9.7. Investment Advisory Committee
The Investment Advisory Committee is required by the Act to advise the Minister of Finance and Economic Planning on the investment policy for investing the Ghana Petroleum Funds.
The Investment Advisory Committee was formed in January 2012 and by the end of March, 2012, the Advisory Committee had met twice. It therefore was not able to fulfil its role during the period under review.
9.8. Ghana National Petroleum Company
In Section 7(3)(b), the GNPC is required to submit its programme of activities every year for the approval by Parliament. For the 2011 fiscal year, the GNPC submitted its programme of activities through the budget process because, at the time it was due, the law had not been passed. The Committee would like to see increased reporting from GNPC on the use of funds received.
Now we can look at another chapter on “REVENUE PROJECTIONS FOR 2012.”
REVENUE PROJECTIONS FOR 2012
For the 2012 fiscal year, Government projected a total oil revenue at GHc1,239.82 million based on expected crude oil price of US$90 per barrel and an average production volume of 90,000 barrels per day. This amount is slightly less than the projection made for 2011. According to the Ministry of Finance and Economic Planning, this projection was determined in accordance with the sections 6, 7 & 17 of the Petroleum Revenue Management Act, 2011, Act 815. The Ministry stated that, at the time of preparing the 2012 budget, Government was in discussion with the oil companies in relation to the payment of corporate tax. The positive indication of the taxpaying position of the oil companies was the rationale for budgeting for corporate tax.
10.2. Revenue Collection Projection for 2012
The projected total revenue for 2012 includes corporate taxes projected at GHc384.11 million, Carried and Participating Interest projected at GHc 618.84 million and royalties projected at GHc 236.87 million. As in 2011, we note this has not included surface rentals and other items of revenue mentioned in Act 815.
10.3. Analysis of Petroleum Revenue Projections for 2012
The Petroleum Revenue Management Act 2011 (Act 815) prescribes the formula for projecting crude oil prices for purposes of revenue forecasting. Crude oil prices are based on a seven year moving average price starting from four years before the current year, the current year and two years after the current year. The Ministry of Finance could not provide evidence of the use of this formula for projecting petroleum revenues. Therefore, just as was the case in the 2011 forecasting, the projections of US$90 per barrel and a production volume of 90,000 barrels per day were based on conservative estimates.
The projection for corporate taxes was also not in accordance with the income tax laws of Ghana, but rather based on negotiations with oil companies through moral suasion. The projection of GHc384.11 million as Corporate Income Tax for 2012 implies that the projected profit for the oil companies will be GHc1,097 million. The taxable profit, however, will depend on the capital allowance for the year as well as any other reliefs, including any losses carried forward from previous years. It is therefore likely that this amount will not be realised due to additional Capital expenditure (CAPEX) incurred in 2011. As mentioned earlier, Tullow Oil Plc has reported that it has spent US$400 million to rework the production wells following their underperformance since the commissioning of first oil and the value of the FPSO Kwame Nkrumah will now be included as capital expenditure from 2012.
The Petroleum Income Tax Law 1987 (PNDC Law 188) provides that capital expenditure shall be recovered within five years. Thus, these additional capital costs will be divided into five equal instalments for the next five years, starting from the year in which the cost was incurred. Outstanding capital allowances raise the amount of costs to be recovered with serious implications for Government revenue projections, particularly with respect to corporate taxes. In addition, the Jubilee Partners since February 2012 have also commenced drilling on the TEN Complex (Tweneboa-Enyera-Ntomme Project). According to the GRA, this is likely to have impact on the quarterly tax paying positions of the companies for the year 2012.
Though the Ministry of Finance and Economic Planning admitted that, while the Benchmark Revenue was determined as far as possible in accordance with section 6, 7 & 17 of Act 815, the determination of the tax component through discussion with the oil companies in relation to the payment of corporate taxes is not good practice. Section 3 of the Act states that petroleum revenue due the state derived from whatever source shall be assessed, collected and accounted for by the GRA. The Committee believes that the GRA must be in the position to provide the Ministry with the possible tax paying position of the companies, rather than allowing the Ministry to negotiate with oil companies, based on moral suasion which has implications for the Petroleum Income Tax law and the Petroleum Agreements.
The Committee also found that the projection for the revenues during 2012 does not include expected revenues from surface rentals. The Petroleum agreement between the contract groups makes provision for the collection of US$ 100 per square kilometre as rentals for the contract development and production area annually. Section 6 of Act 815 includes the collection of annual rentals fees as part of the gross receipts for the Petroleum Holding Fund. The GRA concedes that, although it has the responsibility of collecting these fees, GNPC invoiced them for 2011 on behalf of the State but were paid into the Government of Ghana Non-Tax Revenue Account. From 2012 onwards, all assessment and collection of surface rentals will now been done by GRA and payments made directly to the Petroleum Holding Fund at the Bank of Ghana. Upon publication of the 2012 budget statement, the PIAC wrote to the Minister of Finance and Economic Planning to express its concerns regarding the inclusion of corporate taxes in the Benchmark Revenue and the implication this has on overestimating the ABFA and possible premature dependency on the Stabilisation fund when the projected amounts are not reached. The response to the request to revise the projections was that if adequate justification is available, this should be done with the approval of Parliament. Therefore the Committee recommends that Parliament investigate and advise the Ministry of Finance and Economic Planning accordingly.