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ACEP Exposes Gov’t, GNPC…For Signing Bad Gas Contract With Eni And Vitol

March 13, 2017 by oilgas in News in Brief with 0 Comments

download (6)The Africa Centre for Energy Policy (ACEP) has criticized the government of Ghana and the Ghana National Petroleum Corporation for not taken the interest of Ghanaians at heart in the signing of the doubtful US$7 billion integrated oil and gas development agreement in the Sankofa-Gye-Nyame Fields.
The President of the Republic last week announced a big time Gas deal between GNPC and the Offshore Cape Three Point (OCTP) Partners; ENI Ghana and Vitol Ghana (Contractors) over a US$7 billion integrated oil and gas development in the Sankofa-Gye-Nyame Fields but the agreement seems to be a bad one that will make Ghana lose millions of dollars according to the Africa Centre for Energy Policy (ACEP).
According to ACEP’s Analyses of the terms and conditions of the Agreements and Term Sheets show that the deal is fraught with badly negotiated terms, and at most serving the interest of the Contractors rather than Ghana’s.
The findings from the analyses show that the government offered over-generous terms to the Contractors just to satisfy Ghana’s thirst for gas supplies. In trying to satisfy the country’s demand for gas, the incentives provided to the Contractors exceeded what pertains in international transactions of similar nature.
ACEP noted that Government’s fiscal support package, which included an exempt debt-to-equity ratio of 2:1 at 7% interest on the commercial loans of the Contractors, would lead to significant revenue losses to the state over the project life of 20 years, since interest expenses are tax deductible. The state must guarantee that at anytime, the free fiscal support to the Contractors remain $125 million to make the initial gas price of $9.8 per mmBtu. This could run into several millions of dollars when gas prices fall. In the event that the contractors source the loans from their affiliates, the gains to the Contractors could increase at Ghana’s expense.
The Government is required under the Security Package and Fiscal Support Agreement to issue five (5) different Sovereign Guarantees estimated at about $1.5 billion in addition to World Bank and IDA guarantees. This situation over-exposes the state to too much risks and demonstrates the lack of investor confidence in the Ghanaian Government.
It said the plan by GNPC to make an upfront payment in cash to the Contractors or allow the Contractors to over-lift GNPC’s share of oil at the beginning of production of oil, for the purpose of making Gas price of $9.8 per mm Btu viable in not fair . he said although the amount is expected to be recovered at the end of production, the recovery amount does not attract interest charges. This is not consistent with sound financial management.
According to ACEP, Government’s decision to allocate the maximum 55% Net Carried and Participating Interest to GNPC beyond the 15 year period for the capitalization of GNPC as provided in the Petroleum Revenue Management Act 2011 (Act 815) or PRMA violates Section 7.3 of the PRMA and will therefore amount to an illegality.
The Agreement covers terms and conditions for the financing of the project by the Contractors and for the sale of the Contractors’ share of gas produced to GNPC.
The Sankofa-Gye-Nyame Fields is estimated to hold petroleum reserves of 131 million barrels of crude oil and 1.15 trillion cubic feet of natural gas. The project is in two phases – Phase 1 (Oil) and Phase 2 (Gas). First oil is expected on stream in March 2017 whilst first gas is expected in February 2018.
Daily production of oil will be at 80,000 barrels whilst daily production of gas will average 171 million standard cubic feet over 20 years.
Several Agreements and Term Sheets cover the project as follows:
i. OCTP Petroleum Agreement signed in 2006 (Approved by Parliament). ENI farmed into the Petroleum Agreement in September, 2009.
ii. Supplementary Agreement for Submission of OCTP Plan of Development singed in 2014 (Approved by Parliament);
iii. Fiscal Support Agreement and Security Package Term Sheet for signsed in December 2014 (Approved by Parliament)
2.0. Sharing of Petroleum
Sharing of petroleum in monetary terms is based on the fiscal regime in the OCTP Petroleum Agreement. The fiscal terms include royalty of 7.5% for oil since the water depth is in excess of 400 mters; gas royalty of 5%, corporate tax of 35%. GNPC has a carried interest of 15%; and additional paid interest of 5%. The working interest of the partners therefore amount to ENI Ghana (44%), Vitol Ghana (35%) and GNPC (20%).
Based on after tax working interest, the contractor group will be entitled to $14.3 billion (56%) of total cash flow over the project life whilst the state is entitled to $11.1 billion (44%). The state take is lower than what pertains to previous contracts. Given that the project is a $7 billion project, the contractors will be making profit of $7billion. This makes the project a profitable one at an oil price of US$90 per barrel and gas price of US$9.8 per mmBtu.
3.0. Over-generous Concessions by the State
In spite of these gains the company is likely to make from the deal, the Government has further over-exposed the country to too much risks due the decision to buy all the gas produced by the contractor. The exposure takes the form of guarantees and security to keep gas price at $9.8 per mmBtu and to support the Gas Sales Agreement. This is where the real challenge is. The over-generous concessions the Government and GNPC are providing to the Contractors are examined here.
3.1. The Fiscal Support
The Government and GNPC have offered through the Supplementary Agreement to make the initial gas price of $9.8/mmBtu viable by providing a fiscal package to the tune of $250 million. A total of $125 million will be provided by GNPC upfront, whilst the remaining fiscal concessions amounting to another $125 million to be provided by Government will ran over the project life.
The Government fiscal concessions are:
a. Tax deductible interest of 7% on the commercial loans of the contractors based on a debt-equity ratio of 2:1; which translates into a net present value of $105 million.
b. Tax deductible Decommissioning cost, which translates into a net present value of $20 million.
The Government fiscal concessions are problematic. Over the project life of 20 years, the fiscal support of the state translates into significant revenue losses to the state, as the state will not have tax revenues from interest expenses on commercial loans of the Contractors. It is even more problematic because interest commercial rates are declining and could remain below 7% for a long time. The contractors’ gain could be more if it decides to contract loans from its affiliates or Banks in which it has interest once the debt to equity ratio does not exceed 2:1.
The Government is further required to provide a Sovereign Guarantee of $125 million to pay for any negative difference if the fiscal concessions do not translate into monetary value of $125 million or if the fiscal concessions are not approved or are disallowed. Thus, revenue losses to the state could run into several millions of dollars when gas prices fall below the initial price of $9.8 per mmBtu.
3.2. GNPC’s Upfront Payments
As per the Supplementary Agreement, for the contractors to execute the second phase project (Gas), GNPC is required to make upfront payments of $125 million to ensure that the contractor makes an NPV of $125 million based on the initial oil price of $90 per bbl and gas price of $9.8 per mmBtu. The contractors must make an NPV of $125m at all times. Therefore, if the initial price changes such that the contractors will not make an NPV of $125 million at any point in time, GNPC is required within 3 months of any shortfall occurring, to implement alternative mechanism to eliminate the shortfall; or pay cash to the contractors if the mechanisms have not been implemented.
The implication of this is that, there is no room for the contractors to make a loss at anytime or for their profit levels to decrease; and the state is obliged to assume the full risk of a loss occurring to the contractors through GNPC paying cash to offset any decrease in the contractors’ profitability. In addition, the Government must issue a Sovereign Guarantee of $125 million to pay for the shortfall in case GNPC defaults. The assumption of these risks by the state alone is too high in an industry that is very volatile. Since, the Contractors already make substantial profits from the oil project, the risk of a loss to the contractors must be shared with the state rather than the state entirely assuming the risks.
GNPC has two options for executing its upfront payments to the Contractors:
i. Cash contribution of the total amount of $125 million, or
ii. Contractor over-lift of oil due GNPC to the tune of $105 million plus GNPC cash purchase of remaining oil barrels in stock to the tune of $20 million at the beginning of production.
What is worrying is that the upfront payment is to be recovered by GNPC at the end the project life. However, in recovering these upfront payments, the state is not entitled to interest charges on the amount because it is not considered as advancement but a contribution. In this case, one wonders why the state has to provide security in the form of a Sovereign Guarantee to cover its contribution to the contractor just because the state desires to purchase the contractor share of the gas produced. The important questions that need urgent answers are:
– What is the commercial value of the state’s contribution to the project?
– Should we necessarily commercialize the gas in OCTP if it is not a viable project?
– Why should we commercialize the gas at $9.8 per mmBTu higher than gas from Nigeria at $9 per mmBtu in addition to GNPC’s contribution and other fiscal packages that could cost the state revenue losses?
– Given that the cost of the phase 2 (Gas ) of the project is estimated at $2.7 billion, could the Government not borrow to finance the project substantially and eventually increase its benefits rather than providing free fiscal and other incentives to the Contractors to finance the project?
3.3. Security Package for the Gas Project
3.3.1. Gas Price and Savings
The initial gas price negotiated from 2014 is $9.8 per mmBtu. However, the price is indexed to United States CPI and Henry Hub prices. Therefore changes in gas price will reflect changes in the two parameters.
The Government in an attempt to deceive the public convinced Parliament that the initial gas price would reduce to $8.075/mmBtu if GNPC invests $300 million in offshore receiving facilities and pipelines and would further reduce to $7.0135/mmBtu if GNPC invests additional $193 million. This in the view of Government will lead to savings to the country of $5.1 billion in price reduction.
The motive for presenting the $5.1 billion as savings is not clear. Fact is, the reduction in price is based on investments to be made by GNPC, and the purported savings are what Ghana would have paid if the contractor executed the offshore receiving facilities and pipeline. Therefore the purported savings are the returns over the project life from the investments of $493 million to be made by GNPC. The money for these investments are already earmarked from the $700 million loan the GNPC is contracting, to be repaid from gas sales and GNPC’s share of Net Carried and Participating interest provided for in Section 7 of the Petroleum Revenue Management Act 2011 (Act 815).
3.3.2. Security Package for gas payment and performance obligation by GNPC
A number of disturbing security packages are being provided to cover GNPC’s payment obligations for the contractor’s share of gas produced. The security package include the following:
i. Take or pay clause
ii. Commitment for a minimum contracted off-take by GNPC of 90% of annual quantity produced by contractor
i. The opening of an Escrow Disbursement Account to receive GNPC’s revenues to be used for payments in respect of gas sales
ii. The opening of an Escrow Reserve Holding Account with a minimum balance funded by GNPC
iii. Government Sovereign Guarantees
iv. World Bank Partial Risk Guarantee cover
v. Risk of payment default from the International Development Authority (IDA)
These guarantees are required to make a Gas Sales Agreement effective. Whilst guarantees are normal with international transactions such as this, some of the guarantees provided in the term sheet for the security package are disturbing. At most, they undermine Ghana’s sovereignty by tying down the hand of the Minister of Finance, GNPC and violating sections of the Petroleum Revenue Management Act 2011 (Act 815). Further, GNPC shall not sell gas in any currency apart from US Dollars conflicting with the domestic currency regulations.
These disturbing guarantees are examined below:
a. The Escrow Disbursement Account
GNPC is required to open a US Dollar main Escrow Disbursement Account, which shall receive revenues from the following sources:
– Domestic gas sales revenue including GNPC’s net carried and participating interest from Sankofa-Gye Nyame, Jubilee and TEN gas revenues.
– All funds representing GNPC’s share from the Petroleum Holding Fund (excluding GNPCs cash calls and financing costs associated with petroleum agreements which are included in equity financing costs under section 7.2a of PRMA).
– All revenues arising under gas sales agreements including on-sale gas by GNPC from existing and new developments from or across OCTP, Jubilee and TEN.
At this juncture, it is not clear why gas sales revenues from Jubilee and TEN projects must be transferred to the Escrow Account provided for in the Security Term Sheet for the OCTP Block; and managed by GNPC and the OCTP partners. That is, the OCTP Contractors are invariably dictating the conditions under which Jubilee and TEN gas purchases will be paid for by GNPC. In the event that the Jubilee and TEN operators have different terms covering payment for their gas sales, the OCTP Gas Sales Agreement will be adversely affected. This also means that the Security package must not exclude Jubilee and TEN partners from the negotiations.
Also, the payment for gas sales from the Escrow Disbursement Account will be further backstopped by a World Bank Partial Risk Guarantee equivalent to $600 million and GNPC’s risk of default payment cover of $150 million by the International Development Authority (IDA). Notwithstanding these guarantees, the Government must issue a Sovereign Guarantee to cover any payment shortfalls after the Partial Risk Guarantee provided by the World Bank is exhausted.
b. Escrow Reserve Holding Account
Apart from the guarantees provided by the World Bank and IDA; and the Sovereign Guarantees provided by the Government for any shortfalls in payment for gas by GNPC, the corporation is further required to open a US Dollar Escrow Reserve Holding Account for the exclusive benefit of ENI Ghana and Vitol Ghana. The Reserve Account shall be funded by GNPC before first gas with an amount equivalent to 4.5 months of the Contractors share of Annual Contract quantity. This requirement is more stringent given that Jubilee and TEN Gas sales payments Escrows require an amount equivalent to 3 months of annual contract quantity.
Again the Government is required to issue a Sovereign Guarantee of $100 million to offset any shortfalls in debt service from the main Escrow Disbursement Account.
c. Payment of GNPC’s Net Carried and Participating Interest into the main Escrow Disbursement Account
For the period of the Gas Sales Agreement covering 20 years, the state must ensure that GNPC continues to receive its Net Carried and [Participating Interest (CAPI) as provided for in the PRMA, which GNPC must pay into the main Escrow Disbursement Account for the purpose of paying for gas sales from the Contractor.
The conditions under which the above provisions will be executed provide that:
a. GNPC will budget and request for 55% Net CAPI and the Ministers of Finance and Petroleum are required to support this proposal and secure parliamentary approval for it.
b. The allocation of 55% Net CAPI to GNPC will continue after the 15 years provided in Section 7.3 of the PRMA for the capitalization of GNPC.
c. In the event that Parliament does not approve a Net CAPI allocation to GNPC at 55%, then for any period when Net CAPI is less than 55%, the state shall pay the Net CAPI deficit into the main Escrow Disbursement Account.
d. The State shall issue a Sovereign Guarantee to cover the Net CAPI deficit.
Some of the conditions above have grave implications.
The first condition ties the hands of the Minister of Finance as the Fiscal Manager in the PRMA and in this case, the Minister can no longer vary the allocation of the Net CAPI to GNPC from the maximum 55% as was done previously from 2011 – 2015.
The second condition violates Section 7.3 of the PRMA, which provides an exit period of 15 years for the capitalization of GNPC from petroleum revenues. In this case, the Government may be compelled to amend this Section of the Law or engage in an illegality. and also violates the PRMA.

Source: https://www.modernghana.com/news/603943/1/acep-exposes-govt-gnpcfor-signing-bad-gas-contract.html

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Revenue mobilization from the oil sector for Agricultural production in Ghana, a myth or reality?

We are back with Penplusbytes Online Discussion on Oil and Gas. This latest episode, starting from today Monday 6th June,…

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    • Comment by Godwill Arthur-Mensah,my take on the mobilization of oil revenues

    I strongly believe that the petroleum revenues had not been strategically invested in the agricultural sector and I agree with Dr. Ishmael Ackah, the Head of Research, Monitoring and Evaluation at the Africa Centre for Energy Policy (ACEP), who stated in a forum in Takradi last year that Government have not made strategic investment in agriculture because in 2014 budget, 70 percent of the agriculture budget went into the construction of  four sea defence walls projects, instead of food crop production or aquaculture.

    Currently, the cost of cassava is very high in the Western Region and in other parts of the country because the demand had outstripped supply due to decline in production.

    Over the years, growth in the agricultural sector had declined, recording growth of 7.4 per cent in 2008 followed with 7.2 per cent, 5.3 per cent and 0.8 per cent in 2009, 2010 and 2011 respectively, according to statistics available to the Ministry of Food and Agriculture.

    It is unfortunate that Government had been replacing its normal allocation to the agricultural sector with petroleum revenues allocation as determined by the Annual Budget Funding Amount (ABFA), instead of the Petroleum revenues complementing the usual allocations.

    Moreover, some peasant farmers in the Western Region had complained bitterly that oil and gas companies had bought arable land meant for agricultural purposes for the construction of their warehouses and thus, deprived them of their livelihoods.

    Godwill Arthur Mensah

    GNA, Regional correspondent(Western Region)

    mensahgodwill@gmail.com

    0
    Comments by Justice Adoboe

    Ghana must avoid making the oil and gas sector another enclave economy.

    Ghana must avoid making the oil and gas sector another enclave economy as the mining sector has been over the years. The fact that our oil sector is a very small one whose direct  impact on the economy in general is quite negligible so far is the same reason part of the revenue accruing from the sector should be re-invested in agricultural development.

    Petroleum can cease to flow tomorrow, but our arable lands which are crying for cultivation will still be  there, investing and the decisions and efforts we make today at investing in the agric sector modernization is what will determine our food security tomorrow.

    As Climate Change is becoming a reality in our case with prolonged drought, short periods of rain but causing severe flooding, especially affecting the northern sector which is Ghana’s granary and the source of legumes and many root crops, the need  of investing in  irrigation across the length and breadth of the country is no more a in doubt but an issue demanding immediate action.

    If we can invest in a quarter of the 1.9 million hectares of irrigable land the country has, we can be assured of an all-year round production of certain key food crops that we spend scarce foreign exchange importing today

    so far only 28,000 hectares of irrigable lands have been irrigated across the country, so you see why we keep importing tomatoes from Burkina Faso.

    Beyond investment in crop cultivation, we also need investment in the other portions of agriculture value chain, talking about input production, storage and timely  supply, modern harvesting, drying and storage methods and facilities.

    As we see investments coming into cocoa processing so also must we invest into food processing and marketing in order to prolong the availability of our key staples.

    If we put these things into practice, the need for GMOs for higher production won’t arise.

    Meanwhile, as we do these investments, the number of those going to be in direct cultivation would reduce, but the other portions along the value chain that would be developed, input production, storage and distribution; drying, processing; storage as well as marketing have the potential to yield more jobs that are higher paying than the sector does now.

    Taking the first step of putting money into the real needs of the agriculture sector is key. As for the reason it was the agric sector investment that had its budget slashed last year as a result of the oil price drops I think was a decision not well thought-out.

    Justice Lee Adoboe

    Senior Correspondent Accra Bureau of the Xinhua News Agency

    devitor2002@yahoo.com

    web: www.xinhuanet.com/enlish-Africa www.fighana.com

     

     

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    MESSAGE FROM DR ISHMAEL ACKAH:  Revenue mobilization from the oil sector for Agricultural production in Ghana, a myth or reality?(DISCUSSION)

    1. Is there a relationship between the fortune of the agriculture sector and a rise of the oil and gas sector?
    Answer: Yes. The oil sector affects agriculture in two main ways. First is the labour  mobility effect. The oil sector draws on the agriculture and other sectors for labour. There are instances where the youth especially leave their farms to go and look for non-existing jobs in the oil sector,. Second, increased foreign exchange into the economy can lead to the appreciation of the cedi and make agriculture inputs expensive, which will in turn make agriculture exports expensive and non-competitive. Both channels can lead to reduction in agriculture output.
    1. What are the drivers or rationale to move resources from oil and gas to agriculture sector?
    Oil resources have two main limitations. First, since oil prices are volatile, revenues are volatile too. Second, oil resources are exhaustible. Due to these reasons, countries that have been successful in managing their oil resources well diversify. Since agriculture provides a competitive advantage to Ghana in terms of fertile land, cheap labour and productive, it is important to build the agriculture sector with oil revenues to serve as a buffer during oil price shocks.
    1. Which countries are suffering a decline in agriculture due to the discovery of oil and gas?
    Nigeria was once the number 1 palm oil producer in the world before oil production started around 1958.
    1. Does Ghana have an inter-sectorial link between the Petroleum and Agriculture ministry?
    No.However, the Finance Ministry usually unofficially serve as the link between different Ministries
    1. Is it a reality that revenues from the oil sector has been mobilized for Agricultural development or not?  If it is what are the things to show?  How many people have benefited from the Oil revenue in the agriculture sector?
    Agriculture is one of the four priority areas that have received oil revenues over the past 5 and half years. Agriculture received about 9.2% of the total oil revenues in the first 5 years. This is relatively low compared to GNPC’s 39%. There is little to be shown for this investment since the sector faces challenges such as oil revenues substituting instead of  complementing traditional sources of funding such as IGF, GOG and development partners. In addition, there are issues of misapplication. For instance, in  2014, 170,62 million Ghana cedis or 43.91 million U.S. dollars was allocated to the agriculture sector from oil revenues.Out of this amount 69 percent went into sea defence projects. Finally, allocation from oil revenues to agriculture has seen a ”see-saw” trend. For example, in 2013, 2.5% of ABFA wa allocated to agriculture. This increased to 31% in 2014 and reduced to 3.5% in 2015. In 2016, it is projected to be 28%. This affects proper planning and productivity. The sector needs an investment plan, guided by effective monitoring and evalutaion and measurable indicators
    6. Oil Revenues as Substitutes instead of complement to the Agric. sector
    Yes. Oil revenues now constitute more than 90% of the capital and goods and service budget of agriculture. This means agriculture will be affected most when there is low oil prices.
    7. Low level  of oil revenues investment in agriculture
    Yes. agriculture has received only 9.2% of oil revenues over the past 5 years.
    8. Have the oil producing districts shown decline in the Agriculture production?
    The oil is produced offshore and the fishermen have been complaining about low catch since the oil production. Alternative livelihood systems have been developed by oil companies.However, it should be institutionalized and properly targeted.
     Inline image
    Ishmael Ackah, Ph.D
    Head of Policy Unit 
    Africa Centre for Energy Policy (ACEP)
    Accra-Ghana
    Email: ackish85@yahoo.com
    Repec:https://ideas.repec.org/e/pac69.html
    Academia: https://port.academia.edu/IshmaelAckah
    0

    Comment from Malise Otoo- THE MYTH OF OIL REVENUE IMPACT ON AGRIC IN GHANA

    My take on this issue is that the development of Agriculture in Ghana as a result of oil is purely a myth with very little result to show for.

    A 2014 Annual Report of the International Fund for Agriculture Development (IFAD) suggests that West and Central Africa received in excess of US$157.8 Million representing about 22.1% of the total share of  US$713.4 Million funds for financing programmes and projects approved in 2014 alone.

    Although IFADs core mandate is to finance the growth of Agriculture and its value chain to ensure food security in countries, it has interestingly started funding natural resource management especially in cities where these God-given resources are found.

    The following is how the various sub-sectors were impacted through the distribution.

    Agriculture and natural resource management – 32%, Market and related infrastructure – 16%, Rural financial services – 13%, Others 13%,

    Policy and institutional support – 10%Community-driven and human development – 8%, Small and microenterprises – 7%

    Therefore, in 2014 Ghana received its share of the funds distributed  with a breakdown as follows;

    GHANA: Ghana Agricultural Sector Investment Programme (GASIP)

    GASIP will work to reduce poverty in rural Ghana sustainably.

    It will have three components: value chain development; rural value chain infrastructure; and knowledge management, policy support and coordination. Smallholder farmers and resource-poor rural people will be the main targets, particularly women, young people (aged 15-24 years) and young adults (aged 25-34 years). This national programme will be governed by a demand- and market-driven approach. The initial design and financing will cover the first two cycles (six years).

    Approved loan amount: SDR 23.7 million (equivalent to approximately US$36.6 million)

    Approved ASAP grant amount: SDR 6.5 million (approximately US$10.0 million)

    Total programme cost: estimated at US$113.0 million, of which national government will provide US$7.6 million, beneficiaries US$4.6 million, districts US$1.7 million and participating financial institutions US$17.5 million. IFAD is expected to seek additional financing of US$35.0 million in 2016-2018

    Approximate reach: 55,000 households .

    Although Ghana discovered oil in commercial quantities in 2010, and attained middle-income status in 2011, the overarching effect of oil revenue on Agric in this regard is yet to be felt with Agriculture contributing only some  0.04% of GDP.

    We should perhaps take note that Ghana has also been the largest recipient of IFAD‘s loans and grants in the West and Central Africa region since 1980.

    As a journalist, it beats my imagination why these resource nations find it extremely difficult to adequately fund Agriculture which employs the majority of its people. Perhaps Ghana is not alone in this struggle. Uganda, Mozambique and Tanzania can all be fingered. But this should no way be an escape for our leaders to sit up and salvage the situation.

    Finally, the recent Panama Papers which exposed two sons of prominent leaders allegedly involved in illicit financial flows and tax havens i.e Former President John Agyekum Kufour and Kojo Annan, son of former UN Secretary General Kofi Annan should not be swept under the carpet.

    Civil Society organizations like ACEP in Ghana should not be hypocritical to this and they cannot turn a blind eye on the matter. Ghanaians need to be educated on the truth on the issue and certain outcomes reached in this regard.

    Malise Otoo

    Managing Editor,
    Ghana Daily News
    No. 10A Christianborg Castle Road, Osu-Accra, Ghana
    P.O.Box DK 817, Darkuman, Accra
    listeningp.gh@gmail.com
    0
    Comments from Tanko Mohammed Rabiu
    OIL FOR AGRICULTURE
    As Ghana congratulates and award farmers today in Bolgatanga in the upper east region, a lot of farmers’, agriculture experts and energy experts are calling on the government to invest heavily in agriculture from the oil revenues. This according to them agriculture contributes faster to poverty reduction than does industrial investments. Agricultural spending has wider redistributive effect citing some examples; Indonesia used its oil rents to supply fertilizer to farmers and develop new crops, building the basis for the country’s green revolution. They also invested heavily in agricultural research to identify new commodities that could improve on export potential. Malaysia invested its oil revenues into forestry and palm oil, building very successful industries. Chile, used proceeds from copper to invest into new agricultural commodities, such as salmon, a product that had not been part of the country’s export products before and other countries who are also using oil revenues to improve in agriculture.
    At the height of the global financial and economic crises in 2007, Ghana discovered oil and gas in commercial quantities estimated at 1.8 billion barrels reserves. In spite of the modest production levels, oil has now become the second largest export of Ghana – US$2.7 billion in 2011 to US$3 billion in 2012; following gold and overtaking cocoa since then. Ghana is also gradually becoming a net exporter of crude oil with oil imports of US$3.3 billion in 2012 versus oil exports of US$3 billion. Over the last 4 years, Ghana earned about US$2.7 billion in revenues to the state. With new discoveries being developed, Ghana could earn more from its share of crude oil. With increasing oil revenues as a result, many are skeptical if Ghana can avoid the curse of oil and transform its oil wealth into positive development outcomes.
    In Ghana, research has shown that at the national level, agricultural public expenditures have the highest returns in terms of agricultural productivity. For one marginal cedi invested in agriculture, GH¢16.8 is returned, feeder roads – GH¢8.8, Health – GH¢1.3. In spite of the potential of this sector to contribute to the country’s development, there continue to exist a wide funding gap in public expenditure. Agricultural share of public spending is currently at 8.5%, which has been insufficient to generate the levels of growth that would reduce poverty levels significantly. This is lesser than the Maputo Declaration of a minimum spending of 10%. If Ghana is to become a full middle-income country by 2015 and see decline in poverty rates of almost 70 percent, the share of agricultural expenditure in public spending would have to almost double from the current 8.5 to 14.1 percent.
    Nevertheless, Allocation of oil revenues to agriculture was increased in the 2014 Budget from GHS20 million in 2013 to GHS136 million in 2014. Agriculture share of oil revenues were allocated to investments focused on small holder farming but farmers are asking for more improvement in the sector. In a telephone interview with the 1996 national best farmer Aloko Dongo who is still in active farming expressed his dissatisfaction on the declining state of agriculture saying farmers do not have access to credit facilities to enhance in their activities. He said many a times a lot of farmers commit suicide after failing to pay back loans taken from financial institutions and said lack of access to market, storage facilities and disease control.
    Speaking to Dr. Amin Adam, the executive director for Africa center for energy policy, ACEP, in an exclusive interview after his presentation on political economy of Ghana’s oil and gas sector/follow the money at a media training for journalist in the extractive sector, said agriculture is the easiest way to reduce poverty in Ghana looking at the scope of the agriculture industry where the sector has more working force. He said there is the need for more citizen participation in decision making process I the oil and gas sector so as to benefit the poor and the vulnerable.
    On the morning of the national farmers’ day celebration, TV3’s morning show “new day” hosted O.B Amoah, a member of the NPP, John abdulai Jinapor deputy minister of power and a member of the CPP. All the panelists reiterated the need for government to invest more of the oil revenue to agriculture and mean while John Jinapor said despite these challenges, government is investing a lot in agricultural industrialization from different funding sources examples like the fomenda sugar factory, shea butter factory at Buipe, rice mills in Tamale and Nasia.
    According to the 2015 budget, 3.95% of the total budget went to agriculture and only 1.39% was spent and in the 2106 budget it declined to 3.5% which according to agriculture expert is not encouraging and not good for a developing country like Ghana. An amount of GHC 501,501, 708.00 is allocated to the agriculture ministry representing 3.5%.
    Most of the farmers I spoke to want more share of the oil revenue to agriculture because agriculture is the most easiest way to reduce poverty and the only sector where the poor can make livelihood from without huge investments.
    The table below shows how oil revenues were allocated to agriculture from 2012 to 2013.
    ALLOCATION OF OIL REVENUES TO AGRICULTURE
    A DECLINING TREND
                                                                                                                                                                                                                                                                           SECTORS                               ABFA 2012        RANK     ABFA 2013    RANK
    Office of the President
    65,000,000
    2
    20,000,000
    Parliament of Ghana
    5,000,000
    Finance and Economic Planning
    9,000,000
    28,850,000
    6
    local government
    15,000,000
    5,000,000
    Food & Agriculture
    53,000,000
    4
    20,000,000
    8
    Lands & Natural Resources
    33,840,000
    Trade & Industry
    13,040,610
    5,000,000
    Envir, Science & Technology
    25,000,000
    300,000
    Tourism and Culture
    5,000,000
    Energy
    130,000,000
    1
    130,000,000
    1
    Water Resources, Wrks & Housing
    21,000,000
    59,517,043
    3
    Roads and Highways
    40,000,000
    5
    100,000,000
    2
    Transport
    70,000,000
    3
    40,000,000
    4
    Education
    20,000,000
    10,000,000
    Health
    29,900,000
    5
    Employment & Social Welfare
    10,000,000
    300,000
    Youth & Sports
    22,000,000
    Interior
    25,000,000
    23,000,000
    7
    MDAs Total
    576,008,674
    476,867,043
    Source: ACEP
    Tanko Mohammed Rabiu
    Regional Correspondent, Tamale
    TV3 News Network Limited
    rabiutanko@hotmail.com

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