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Careless handling of petroleum funds worrying

  • SOURCE: B&FT | Richard Annerquaye Abbey
  • Careless handling of petroleum funds worrying

    • Investment policy guidelines missing
    • Investment Advisory Committee absent
    • BoG tightlipped over ‘ poor’ investment returns

    By Richard Annerquaye Abbey

    In deciding  which models to adopt in managing its petroleum industry, Ghana hurried to Norway, a country hailed across the globe for its efficient management of the sector, for tutorials.

    But at   a time  when Norway’s sovereign  wealth fund is said to be worth  a whopping US$1 trillion  over 20year period , over 20year period  of investment mangers  of Ghana ‘s petroleum funds which  are invested abroad, do not seem bothered about the country’s is earning.

    Management of Ghana Petroleum  Funds deserves anything but praise.

    Since 2011, the funds worth  US$591 Million, have generated very little in returns as those  tasked with their management are either  not  present  or lack the  requisite  tools  to be able  to perform  the job  for which  they are  being paid.

    How it started

    To ensure  judicious and efficient  use of the new-found wealth Parliament  passed the Petroleum Revenue Management Act  (PRMA Act 815) which, among other things the Ghana Stabilisaton  Fund, to cushion government  in times  of poor  petroleum  revenue  inflows , and the Ghana Heritage  Fund, an endowment fund for future generations.

    The funds are known  together  as the Ghana Petroleum Funds (GPF) and are held  at the Federal Reserve Bank  of New York in a bid to take advantage of investment opportunities in the US  market.

    According to the PRMA to ensure  monies in the Ghana Petroleum Funds are properly invested to attract maximum yields, an Investment Advisory Committee (IAC), comprising seven members with requisite knowledge  and experience in investment, be set up.

    This committee according to the Act, advises the Finance  Minister on the  broad investment guidelines  and overall management  strategies relating to the central bank.

    Another crucial  function of the committee is to develop for the Finance  Ministeras part of the investment guidelines, the benchmark portfolio, the desired returns from  and the associated  risks  of the funds  lodged at the central bank, taking into  consideration  the investment  guidelines  used by the Bank  of Ghana for investments of a similar  nature.

    The problem  however is that  this all-important committee has not been constituted since it was dissolved when  the NPP came  into power  on January 7 ,2017.

    The investment Advisory  Committee has been absent  for than 10 months , whilst  critical decision are required as time of the essence.

    According to the central  bank , the Ghana Stabilisation  Fund has closing balance of more than US$280 million as June 30,2017 whereas the Ghana Heritage Fund had a balance of about US$311 million.

    The PRMA made it clear that these funds, particularly the Heritage Fund be invested for future generation and job of  the Investment Advisory  Committee would  be to supervise the investment  of funds  and give proper guidelines on how  on how they should  be invested.

    However over the years  the advisory  committee has not been efficient  as it  should, leading to low yields.

    Infact , in 2014  the B&FT learned that  the funds were being traded manually in New York , for want of a US$200,000 software  to facilitate timoeous  trading.

    Figures published by the Central  bank  show  that between  2011-2016, the average  return  of the GSF is 0.53% while  that of the GHF is 1.77%

    There have times  that  the funds have recorded negative return  which  basically means  that it  cost the government  extra  monies in investing them.

    ‘DYSFUNCTIONAL     IAC’

    According  to the Ministry  of Finance  the committee has  submitted only one   Annual  Report  on its Activities , which was in 2012, when  it is expected  to  meet at least once every  quarter, which it did at the early stages.

    But it was not  until 2015 that the  committee was able  to put  together  the required Investment Policy Guidelines stated in the PRMA Act 815  passed four years  earlier.

    Despite  reviewing and finalizing  the Investment  Policy  Guidelines , the Committee could  not adopt  the guidelines as members that attended that fateful meeting could not  form a made  on  the guidelines s’ adoption  as a working document.

    In October 2016, the members who absented themselves were replaced pursuant to Section 32 (6) of the PRMA which states that  a member  if they are not  present  for two  consecutive meeting without just causes .

    A request made by the  B&FT  to the Finance Ministry  revealed  that members who continuously absented themselves  and had  to be  replaced were Ms. Merene Benyah  and Samuel Ashitey Adjei.

    Ms. Shirley-Ann Awuletey-Williams and Michael N.A Cobbah were nominated to replace the absentees on the  advisory committee. Despite  the full composition of the committee, it could, however not meet  until it was dissolved  following  the coming  to power of the Akufo-Addo  administration

    Returns in Perspective

    The Petroleum Revenue  Management Act suggests that  petroleum  funds should be invested in safe instruments to guarantee returns. It basically  cautions  against  high risk investments so as not  to lose  any or part of the funds.

    The funds are thus  held at the Federal Reserve Bank  of New York in a bid to take  advantage of investment opportunities in the US market.

    To see  just how  poor returns from  the GPFs have been, a look at the performance of other investment instruments would  not be  out  of place. The Stabilization Fund is basically a short-term fund  which  can be  drawn  down  anytime  petroleum prices  rise  above manageable levels, and when government  sees  the need to shore up its budget.

    Its  return on investment is thus, pretty  much okay when compared to say  the US three-month treasury bill, which, which averaged  0.15 percent over the period  (2011-2016) compared to the o.53  percent achieved on the GSF.

    However, the long term focus of the GHF makes it possible  for it  to be  compared with  the S&P 500 and a 60/40 Portfolio,i.e  60% US 10-year bonds  and 40% US stocks represented by the S&P 500. This is because owning stocks only is not out of place for a fund which is long-term in nature.

    And  the average  return of 10.54% of the S&P 500 since 2011 handily beats the 1.77% Return of the GHF and  6.48% portfolio.

    Has the BoG repented

    In 2014 a BoG official told  the B&FT  that  ‘Our greatest challenge is with the systems. We do  not really have systems we use  in trading and in generating  reports.

    So, these  are done manually.

    For instance , with the investment there are systems: you trade  and it goes all the  way to settlement . But  because  we do not  have this  presently  we do it  manually.

    It is time-consuming and  creates room for errors . this  really  limits  our ability to perform our role effectively he said.

    This was three years   ago.  But having  seen that  the  performance of the GPF’s  has barely seen any  improvement  between the time  the central bank  official made  that  the manual system will prevails.

    In a letter  dated September 28,2017 the B& FT  sought  to understand  from the central  bank how  the petroleum funds are traded, among other things.

    Having  acknowledged receipt  of the letter, however  the BoG  would not respond  to the questions the  newspaper  posed, preferring to keep mute over the matter.

    The newspaper ‘s persistence  with the follow-up calls is yet  to yield any dividends.

    As  things  stand now , Ghana is likely  to end  the  year without  the Investment Advisory  Committee being  put in place  as required by the PRMA , as  the funds supposedly set aside for the  future , Whilst  critical  investment are  required in public  goods  and social expenditure , continue to be  treated in a nonchalant manner.

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