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Ameri deal: Imani replies Donkor’s ‘fuzzy arithmetic’

April 25, 2017 by oilgas in News in Brief with 0 Comments
Imani has described as “fuzzy arithmetic”, former Power Minister Dr Kwabena Donkor’s figures he churned out in a 94-page document to counter what he had said were misinformation provided by the policy think tank in connection with the controversial $510million Ameri deal which the Addison Committee said was overpriced by $150million.

In Imani’s response, it said in point 4 of his essay, Dr Kwabena Donkor (DKD) “insists that there is an annual ceiling for the variable charge that is pegged at: $9,263,700. And that when this is added to the aggregate BOOT charges, the sum should come to $510 million. There is no miracle of arithmetic that will make this possible.

“In Annex G to the agreement, he himself bulldozed through Parliament, the monthly fixed charge is: $8.5 million. The aggregate of that over five years is $510 million. One does not have to add anything else to obtain the $510 million figure. It emerges as the inevitable outcome of the calculation.

“In the same Annex G, the annual, maximum, variable cost is pegged at $16.6 million. Where, Dr Donkor, are you pulling this $9.2 million maximum cap from? Are you saying that the amount we really ought to be paying is half what is in the contract? How come? How strange! How absolutely incompetent if true! But even so, the total cost to Ghana (fixed plus variable cost) will still come to a hefty $556 million-plus over five years, which is not small change. That whole section of DKD’s statement should be disregarded for incoherence.”

Read IMANI’s full response below:

The AMERI Deal Just Got Murkier

Imagine our delight when a journalist sent a link to us purporting to be a comprehensive response from Dr. Kwabena Donkor, the former Power Minister, regarding our relentless campaign to expose the swindle that is the AMERI deal.

We expected to see some rational answers finally. After all, this was a response that has been promised for weeks on Facebook by assorted AMERI dealmakers.
We were sorely disappointed.

Where the argument and arithmetic were lucid enough for us to follow, the conclusions were simply shocking.

Firstly, we will ignore all the ad hominem attacks trying to paint this as another NPP – NDC slugfest. Such is a typical game of many politicians in this country, with which we are all too familiar. We won’t fall for the bait and get into a terrain that the likes of Kwabena Donkor feel so comfortable operating in.

We have only one agenda: the thorough and precise stripping bare of the AMERI deal so that everyone can appreciate this most brazen of a swindle.

1. The LM2500 vs TM2500 Issue
Either Dr. Donkor has a problem with his reading lens or there is something really desperate going on. Our argument is that the TM2500 is MORE THAN JUST a gas turbine. It is a gas turbine PLUS various accessories which together make up a POWER PLANT IN A BOX.

Dr. Kwabena Donkor (DKD) goes to the GE website and reproduces a statement from GE that the TM2500 is a “Gas Turbine and Power Plant” and still proceeds to argue that we are “re-engineering the name”. This is frankly a waste of everyone’s time.

All we want the public to note is that the TM2500 is the COMBINATION of the LM2500 (which is the actual turbine inside the TM2500 ) and various accessories to make a virtually complete, compact, power plant solution. The LM2500 costs roughly $9.5 million, while the other accessories add an additional $12.5 million of components needed to create a portable power plant (see: http://www.gas-turbines.com/trader/kwprice.htm). These are “retail level” prices. When bought in bulk or directly from the manufacturer, the price is likely to come down.

As evidence for this point, we have attached below an extract from an offering made by Derwick, a Venezuela firm, to PDVSA, the Venezuelan national oil company, which has been the subject of intense inquiries by US agencies. In that deal the TM2500 was offered without its accessories for $11.5 million. This price obviously included the markup.

The key point being made here is that after paying nearly $22 million per plant, one does not need to spend a huge chunk of resources on top to start producing power.

As for Dr. Donkor’s “$22,000,00” mention, we will discard it as one of the many typos, that unfortunately his little manuscript is riddled with all through, and not waste our time trying to decipher it.

1. Why So Much Inconsistency?
If the TM2500 plants were indeed presented to Parliament as costing $22 million each, one has to wonder about the motives of various former Government functionaries who consistently produced different figures in various media engagements in recent weeks.

In the Newsfile edition of April 15th, 2017, Dr. Ayine was categorical in his claim that the ten TM2500 plants costs $240 million.
In the April 8th, 2017 edition of the same program, Mr. Jinapor, the former Deputy Power Minister, routinely denied that the power plants cost $22 million per unit and insisted that the set of ten costs $360 million.
This is an extract from a statement issued by the same Kwabena Donkor on December 14th, 2015, in which he said as follows:

“It must also be explained that the quoted price of $220 million in the Norwegian story for outright purchase of similar turbines is exclusive of all other costs such as auxiliaries, balance of plant, civil works, sub-station, installation of equipment, cost of financing, operation and maintenance etc (See: https://yen.com.gh/31470-power-minister-denies-duped-norwegian-fraudster.html)

In the statement above, he mentions that the $220 million is “exclusive of ALL OTHER COSTS including AUXILIARIES”. This of course is completely false because the TM2500 , when one buys the high-end package, does come with a full set of auxiliaries detailed in the product brochure here: http://www.aprenergy.com/sites/default/files/tm2500_mobile-gas-turbine.pdf. In fact, the denial of the incorporation of the auxiliaries has been one of the three main mechanisms through which this whole swindle was perpetrated.

But let’s save this point for later. What is important at this stage is that we now have admission that the cost of the platforms in total came to $220 million.

We insist that this price was inflated as it implies a cost per MW of $880,000. We have reviewed several TM2500 deals that ranged from $450,000 per MW (a benchmark often used for estimating the capital costs of aeroderivative power plants in the energy plant costing literature) to $850,000. We note a deal in Egypt where the per MW cost was $500,000.

But considering that there are far graver defects in the whole enterprise, let’s not dwell too much on this point. Let’s go with the $220 million as the actual cost of the set of ten TM2500 power plants.

1. TM2500 & LM2500
Just so that no one is confused on this point: it is DKD who appears not to know his facts here, despite copious claims of his competence in the area. The LM2500 is the power generating turbine that has been packaged with other accessories to create the TM2500 , a power plant in a box. This fact is amply documented by GE itself, for example here: http://site.ge-energy.com/corporate/powerxpand/downloads/GEA18664_TM250_r2 new.pdf
It is also a fact that buying the turbine system alone without the major auxiliaries that DKD claims does not come with the package would be considerably cheaper than $22 million. In fact, many vendors offer that stripped-down package offer it at less than $9 million (example: see http://cfaspower.com/GTG_2048BH_LM2500DF.doc).

1. Integrating a single TM2500 Plant vs Integrating a System
DKD claims that integrating a single TM2500 into a national grid is substantially different from integrating a set of several. This point makes no sense. Each TM2500 system comes with an onboard electrical system to enable integration into a national grid provided the skids, generating stepup transformers and inter-ties are supplied. Integrating more than one merely requires more labour and materials. The time factor doesn’t really change unless one is unwilling to provide the right amount or level of manpower.

1. Time for Integrating a TM2500 into the Grid
The claim that the TM2500 can be integrated into the grid for power production within three days did not come from IMANI. This is actually a well-established fact in the industry (see, for example, http://www.industrialmarinepower.com/-3-2011-aeroderivative-gas-turbines-tm2500-mobile-gas-turbine-generator.html). The whole argument is diversionary piffle.

1. Balance of Plant & Operations & Maintenance
Neither IMANI nor Bright Simons has sought to misrepresent the claims of DKD. The claims are usually self-incriminatory enough. DKD has always insisted that the Balance of Plant, installation and Operations & Maintenance come to $118 million thereabouts, WHICH IS EXACTLY THE CONTENTION WE DISPUTE.

In all his public commentary, he has never split this global figure among these different categories of cost. Finally, he has done that and made the job of exposing this massive extortion perpetrated on Ghana all the easier.

1. The Great Dupe! Balance of Plant
According to DKD, to install, integrate into the grid, maintain and operate the 10 TM2500 in order to generate power, the following costs were incurred:

A. Balance of Plant = $27.084 million
B. Operations & Maintenance = $84 million
C. Insurance Premiums = $6 million

The remaining amount of $171 million of the fixed capital cost recovery payments must then have gone to financing.

Now, let us take you through the crazy expenses that were racked up in the name of Balance of Plant. Despite the very loose specifications, our knowledge of the TM2500 still enabled us to conduct rather rigorous price reviews. Bear in mind also that labour costs have been accounted separately in the bill of quantities supplied by AMERI/DKD.

Engineering and Home Support was billed at $1.5 million for a turnkey platform despite the fact that the manufacturer has produced every schematic necessary for assembly and interconnection with all manner of transmission systems, and has supplied manuals to boot. This inexplicable cost sets the tone for the rest of the rather shameful costing schedule for the AMERI project.
A. 5000 feet of 3C 500 MCM cable was bought at $375,000, clearly inflated by as much as 50% of the open market retail price (https://www.anixter.com/en_us/products/Control-and-Power-Cable/p/7D-5003A)

A. It is important to remember that the interconnection and termination cabling, which is usually a very expensive component of overall cabling, was performed per the contract by Government of Ghana (GoG) at GoG cost. The relevant portion of the Annex E(7) to the BOOT-PPA agreement is produced below.

A. The two 180 MVA transformers capable of stepping up generated power for supply to the GOG interconnect system at 161 KV (and 50 HZ frequency) were billed to Ghana at an outrageous price of $4 million! Whether ‘shell’ or ‘core’ this price is simply unacceptable. Our extensive market survey of prices for the specifications provided came up with an average of $1.1 million, suggesting price inflation of 90% plus.

Transformers are commodity items, now available on unsophisticated marketplaces such as Alibaba (see, for instance, https://www.zauba.com/export-MVA GENERATOR TRANSFORMER-hs-code.html), where with a simple email one can easily secure quotes of less than a million dollars for platforms of the same spec as what we required. Even high-end sellers like Compton Greaves and Hitachi nowadays offer one-stop project-based quotations for CIF and FOB pricing. It is rather frightening to note that DKD and his crew are boldly dangling these prices in the face of the public.

A. Ghana was billed a mindboggling total of $9 million for 5- and 6-inch bus ducts, together with their breakers and relay systems that connect the generating units, the step-up transformer and associated equipment!

Using the rather comprehensive frameworks provided by Pankaj Rajput (http://www.neoasis.in/wp-content/uploads/2014/10/Project-Report-Busduct-Design-Cost-estimation.pdf) and the Worley Parsons costing model for the New York Electric & Gas Corp (NySeg) CAES project, we have worked with multiple configurations (guided by the MCM cable length data) and no matter what we do it has been impossible to find out how they could have spent more than $3 million on bus ducts!

What DKD and AMERI is telling us is that they spent nearly $10 million on wiring and cabling. Yes, these are specialty wires and cables, but for a project of this scale, the notion is preposterous!

Since F.V. Smith’s seminal work on the subject in the fifties, auxiliary wiring and cabling has always been estimated and validated by multiple studies as contributing between 1% to 2% of total capital costs of power plants (overnight levelled). To see a contribution of nearly 10% in these AMERI project documents is stupefying to say the least.

[In all this, it is absolutely important to note that the TM2500 has its own pre-packaged electrical balance of plant that contains all the components that have been costed at over $27 million in this shady deal, provided the customer goes directly to GE, as was the case in the Libyan deployment not too long ago (see http://www.us-lba.org/latest-news/ge-showcases-ebop-capabilities-providing-portable-backup-power-libya-just-six-weeks).]

A. Given that the GOG is tasked with providing treated fuel that meets the exact specifications of the plant, the gas conditioning plant at $500,000 is redundant and needs to be justified.

A. Shipping on CIF incoterms basis has been pegged at – wait for it – $9.434 million! Note that in this case customs duties were waived, so we are concerned strictly only with freight and insurance.

The total weight of a TM2500 is less than the Gross Vehicle Weight (GVW) of an articulated DAF truck with trailers. For each of these platforms to ship on CIF basis at nearly $1 million completely beats the imagination. It is simply not possible to fathom how the CIF minus customs rate of ten articulated trucks can hit $9 million nor is it fathomable for the TM2500 plants. Using an extreme range of TEU values, insurance quotes, and after checking with multiple freight forwarders, we find that it is literally impossible to justify more than a $1.5 million cost for this item.

Whilst the Balance of Plant costings are overwhelming in the degree and extremeness of their inflation, they are nothing compared with the O&M costs that were used to compute the final bill.

1. The Great Dupe! O&M Costs
The jargon being used to obscure the operations and maintenance costs in the AMERI deal is “Long-Term Service Agreement”. According to the contract, AMERI is responsible for maintaining and operating the plant. For this work, they have been given a cool $84 million in the cost buildup. In essence, therefore, more than 25% of direct project costs are to go to maintenance and operations.

In previous essays on this topic, we have provided extensive evidence from a wide range of sources that show that the costs of maintaining and operating an aeroderivative power plant rarely exceeds $20/kw/year, which in this case would mean less than $5 million a year and a total of $25 million in 5 years. And ABSOLUTELY and certainly NOT $84 million.
Below is an extract from a quotation sent from ProEnergy Services, a well-known plant maintenance and operations services company, to Derwick that comes to $5.7 million. The disclosure comes from the well known investigation of US federal authorities into the Derwick – PDVSA deal in Venezuela.

Here is another one by Gillian Charles for Northwest Power & Conservation Council that comes to $17/kw/year – https://www.nwcouncil.org/media/6940212/Draft7pSCCT.pdf. There are literally thousands of models worldwide that all converge within this reasonable bound.

And, as we have repeatedly stated, using the global best practice costing libraries of Thermoflow’s GT Pro and Gas Turbine World Handbook all corroborate this $5 million per year average cost (benchmarked to the output of the Ameri Plant Complex). So by which magical means did AMERI and DKD succeed in arriving at $84 million over the term of the agreement?

As far as the insurance cost of $6 million is concerned, we will simply refer our readers to this well written analysis that pegs typical insurance costs at 0.6% of the overnight costs of power plants (http://www.brattle.com/system/publications/pdfs/000/005/010/original/Cost_of_New_Entry_Estimates_for_Combustion_Turbine_and_Combined_Cycle_Plants_in_PJM.pdf?1400252453). This is a benchmark we have seen corroborated widely, and which suggests a more reasonable insurance bill of less than $1.5 million.

It should be evident now where the bulk of the $118 million in so-called Balance of Plant and O&M costs went. A whopping $84 million plus of the money is pure padding. The remaining “hole” of $66 million that can’t be properly accounted for is to be found in the sweetheart financing component of $171 million. Before we get to that though let’s address the remaining points of misinformation in DKD’s tome of woe.

1. Dr. Donkor’s Fuzzy Arithmetic
In point 4 of his essay, DKD insists that there is an annual ceiling for the variable charge that is pegged at: $9,263,700. And that when this is added to the aggregate BOOT charges, the sum should come to $510 million. There is no miracle of arithmetic that will make this possible.

In Annex G to the Agreement he himself bulldozed through Parliament, the monthly fixed charge is: $8.5 million. The aggregate of that over 5 years is $510 million. One does not have to add anything else to obtain the $510 million figure. It emerges as the inevitable outcome of the calculation.

In the same Annex G, the annual, maximum, variable cost is pegged at $16.6 million. Where, Dr. Donkor, are you pulling this $9.2 million maximum cap from? Are you saying that the amount we really ought to be paying is half what is in the contract? How come? How strange! How absolutely incompetent if true! But even so, the total cost to Ghana (fixed plus variable cost) will still come to a hefty $556 million-plus over five years, which is not small change. That whole section of DKD’s statement should be disregarded for incoherence.

1. The Great Fuel Conundrum

The third mechanism (in addition to the Balance of Plant and O&M mechanisms) through which the great AMERI swindle was perpetrated was via the deliberate confusion over fuel accounting.

DKD cannot distinguish between the phenomenon of fuel being delivered by VRA but being paid for by the recipient power plant and then recovered through the approved bulk generation charge billed by that power plant to the distribution company (ECG, in our case) and another phenomenon where a power plant does not pay for the fuel at all and therefore does not add it to their charge to begin with.

To obtain the true tariff rate of the company receiving free fuel, paying no income tax, and freed from the costs of land leasing and regulatory compliance, one MUST necessarily compute those cost factors and add them to the tariff before proceeding to compare the tariff to others within the same class as that power producer.

This point is so elementary that we shall not bother to overflog it. When the full costs borne by Ghana on a net basis of the power produced by AMERI is computed, it does work out as:

A. The power producer generating the most expensive power on capacity charge basis.

B. The power producer generating the most expensive power on a levelised cost of energy basis &

C. The power producer with the highest capital costs per MW currently operating in Ghana today.

We note that DKD would like to hide behind some of the equally egregious deals signed by the group then in charge of the energy affairs of this country, to which he belonged, but to the extent that those deals haven’t fully materialised in terms of generated power yet, AMERI remains the most extortionate scheme foisted on us by a regime of general extortion.

1. Hiding Behind PwC
DKD has finally released what he probably believes is his trump card, the mysterious “value for money audit” conducted by PwC, AFTER the deal with Ameri had ALREADY been struck, and Ghana saddled with a burden it cannot escape.

The truth is that PwC is itself very modest in the claims it makes in that document. It did not use many of the specialised databases available for the kind of calculations it needed to perform to come to the conclusions necessary to provide the kind of vindication DKD thinks they have provided, but which on a closer reading of the report were not actually provided at all.

A. Firstly, in the “preamble” to the document, PwC disavows the authenticity of its own sources. It makes it clear that it has taken no extra step to validate the sources used.

B. PwC clearly advises against reliance on the representations for any other purposes other than as confidential advice to the then President, who commissioned them. They clearly did not anticipate the public discussion of the claims made therein.

C. In a future document, we may express in better detail our full appreciation of the claims in the PwC document, but suffice it to say that in point 2 of the summary of key points, PwC indicates clearly that when ranked with the comparable power plants that it surveyed, the capacity tariff for AMERI is the highest.

D. The approach of levelising over twenty years when full capital cost recovery is guaranteed after year 5 ignores the discontinuity in the series and cannot be fully relied upon for comparison purposes.

E. PwC’s decision to compare AMERI, an aeroderivative fast-track solution to combined cycle plants and the like, and in particular to choose three companies that are in various stages of incompleteness (Jacobsen, Amandi and Cenpower), reliant on no-recourse financing etc, in order to compute per KW costs when we have in this country completed and operating plants that can be better ‘normalised’ for comparative purposes is strange beyond measure, but it does not change the fact that as far as currently operating plants are concerned AMERI is the most expensive.

F. PwC seems to have been poorly briefed. They even appeared to believe that the civil works component had been billed to AMERI when in fact it had been billed to GoG.

G. The PwC analysis does assume exaggerated fixed O&M costs for AMERI that we have debunked in the early pages of this document.

H. In view of all the above, the IRR analysis may be discarded. We will repeat our claim that taking all the freebies enjoyed by PwC into account, the IRR for the deal as it stands inches close to 40% and is at least 37%, which is twice the typical rates in the industry. Simply put, such a deal would not have passed a proper PURC review. More importantly, this is where the remaining $65 million of the “missing” $150 million is hidden!

I. On page 22 of the report, PwC details a number of key constraints that in our view undermined the analysis. Notable was the absence of critical data from energy sector stakeholders.

1. The “No Money” Sleight of Hand
DKD continues to repeat his mantra of “we went for this shady deal because we had no money”. That argument is root, stem and branch, BOGUS!
We had money enough to commit to payments of close to $10 million a month. We had enough credit to secure a $51 million standby, revolving, letter of credit. We had money enough to accept to pay for the fuel costs of the plant and bear numerous escalation risks. Frankly we had so much money that we opted to forfeit financing arrangements available from one of the world’s wealthiest companies and sign a deal with a company with no discernible track record and intermediated by not one or two but four middlemen!

Where in the world can a borrower/customer willing to put cashflow of such amounts behind a deal, and to provide such credit enhancements claim poverty as an excuse for not going for clearly cheaper options?
The alternative financing calculations provided for rental and outright purchase are simply too ridiculous to warrant further examination. GE has successfully closed hundreds of TM2500 deals around the world in recent years, either directly or through its preferred partner, APR. Except in the sorry case of the Derwick – PDVSA saga (where prosecutions in the US are pending for major actors in that deal) were strange middlemen used to any extent remotely like this one for the securing of TM2500 plants, and even there we did not see this degree of intermediation.
There are countless TM2500 deals where the cost to the final customer came up much lower than we have seen in all the so-called options constructed by DKD and his merry crew of operatives. As we have shown repeatedly, the cost per MW in capital terms and the costs in kwh terms have been lower in all of these comparative deals than what we have been told were on offer in the purported options constructed by DKD.

We have cited the cases of Libya, Egypt, Indonesia, Burkina Faso and Benin in several essays on this topic and need not repeat ourselves here.

We shall not relent in our campaign to promote the renegotiation of the AMERI deal. DKD and his supporters can keep defying the patriotic will of the people of Ghana. As patriots we can only do so much. The ball is in the court of the Government of the day. But in the ultimate analysis, the people of Ghana shall prevail.


Source:   http://www.classfmonline.com/1.10958522


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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,…

Responses Add your response

    0
    • 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
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    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
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    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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