgent need to improve practices around resource extraction in the country.
It goes without saying that as at now, the country has not fully enforced these strategies. What then lies ahead? The BP oil rig spillage that occurred in the Gulf of Mexico is a prompt to the country of the dangers associated with exploitation of hydrocarbons whether or not it is offshore production. It is completely undesirable and unrealistic to train people to deal with oil spillages if the law is neglected. The adoption of EMF should clearly outline strategies at preventing environmentally unsafe practices which includes and not limited to gas flaring and spillage. The framework should also define the penalty for spillage owing to negligence and how to manage spillages as a result of accident.
We can never sideline the concept of sustainable development if Ghana really wants to be a responsible oil-producing economy.
The Ghana Petroleum Revenue Management and Matters Arising
Ghana has taken a good step towards transparency by publishing the Petroleum Revenue Management proposal online for all to have access. It is a part of the major reforms to make the Extractive Industries Transparency Initiative (EITI) more robust. Nonetheless, there are very pertinent issues that need to be addressed before the proposal becomes a law. The Part 7 (which highlights Accountability, Transparency and Public Oversight) of the Petroleum Revenue Management proposal gives a spotlight to structures that will cater for stringent oversight role. Section 43 under Part 7 of the proposal would establish the Public Oversight Committee.
The nature, compositions and powers of the oversight committee must be considered carefully. This is because the mere formation of an oversight institution does not automatically cause prudent petroleum revenue management. Such institution formed could become a “second government” and a platform to perpetrate misappropriation and high-profile corruption. An example can be said of the Collège (oversight body) in Chad. Even with the monitoring role of the World Bank and the International Monetary Fund, the Chadian government recently amended the revenue management law to reduce the authority of the Collège and to lessen the modus operandi of the revenue management framework. The Collège according to reports has easily been manipulated by President Idriss Déby. In furtherance of this argument, in December, 2005, the Chadian parliament amended Law No. 001, providing for the deactivation of the country’s oil fund, an increase in oil revenue expenditures, and a reassignment of a portion of the mandated expenditures for bureaucratic and security purposes (Escaping the Resource Curse by M. Humphreys, J.D. Sachs and J.E Stiglitz).
In the context of the Ghana Petroleum Revenue Management proposal, the Public Oversight Committee should be accorded the power to investigate and compel the production of documents and information, and to initiate and conduct investigations on its own proposition or basically on complaints. The investigative role of the oversight body is conspicuously missing in the proposed Petroleum Revenue Management. The best model of petroleum revenue management that Ghana should imitate is that happening in Sao Tome and Principe. The Saotomean Petroleum Oversight Commission, for example, has broad responsibilities to monitor and ensure compliance by the government with the oil revenue management law, and it has independent administrative powers to investigate allegations of misconduct (Article 24).
There is no doubt that the membership of the oversight committee reveals multiplicity of stakeholders. Under Section 43 (4), 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; and g) A former University of Vice-Chancellor nominated by the Council of Higher Education. In no uncertain terms, the representation for civil society organization is less considering the role of such groups in pushing for better reforms in the EITI process and application. Ideally, civil society should constitute at least 3 of the members of the committee to make the application of EITI realistic. Another basic tenet of a prudent petroleum revenue management strategy borders on participation and legitimacy. The committee representation should create the platform for participation to enhance public trust and understanding which remains critical to the long-term existence and management of the oil fund. In this regard, the representation of a member from the House of Chief should, without shred of any doubts, should be a selected chief (based on laid down criteria) in the areas where the impacts of oil production would negatively affect livelihoods of the majority people. At attempts to enhance the legitimacy of the committee, positions should be assigned not only to supporters of the ruling party (or party faithful) but also to the opposition. This will clamp down on oil politics which remains lethal to revenue management in oil-producing economies.
Whatever approach adopted, the petroleum revenue management framework should set forth a clear mandate for the public oversight committee. As part of the central features of the proposal framework, it is stated that “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 question that deserves to be asked is that how can the capacities that are in doubt be determined? The Public Oversight Committee should be given a clear mandate that is separate from that of the role of Parliament to carry out their functions. The country should not lose sight in getting practices right.
Conclusion
The experience in the mining sector could sadly be repeated in the emerging oil and gas industry. The country should bear in mind that abundant natural resources offer no guarantee of prosperity and economic development.
Petrodollars should be well managed to improve livelihoods of the poor in the country and that is dependent on the nature, composition and powers given to the Public Oversight Committee and the legal and regulatory frameworks that would govern the oil and gas industry. Environmental damages are still a force to reckon with as far as petroleum extraction, refining and transportation are concern. Ghana has all it takes to make oil revenues beneficial.
The author, Stephen Yeboah is the National Co-ordinator of Osagyefo Network for Rural Development, an NGO based in Kumasi. [email: stephenyeboah110@yahoo.com]
