Five years is long enough for Ghana to begin to count its blessings as an oil producer. Rightly so because oil can transform a nation by largely improving its infrastructure.
However, the issue with Ghana is that development has been slow and the transformative potential that comes with becoming an oil producing country appears to have been overestimated, resulting in nagging questions about how all the wealth accrued from oil has been used
Commercial oil production from the Jubilee Fields began in December 2010, and according to the Public Interest and Accountability Committee (PIAC) report of 2014, a total of nearly US$3billion had accrued to government as petroleum revenues.
With the inflows of oil revenue, the country has the chance to show that oil revenues can be managed and used in a transparent and accountable manner, to avoid the “resource curse” experienced in other oil-rich countries.
Indeed, steps were taken to ensure that oil revenue would be managed prudently, hence the introduction of the Petroleum Revenue Management Act (Act 815), 2011 and the subsequent constitution of PIAC, an independent body to have oversight responsibility of the management of oil revenues in a bid to promote transparency.
The PRMA was expected to regulate the collection, allocation and management by government of petroleum revenue received from upstream and midstream petroleum operations.
Per the Act, 30 per cent of the petroleum revenue for each year would be channelled into the Ghana Petroleum Funds (GPF) comprising of the Ghana Stabilisation Fund (GSF) and the Ghana Heritage Fund (GHF) as savings, while the remaining 70 per cent would go into the Annual Budget Funding Amount (ABFA) to be utilised on allocated priority areas.
By the end of 2014, the combined GPFs had a balance of US$535.56 million, out of which the GSF had US$286.64 million and the GHF US$248.92 million.
No devt gains yet?
In a bid to translate oil wealth into development gains, road and other infrastructure was benchmarked as one of the priority areas, where oil revenues would be spent. Allocation to this cause however, does not commensurate with the expected benefits.
Some infrastructure projects captured in the 2011 PIAC report, as “under construction” have remained “ongoing” till date, making it difficult for people to fully appreciate the usage of the oil wealth.
Each year, revenue is spread thinly on several projects, and this has resulted in a lot of stalled infrastructure projects because funds earmarked for one, is not enough to complete that single project.
The Chairman of PIAC, Professor Paul Buah-Bassuah, in an interview on November 4, acknowledged this challenge explaining that the 2014 report by the committee highlighted the need for an outcome and impact assessment of funds earmarked for developmental projects.
“A lot of projects have delayed while majority have also stalled, resulting in overrun costs which increase the burden on the ABFA, thereby making it difficult to deliver development to the people at the right time,” he said.
Most of the road projects, he said, had experienced irregular disbursement of revenues and because the contractors continued to work, arrears also increased.
A report by the Africa Center for Energy Policy (ACEP) on budget expenditure of extractive resource revenues also pointed to the fact that efficiency of spending petroleum revenues remained a challenge for government.
An Economic Analyst with the Natural Resource Governance Institute (NRGI), Mr Mark Evans at a pre-budget forum on managing petroleum revenues said over the last five years, the use of petroleum revenues had been overshadowed by much larger spending patterns on government expenditure than the priority areas.
“This makes the aims of allocating petroleum revenues to priority areas look more like a reporting exercise than a meaningful way of mobilising financing,” he said.
Management of the country’s oil revenue has been lauded by experts, especially with respect to the GPF but concerns about the need to be vigilant on spending of the ABFA has become necessary.
“When you look at the Ghana petroleum funds for instance, they were able to make investment returns of US$5.85 million on it in 2014. The ABFA is where the challenge is, it looks like the minister wants to satisfy every region and in that case it is very difficult to monitor progress and give a good account of what the money has been used for,” Prof. Buah- Bassuah explained.
Mr Evans said the PRMA had been successful in accruing some savings for future generation, but looking at it from a broader perspective, future generations had been saddled with liabilities.
“Over the last five years, long-term savings in the Heritage Fund have been modest, reaching about US$250 million, while debt accumulation has been very large,” he added.
Looking ahead, he explained that petroleum revenues would continue to grow and as such the approach to management of petroleum resources should be looked at again.
“Having almost reached five years of oil production, Ghana should use this time to take stock of the lessons from the PRMA and shape reform efforts to support good fiscal management. Over the last five years, there is little evidence to suggest that Ghana’s creation of a sovereign wealth fund and revenue management law has led to better outcomes,” he said. — GB