The Africa Centre for Energy Policy (ACEP) has observed that Government’s projections of petroleum revenues for 2013 fiscal year is achievable and has demonstrated that Government has learnt important lessons from the projections of the last two years.
The Government has projected in the 2013 Budget Statement that total receipts from oil will be US$581.7 million based on projected oil production of 83,341 barrels per day and a crude oil price of US$94.36 per barrel. Thus, an estimated crude oil volume of about 6 million barrels will be lifted by the Government and the GNPC as the country’s share of petroleum.
The projections for the first time also include expected gas revenues as a result of gas production from the Jubilee fields which will likely commence in the last quarter of 2013.
According to ACEP, the projected production volume of 83,341 barrels per day is highly conservative considering that Jubilee’s peak production of 120,000 barrels has been rescheduled to the middle of 2013 with the year’s production starting at about 111,000 barrels per day. There is also a wide variation between the Government’s crude oil projection and that of Kosmos Energy which put the expected average production between 105,000 and 115,000 barrels of oil per day in 2013, with the midpoint of the range representing an increase of greater than 50 percent from the 2012 average. Thus, government’s projection is grossly understated.
In a press release signed by Mohammed Amin, ACEP estimates that crude oil price for the year will average a little above US$100 per barrel on account of the estimated global economic growth at 3.5% for the year (World Economic Outlook) compared with 3.2% in 2012.
ACEP records that the non-realization of corporate taxes from petroleum companies in 2011 and 2012 were largely responsible for lower than expected petroleum revenues. Consequently, about US$40.2 million was received as corporate taxes for 2012, lower than the target of US$239 million.
The problem associated with corporate taxes has been attributed to accelerated capital allowance and carry-forward losses. This exposes an important weakness in Ghana’s Petroleum Income Tax Law (PNDC Law 188), which does not provide cost recovery limits on the capital cost of petroleum companies.
Apart from accelerated capital allowance and carry forward losses, the problem also reflected in poor budgetary planning. Government’s inability to adhere to the advice of the Ghana Revenue Authority in establishing the tax-paying position of the operating companies accounted for the poor budgetary planning. This practice led to a self-inflicted deficit of about 0.5% of GDP in the budget.
Also, the use of production decline from Jubilee as he cause of the losses as pointed out in the Budget Statement is unacceptable because, the decline in production was more than compensated for by higher than expected crude oil prices (a US$19 gain per barrel of crude oil); whilst Government also exceeded its target for carried and participating interests.
The Center however strongly believes that the 2013 projections of corporate taxes at US$55million is the most reasonable so far, and a significant improvement in forecasting considering that the GNPC’s equity financing requirement in Jubilee has considerably reduced from US$124.63 million in 2012 to US$71 million in 2013. In fact, the capital cost of GNPC in Jubilee is expected to be fully retired this year, consistent with the other Jubilee partners unless an unexpected loss carry-forward occurs.
There are major issues raised in the 2013 Budget Statement that need to be addressed to protect the sanctity and spirit of the Petroleum Revenue Management Act 2011 (Act 815).
The projections of gas revenues of about US$9 million are quite vague and could conceal important determinants of the Benchmark Revenue. Unlike crude oil, Government failed to provide information on the estimates of gas production and gas prices, a development which raises uncertainties about the revenue potential of natural gas.
Government’s plan to use part of the Annual Budget Funding Amount (ABFA) to set up an Infrastructure Fund to facilitate Ghana’s access to the capital market creates an additional Fund which is alien to the Petroleum Revenue Management Act. The only Funds allowed under the law are the Petroleum Holding Fund, the Stabilization Fund and the Heritage Fund. Although the setting up of an Infrastructure Fund is laudable, it requires an amendment to Act 815.
Allocation of the ABFA
The allocation of the ABFA for the expenditure and amortization of oil and gas infrastructure loans as one of the four priority areas selected by the Minister in accordance with Section 21(5), is not only inconsistent with the law, but a wrong application of revenues meant for socioeconomic development to finance oil and gas infrastructure.
In our view, the financing of oil and gas infrastructure is adequately provided for in Section 7 and 3(b) of Act 815. This includes allocation to finance the equity cost of development and production of the National Oil Company; and a further allocation of not more than 55% of the net carried and participating interests for other investments. Thus, the ABFA can only be applied to infrastracture financing outlined in Section 21(3) of Act 815, which does not include oil and gas infrastructure.
Inconsistency in the definition of ABFA
The inconsistency in the definition of the ABFA is quite worrying. The law provides in Section 23(1)a “where petroleum revenue collected in each quarter of any financial year exceeds one-quarter of the Annual Budget Funding Amount of the financial year …. the excess revenue collected shall be transferred from the Petroleum Holding Fund into the Ghana Petroleum Funds”.
What government has done is to interpret the ABFA in a manner that denies the Ghana Petroleum Funds significant transfers. In 2011 for example, Government interpreted the ABFA as 70% of actual quarterly collections and the remaining 30% was transferred to the Petroleum Funds. However, in 2012, Government interpreted the ABFA based on quarterly benchmarks of the annual projections (instead of the 70% rule on actual quarterly collections) and since actual collections were below the quarterly benchmarks, there were no excess collections except in the second quarter (in Cedi terms); and as a result, the Petroleum Funds suffered a decline in transfers. This accounted for the Ghana Petreleum Funds receiving less revenues in 2012 (US$24 million) against 2011 (US$69 million) in spite of the increase in overall oil revenues from US$444 million in 2011 to US$541 million in 2012. This requires an explanation from the Government and we call on the Public Interest and Accounability Committee (PIAC) to take this up.
The role of PIAC
ACEP recognizes the efforts of Government in acknowledging the role of the PIAC and adopting some of its recommendations as captured in Paragraph 18 of the budget, including for instance, tracking the ABFA allocations to finance pre-approved projects, transferring approved proportion of oil revenues to the Petroleum Funds, and ensuring that an Independent Expert validates the Benchmark Revenue and improve on the estimation of corporate taxes. However, Government must give meaning to this acknowledgement by providing the PIAC with adequate resources to carry out its mandate in line with Act 815.