The World Bank says oil revenues available to the current national budget will be much less than expected in the short term, casting a dark cloud over the government’s development aspirations for 2013.
Per the 2013 Budget Statement, the government expects total oil receipts of $581.7 million based on projected oil production of 83,341 barrels per day and a crude oil price of $94.36 per barrel.
The government’s projections include expected gas revenues following the expected production of gas from the Jubilee Field in the last quarter of 2013.
But according to the World Bank, in its analysis of Ghana’s energy sector, there will be a shortfall in the oil revenue projections due to the financing requirement of the Ghana National Petroleum Corporation (GNPC), lags in income tax realisations and allocations to the Ghana Heritage Fund.
Since Ghana began commercial oil production in 2010, the oil sector is increasingly becoming the national revenue bulwark, with total oil receipts in 2011 amounting to $444.12 million.
However, in a report titled “Energising Economic Growth in Ghana: Making the Power and Petroleum Sectors Rise to the Challenge”, the World Bank is signalling a downturn in the expected oil revenue in the short term.
It observed that Ghana’s future oil production and revenue rested on three main fields, which were subject to production and timing uncertainties.
“It is not prudent to plan on the assumption of additional large discoveries,” the bank cautioned in its report.
The bank made a comprehensive diagnosis of the current state of the GNPC, and stressed the need to “tightly define GNPC’s long-term strategic role”, and develop and publish a long-term business plan for the corporation.
It stressed the need to ensure that the scope and magnitude of the GNPC’s investment programme were appropriate, while urging the government to consider increasing the percentage of net revenue from participating interests allocated to the company.
The report called for improvements in the GNPC’s transparency and governance practices, consistent with its commercial ambitions.
On petroleum income tax, the World Bank called for the re-examination of the system, particularly the provisions dealing with capital allowances, thin capitalisation rules, ring fencing and inter-company charges.
With respect to natural gas, the report noted that power generation was the highest value use of gas and that delays in the flow of local gas amounted to an additional cost of $1 million a day for buying light crude oil.
It urged the government to ensure that commercial and technical planning for the Sankofa and Tweneboa, Enyenra and Ntomme oil fields was completed within the next six months.
The report asked the government to reconsider the award of the transmission utility licence to the Bulk Oil Supply and Transport (BOST) company “in the light of unnecessary complications and potential for delays.”
Furthermore, it recommended the government must amend the Petroleum Revenue Management Act (PRMA) to resolve the ambiguities.
The government must also establish the Ghana National Gas Company’s dividend policy accordingly.
The report called on the government to publish the gas pricing policy, study additional gas options, develop an approach to provide credit support for gas development and maintain frequent dialogue with Nigeria in respect of additional gas supply.
The World Bank also expressed concern about issues relating to energy efficiency and suggested that the Energy Commission be tasked to draw up aggressive energy efficiency and demand-side management plans in all end-user sectors.
“Energy efficiency and demand-side management can be much cheaper than thermal generation,” it noted, adding that renewable energy would not be able to meet its target of 10 per cent in 2020.
The World Bank also made some far-reaching observations in its report, submitting, for instance, that power sector subsidies had reached unsustainable levels.
It also observed that large-scale private sector investment was essential to power generation and that natural gas was essential for current and future power generation.
The report recommended a merger of the Volta River Authority (VRA) and the Bui Power Authority (BPA) and called for the formalisation of GRIDCo’s responsibility for preparing the indicative medium and long-terms plan for the country’s power generation requirements.