By Gilbert Boyefio
The African Centre for Energy Policy (ACEP) has appealed to Ghana’s new government to ensure that the Ghana National Petroleum Corporation (GNPC) focuses on its core mandate.
Last year, the GNPC came under strong public criticism for its guarantee and support for projects deemed not part of its core mandate such as the US$550 million Quantum Power Re-gasification project and the US$ 100 million Karpower project.
Lawmakers in Ghana’s parliament expressed concerns about what they claimed as the GNPC “veering off its core mandate by undertaking projects that have nothing to do with oil and gas.”In its Semi Annual Report on Management of Petroleum Revenue, the Public Interest and Accountability Committee (PIAC) also condemned the decision of GNPC for refusing to adhere to a directive not to invest its proceed in non-core business of the industry.
Commenting on the 2017 budget statement, ACEP indicated its support for the allocation of adequate funds for GNPC’s growth but was concerned “about how GNPC has utilized its share of petroleum revenues in the past on activities outside its core mandate, noting that if the trend continues, GNPC will fail to be the vehicle for maximizing the value of Ghana’s oil and gas resources as envisioned by the current government”.
In the words of Benjamin Boakye, Deputy Executive Director of ACEP, “This is particularly an issue of concern because, per section 16(3) of the PRMA, GNPC will be weaned off its share of net carried and participating interest by 2026. We therefore call on the government to fulfill its commitment to restructure GNPC in a way that shields the NOC from political interference so that it can focus on its core mandate”.
Earlier in the month of March, ACEP presented its analysis of the 2017 budget with special focus on the power and petroleum sectors. For the purpose of this analysis, the power sector focuses on government’s key interventions in tackling power sector challenges whilst the petroleum sector focuses on petroleum revenue allocation and investment.
The Oil and Gas Sector
The budget statement on petroleum was limited to receivables for 2017. ACEP’s petroleum sector analysis was done within the context of compliance with the PRMA of revenue outflows from the Petroleum Holding Fund (PHF) to the various funds, and ABFA allocation to the priority areas. Some areas of concern have been raised and recommendations proposed to improve upon petroleum revenue management and investment in the 2017 fiscal year.
ACEP described as a good initiative the decision by government to revise the benchmark price.
“We wish to commend the Ministry of Finance for managing its own expectations and that of Ghanaians of the extent to which our oil resources can support the national budget and overall development finance. The Ministry’s decision to revise the benchmark revenue (BR) based on benchmark price of US$73.2264 per barrel, derived from applying PRMA’s seven year moving average formula, to US$56.142 per barrel based on market predictions by expert institutions is commendable,” it stated
This is particularly important when the Ghana Stabilization Fund (GSF) has been depleted in a manner that renders it irrelevant for the purpose of stabilizing the ABFA. This also reveals the extent of unreliability of the Seven Year Moving Average proposed in the PRMA. Since 2014, the formula has missed the actual price by being either overly pessimistic (as was the case in 2014) or optimistic (as has been the case since 2015).
ACEP was also happy with the decision by the Finance Minister to ensure that distributions of petroleum revenues are consistent with the provisions of the PRMA. The Finance Minister made it clear that the revenue distribution formulae in the PRMA will be followed.
Section 16(1) of the PRMA (as amended) prioritizes allocation of oil revenues to the national oil company (NOC), the Annual Budget Funding Amount (ABFA), the Ghana Petroleum Funds (GPF) which comprises the Ghana Stabilization Fund (GHF) and the Ghana Heritage Fund (GHF) and for exceptional purposes according to the Act, in that order. This is precisely what was done in the budget.
It observe that allocation to GNPC in 2017 is below the 55% of net carried and participating interest ceiling prescribed by the PRMA in sub-section 3a of section 16.
In accordance with Section 18(1) of the PRMA, exactly 70% of the BR (total petroleum receipts less allocation to GNPC), amounting to US$169,458,674.13 has been allocated to the ABFA for the 2017 financial year. Also, exactly 30% of the BR has been allocated to the GPF.
One of the major concern of watchers of the oil and gas industry in Ghana pertaining to the oil revenue utilization was the haphazard manner the ABFA was used. Perhaps taking a cue from this development, the new government has ensured that in the 2017 budget, priority areas to receive support from the ABFA are very focused and clear.
“The current budget choice of priority areas for ABFA investment are clear, much focused, and fall within the prescribed priority areas specified in Section 21(3) of the Petroleum Revenue Management (PRMA) Act, 2015 (as amended) Act 815. The priority areas reflect ACEP’s persistent advocacy for oil revenue investment in pro-poor sectors of agriculture, education and health. We take particular notice of the fact that about 53% of ABFA will be spent in the pro-poor sectors,” a government official stated.
It is clear that government has moved away from using ABFA to finance expenditure and amortization of loans for oil and gas infrastructure. This was one of the priority areas until 2016. In 2016, Ghana Gas financed its loan obligations through the sale of the liquids (propane, etc) it processed. Overall, it appears that more money will be freed for specific sustainable development investments.
According to ACEP, goods and services expenditure of the ABFA is precise and trackable. The education sector will receive about 26.5% of ABFA, constituting 88.6% of ABFA allocation to goods and service in 2017. This is the amount to be spent on the government’s flagship free SHS policy from oil revenue.
And for the first time there is greater clarity on what exactly the recurrent expenditures of the ABFA will go into. This helps to track impact of not just the portion that goes into physical infrastructure but also recurrent expenditures. Investing in education in particular, fits into the key objective of the PRMA in Article 21(2) (b) to promote equality of economic opportunity for all.
“ACEP observed that for the first time, PIAC received full disbursement of its budget from the ABFA to the tune of GHC960, 000 in 2016 following the 2015 amendment to the PRMA to provide funding to support PIAC’s work. The funding allocation to PIAC has almost doubled to GHC1, 900,000 in 2017.
ACEP wishes to commend the previous and current governments for heeding civil society call for adequate funding for PIAC to strengthen its oversight responsibilities prescribed by law. This will help shift the focus from lack of funding to ensuring that PIAC delivers on its mandate,” read a statement issued by ACEP recently.
ACEP further welcomed the non-allocation of 25% of ABFA to Ghana Infrastructure Investment Fund (GIIF).The GIIF Act and PRMA (as amended) prescribe that up to 25% of the ABFA earmarked for capital expenditure must be disbursed to the GIIF. This arrangement implies that 25% of the investment portion of the ABFA every year would be isolated from the governance framework established in the PRMA, thereby making it difficult to track petroleum revenue utilization.
ACEP’s concern has been that the ABFA is structured as an investment fund which had already been leveraged for loans. The GIIF allocation provision was therefore only an attempt to create multiple collateral securities for the same money moving across different funds.
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