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Analysis: Oil money should be invested in two thematic areas to maximize utilization

oil moneyBy:  Prince Appiah

Ghana’s annual oil revenue is shared between the Ghana National Petroleum Corporation and the Petroleum Holding Fund. Seventy per cent of the Petroleum Holding Fund is used to support the country’s budget to fund projects in four thematic areas.

However, the Africa Centre for Energy Policy (ACEP) says it will be more prudent to focus on two major areas instead of four. The centre observes due to the many targeted areas, funds end up being used for unplanned projects at the expense of planned initiatives.

The Annual Budget Funding Amount (ABFA), for instance, has four priority areas – loans and amortization, agriculture modernization, capacity building as well as roads and other infrastructure.

Roads and other infrastructure component of the priority areas continue to draw concerns, especially, from financial experts.

What is other infrastructure?

Energy experts say ‘other infrastructure’ is vague, and therefore multiple projects are embarked upon, thus, derailing the purpose of the oil revenue.

“Because the definition is very vague many projects are roped in so the small oil money was spread over 15 areas instead of the four in 2013, for instance”, Policy Analyst at ACEP, Dr. Ishmael Ackah said.

ANALYSIS
2013 ABFA BUDGET SPENDING

According to the 2013 Public Interest and Accountability Committee (PIAC) Report, total petroleum revenues was US$ 846,767,184 (Gh¢1, 645,585,763).

The Annual Budget Funding Amount (ABFA) for the national budget was US$273.20 million (32.26%).

ABFA allocation to the four priority areas were as follows;

  1. Agriculture modernization received Gh¢13.60 million which represents 2.5% of the total.
  2. Amortisation of Loans for energy sector Gh¢ got 372.07 million, that is, 68.40%.
  3. Capacity Building had Gh¢ 20.18 million which is 3.70% of the total
  4. Roads and other infrastructure received GH¢ 372.07 million which is also 68.40%.

The road sector benefitted the most from the funds allocated from the ABFA, with over Gh¢239.23 million disbursed on 63 roads projects and ancillary works.

It is interesting to note the share of ABFA allocated to road projects accounted for only 14.1 per cent of road sector budget for 2013.

According to the report, all road projects that have benefited from ABFA funding had been started prior to the discovery of oil and the creation of the ABFA under the Petroleum Revenue Management Act (PRMA).It is worth noting that virtually all of them were yet to be completed.

It’s,  therefore, clear the remaining 85.9 per cent which amounts to Gh¢132.84 (compared to Gh¢159.73 million in 2012)of the ABFA allocations to the “Road and Other Infrastructure” priority area was spent on a range of projects—energy, education, water, housing, security and health.

This brings the total amount of ABFA funds spent on ‘other infrastructure’ projects since 2011 to GH¢293.56 million.

2014 ABFA BUDGET FUNDING

In 2014, petroleum revenue was US$978.02 million which was distributed as follows:

Revenue to the Annual Budget Funding Amount received US$409.07 million (41.82%).

The allocation to the ABFA in 2014 was distributed only to three priority areas in the following proportions:

  1. Expenditure and Amortisation of Loans – GH¢163.08 million (29.68%);
  2. Roads and Other Infrastructure – GH¢215.69 million (39.26%)
  3. Agriculture Modernization – GH¢170.62 million (31.06%)

No allocation was made to the ‘Capacity Building’ priority area in 2014 because planned expenditure was contingent on related Small and Medium Enterprise (SME) Projects Incubation Facility which never took off.

Approximately, 60% (Gh¢128.22 million) of the total allocation to the ‘Roads and Other Infrastructure’ priority area was spent to construct, rehabilitate, upgrade and resurface 64 roads and related ancillary works.

The share of ABFA allocated to road projects represented less than 17% of the Roads and Highways sector budget in 2014.

The remaining 41% (GH¢87.47 million) of the allocation of the ABFA to the ‘Roads and Other Infrastructure Priority Area’ was spent on energy infrastructure in the Energy and Education sectors, with approximately 86% of the investments going to the energy sector.
2015 ABFA BUDGET SPENDING

The 2015 budget statement and economic policy read by the Finance Minister, Seth Tekper revealed a recurring trend in the spending under the ‘Road and Other Infrastructure’ priority area.

An amount of GH¢ 1, 062,948,161.49 as allocation for the national budget and distributed as follows;

  1. Expenditure and Amortisation of Loans for Oil and Gas- GH¢ 322.3 million
  2. Road and Other Infrastructure- GH¢ 492.92 million
  3. Agriculture Modernization- GH¢ 30 million
  4. Capacity Building (including Oil and Gas)- GH¢ 217.16 million

Total spending for Roads and Other Infrastructure amounted to GH¢451.59 million, against a budget of GH¢492.92 million. Of this amount, GH¢76.21 million was spent on the emergency rehabilitation, upgrading, and construction of roads infrastructure.

An amount of GH¢75.7 million was spent on energy infrastructure, that is the supply of electrical materials and equipment for the nationwide emergency power project and the Self-help Electrification program (SHEP) National Electrification Projects.

Again, an amount of GH¢29.55 million (out of the Roads and Infrastructure spending) was spent on Water Infrastructure. This was mainly for the construction of drainage facilities, sea defence and coastal protection works.

Similarly, an amount of GH¢41.8 million was spent on transport infrastructure in respect of the redevelopment and construction of railway lines, railway stations, and the supply of rolling stock.

In addition, a total amount of GH¢45.14 million was spent on education infrastructure, mainly on the construction of facilities for basic and secondary schools, and the upgrading of Science Resource Centres in 100 schools across the country.

It is interesting to note that, an amount of GH¢183.2 million (US$49.2 million) was transferred to the Global Index and Insurance Facility (GIIF) to finance infrastructure projects.

ANALYSIS CONTINUE

These figures provided in this piece indicate clearly that due to unspecific nature of ‘other infrastructure’ has resulted in derailed utilization of the revenue.

In total, spending on ‘other infrastructure’ has been GH¢754.89 million spent in more than thirteen areas, and broken down as follows;

  1. GH¢ 293.56 million from 2011 to 2013
  2. GH¢ 87.47 million in 2014
  3. GH¢ 373.86 million in 2015

In most cases, the supposed spending in the four priority areas are exceeded which questions the focus of the utilization of the oil money.

Dr. Ishmael Ackah warns Ghana will incur unnecessary cost on projects, if the practice is not stopped.

“The practice is not prudent and therefore a limitation on the law,” he said.

Most of the projects initiated are not completed as a result.

In August, 2011, a nine-man implementation committee was set up to put together a framework for the first ever fisheries college in Ghana at Anomabo in the Central Region.

The proposed college was delayed until August, 2015, when Vice-President, Paa Kwesi Amissah –Arthur, laid the foundation for construction to begin.

The ACEP policy analyst indicates that such a project should have been completed by now.

“We are still constructing; if the time over runs, the cost of the project also rises and Ghana will suffer”, he pointed out.

In 2014, an expenditure of Gh¢3.87 million related to the Western Corridor Gas Infrastructure Development Project (WCGIDP) was charged to the ‘Road and Other Infrastructure’ priority area instead of the ‘Expenditure and Amortization of Loans’ category.

This is besides the fact that a significant proportion of allocations to ‘Expenditure and Amortization of Loans was unused during the period under review.
RECOMMENDED SOLUTIONS

To better utilize the money, Dr. Ishmael Ackah suggests funding support should be restricted to only two areas at a time.He believes agriculture and education be targeted for future benefit when the oil is exhausted after the 20-year life span.

“Instead of targeting so many areas, just focus on two areas and invest in them for a three- year period. After, we assess and see how far we’ve come; then we select two other areas and do same’’, he emphasized.

This, according to Dr. Ackah, will be prudent because it will enable authority to complete projects within the stipulated time.Experts believe that many parts of the country will be brought out of under development, if this method is employed.

PIAC has on many occasions suggested an urgent need for the budget funding amount to be better-targeted and well-focused to help maximize its effectiveness and impact on the socio-economic development of Ghana.

On the sidelines of a media training programme on oil, gas and mining in Accra last October, Professor Paul Kingsley Buah Bassuah, Chairman of PIAC, in an interview with LUV BIZ, emphasized the need for a national dialogue on how best to derive maximum benefit from oil money.

The Ghana Association for Energy Economics, an affiliate of the International Association for Energy Economics, has therefore earmarked a broader stakeholder meeting for better understanding.

Joshua Sarpong Kumankumah, President of the Association, says it is imperative to de-couple politics from policy implementation.

“Politics must be dissociated from implementing policies in the oil and gas sector, especially, with the management of the revenue”, he said.

The association, earlier this month, held a poster competition on energy modeling to find best ways to address some of these challenges in the sector. Six students took part in the modeling competition at the KNUST, and winner received 500 US dollars as prize and an attachment package with one of the oil companies.

In as much as civil society groups have held public discussions to ascertain the impact of the oil find after five years of going commercial. It is however important to be specific with the management of the priority areas.

Source: http://www.myjoyonline.com/business/2015/November-30th/analysis-oil-money-should-be-invested-in-two-thematic-areas-to-maximize-utilization.php#sthash.lzirqq2d.dpuf

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Reporting Oil and Gas project was launched on 4th June 2009atTakoradi, Western Region, Ghana by Penplusbytes (PPB – www.penplusbytes.org) with the vision of providing a one stop online information and knowledge about Ghana’s oil and gas sector
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