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Opinions of Monday, 7 March 2011

Columnist: Adam, Mohammed Amin

Petroleum Revenue Management Bill Promises Greater Transparency And Accountability

Ghana’s Petroleum Revenue Management Bill Promises Greater Transparency And Accountability: A Commentary

by
Mohammed Amin Adam

CIVIL SOCIETY PLATFORM ON OIL AND GAS - GHANA

INTRODUCTION

Ghana has again achieved a landmark success by passing its Petroleum Revenue Management Bill in spite of the delay and highly partisan debate on the bill. What is unique about the passage of the bill is its coincidence with the opening of the 5th Global Conference of the Extractive Industries Transparency Initiative in Paris, where global leaders, the private sector and civil society unanimously called for greater transparency in the management of natural resources wealth of countries. Another significance of the bill is the consensus by both the majority and the minority members of parliament on all the transparency provisions.
The bill which received significant contributions from civil society particularly from the Civil Society Platform on Oil and Gas, re-iterated the country’s extension of the EITI to the new oil and gas sector, and further demonstrates the commitment of the people to make Ghana a model of sustained democracy founded on transparency and accountability.
THE PETROLEUM HOLDING FUND
The bill outlines clear rules for petroleum revenue inflows and outflows. It provides for the establishment of a Petroleum Holding Fund to which all petroleum receipts will be deposited, a Stabilization Fund to account for the effects of revenue volatility through expenditure smoothing; and a Heritage Fund to ensure intergenerational equity and create an alternative source of income for the future. Disbursements of the Holding fund are further provided in the bill as:
- 70% of benchmark annual revenues to the budget
- 21% to the Ghana Stabilization Fund and
- 9% to the Ghana Heritage Fund
This model is close to the ‘hand-to-mouth’ rule but also has a feature of the ‘bird-in-hand’ rule when the oil fields are depleted. However, the controversies that surround the bill center on two main provisions – the establishment of the Ghana Heritage Fund and the collateralization of petroleum revenues.
What engaged the attention of most Ghanaians is the appropriateness of the Heritage Fund at the time the country is faced with serious developmental challenges. The question that remains unanswered in the literature on Future Generations Funds is whether the objective is sustainable income or sustainable impacts. That is, if petroleum revenues were invested in projects that would have sustainable impacts on future generations, could that be said to have achieved intergenerational equity? Whiles this question remains unanswered, most citizens in Ghana came to support the establishment of the Heritage Fund because of the emotional attachment of Ghanaians to their future generations; and also to give meaning to the sense of preparing oneself against the future.
Then comes clause 5, the most debated and politicized of all. The original provision prohibited collateralization of petroleum revenues. The amendment to this clause which has been passed however provides that the annual budget funding amount can be collateralized. Both government and supporters of the collateralization argument cited reasons such as the security of development financing and the need to finance the annual infrastructural finance deficit of about US$1.6 billion. However, the proponents of this view forgot one thing – the absorptive capacity of the economy, which in clause 19(2) of the bill constitutes an important determinant of the annual budget support. The failure of the economy to absorb both the petroleum revenues and loans contracted by the government on the back of collateralized petroleum revenues could likely lead to ‘dutch disease’ effects and other macroeconomic slips, and thereby make Ghana a convenient candidate for ‘resource curse’.
The fear of heavy indebtedness associated with high appetite for borrowing in resource rich countries, the weak public financial management system in the country and the persistent large fiscal deficits may weaken the resilience of the economy under a collateralized petroleum revenue regime. This perhaps is why Ghana needs a long-term national development plan to guide spending priorities, the pace of spending and to match the economy’s absorptive capacity with resource needs.
TRANSPARENCY AND ACCOUNTABILITY
However, Ghana no doubt has laid one of the highest standards for transparency in the management of her petroleum revenues as spelt out in the bill. Some of the clauses that address specific and broad transparency concerns are explored here.
- Clause 8 requires the publication of records of petroleum receipts in the newspapers and online.
- Clause 16 requires the Minister of Finance to reconcile quarterly petroleum receipts and expenditures and submit reports to Parliament as well as publish the reports in the newspapers.
- Clauses 46 to 48 provide for four different types of audits of the petroleum accounts– internal audits, external audits, annual audits and special audits. The procurement of the services of an independent auditor shall be in accordance with the Public Procurement Act 2003 (Act 663).
- Clause 50 requires the Minister of Finance to submit an annual report on the Petroleum Account and the Ghana Petroleum Funds as part of the annual presentation of the budget statement and economic policies to Parliament. The report shall also be made ‘readily adaptable for dissemination to the public’ and shall contain:
(a) Audited and certified financial statements comprising;
(i) the receipts and transfers to and from the Petroleum Account,
(ii) the deposits and withdrawals to and from the Ghana Heritage Fund and the Ghana Stabilization Fund, and
(iii) a balance sheet, including a note listing the qualifying instruments of the Ghana Petroleum Funds;
(b) A report signed by the Minister describing the activities of the Ghana Petroleum Funds in the fiscal year of the report, including the advice provided by the Investment Committee, any reports prepared by the Auditor-General drawing attention to particular issues or matters that may be of concern or interest to Parliament;
(c) The income derived from the investment of the Ghana Heritage Fund and the Ghana Stabilization Fund during the fiscal year compared with the income of the previous two fiscal years;
(d) A comparison of the income in paragraph (c) with;
(i) the benchmark performance indices provided to the Minister, and
(ii) the income of the previous two fiscal years after adjusting for inflation;
(e) The liabilities of government borrowings shall be reflected in the presentation of the annual report so as to give a true representation of the past and expected future development of the net financial assets of government and the rate of savings; and
(f) A list of names of persons holding positions relevant for the operation and performance of the Ghana Heritage Fund and the Ghana Stabilization Fund, including;
(i) the Minister,
(ii) the chairperson and members of the Advisory Committee,
(iii) the Governor of the Bank of Ghana, and
(iv) the investment manager, if any.
- Clause 51 provides that information or data, the disclosure of which could in particular prejudice significantly the performance of the Ghana Petroleum Fund, may be declared by the Minister as confidential, subject to the approval of Parliament. It further requires detailed explanations on why the information should be held confidential and that confidentiality shall not limit access to information by Parliament and the Public Interest Accountability Committee.
- Clause 52 criminalizes the failure by a person to comply with the obligation to publish information under the bill.
- Clause 53 provides for the establishment of a Public Interest and Accountability Committee, a citizens’ based committee responsible for independent oversight of the management of petroleum revenues as well as consulting the public on priority setting for spending petroleum revenues.
These provisions no doubt put Ghana ahead of the requirements of the EITI, which in its current state does not cover public expenditure transparency. Therefore, the bill provides a stronger framework for public accountability through disclosures of public expenditures and the regular scrutiny by the proposed Public Interest and Accountability Committee.
The multiplicity of audits of the petroleum accounts is expected to prevent abuse of the petroleum wealth and the corruption of the institutions responsible for managing and investing petroleum funds. This is necessary to ensure value for money in all petroleum revenue related investments, procurements of fund managers and control of management costs.
THE ROLE OF GOVERNANCE INSTITUTIONS
Laws by themselves do not bring change. Change is brought by the management and enforcement of the laws. The passage of the Petroleum Revenue Management Bill with such extensive transparency provisions may therefore be meaningless if the implementation challenges that often confront all laws are not effectively addressed.
Parliament and civil society have the greatest role of holding accountable institutions created under the law. But how effective can these important roles be pursued without the requisite technical and financial capacity. Ghana’s public governance institutions are weak for several reasons. They are not funded properly by the national budget. They do not have the technical skills to audit and conduct independent assessment of the management of public resources. They are also still largely controlled by the Executive through presidential appointments and political patronage. Parliament’s own institutional capacity to monitor and review petroleum revenue inflows, outflows, investments and impacts is grossly inadequate; and this is compounded by the patronage that goes with the ‘whip’ culture in its standing orders. This is where civil society becomes the hope and voice of accountability. A well informed and technically sound civil society can monitor both the Executive and Parliament and hold them accountable in many respects.
CONCLUSION
Ghana enters the league of oil producing countries with hopes and fears. The celebrations of first oil were therefore not only overshadowed by the high expectations among the citizens – jobs, incomes, development, etc, but also the fear of how secrecy and confidentiality in the oil and gas industry could undermine the rights of citizens to know and participate in the management of these resources. Not even the pending Right to Information (RTI) legislation sufficed the resolve of the people to see transparency in the management of oil and gas resources. The Right to Information bill has extensive exemptions in the name of national security; and if the government decides to declare the oil and gas sector as national security area, the RTI legislation could even further undermine transparency in the oil and gas industry. It is therefore refreshing that the Petroleum Revenue Management Bill which has now been passed by parliament addresses most of the transparency concerns of the citizens. Citizens now have the legal basis to demand transparency and accountability and also monitor the compliance with the bill by government, parliament and the national and international oil companies. Citizens must remain perpetually vigilant in spite of all the assurances in the bill and by the President of the Republic to transparently and honestly manage the petroleum revenues. This is what can give meaning to the constitutional and inherent freedom of citizens to protect their resources for national interest. It has been said that the ‘price of freedom is eternal vigilance’.