The Problems With Ghana’s Proposed Oil Revenue Management Bill

INTRODUCTION
The process is underway to pass a law that will determine how we use
our Oil resources. We at IMANI, AfricanLiberty.org and African
Leadership Initiative) have been involved with the analysis of best
options for a while.
Our review of the Proposals towards the law reveals that the
provisions in the bill are likely to lead to the following:

1. Resource Curse phenomenon, as with Nigeria
2. Dutch Disease, where other industries will be neglected and may shrink
3. Political tension with dire consequences as people try to get
access to loosely guarded oil revenue
4. Agitation in the Western Region due to neglect and degradation
5. Serious dislocations in the economy


THE KEY ISSUE
We need to separate all Oil revenue from our current inflows, and
treat it as a special fund for special purposes. This ensures that
Governments are not slack in developing other areas of the economy and
collecting taxes, which will avoid the Resource Curse and Dutch
Disease.
Putting oil revenue in the consolidated fund or spending it as part of
our annual budget will bring us the problems others have suffered from
treating their oil revenue as another regular source of government
income.

We propose that an account be set up for all oil revenues, and a body
be setup, which ALONE will decide on which projects the oil revenue
would be used.

We propose that all oil revenue be directed at infrastructure
investments and development, because we currently have a $10 billion
deficit in investment for key infrastructure such as Water, Energy,
Health, Roads, Telecoms, and Schools.

Our projected revenue for the next 5 years from Oil is around $5
Billion from the Jubilee Field. We hope we will get more from Jubilee
and the other fields. Whatever happens we are not likely to get $10
billion in 5 years, and we need these critical infrastructure projects
badly, hence our proposal to devote all Oil revenue to that.

Investing the revenue in Infrastructural projects will soak up
liquidity and prevent inflation whilst boosting national productivity
and production, thus generating real growth. It will also have the
effect of sequestering the revenue from the rest of our expenditures
and thereby avoid the artificial rise in our currency value and the
neglect of other industries (Dutch Disease).

Another effect will be that the money will not be available for misuse
and corruption, we can’t prevent all corruption but this is our best
shot at limiting it.

It will also not enter the consolidated fund for politicians to fight
over getting access to it (which will have dire consequences for
national stability and security)

THE WORRYING PARTS OF THE PROPOSED BILL

1. RESOURCE CURSE PHENOMENON
We are likely to suffer this if we implement the following parts of the bill

Section 10: Allocations and Disbursements from the Ghana Petroleum Account
6) (a) Transfer from the Ghana Petroleum Account to the Consolidated
Fund for budget funding shall be in quarterly installment of
one-quarter of the Annual Budget Funding Amount, or as the Minister
may recommend.
(b) The total amount debited from the Ghana Petroleum Account for any
fiscal year shall not exceed the appropriation amount approved by
Parliament for that fiscal year in accordance with subsections (4) and
(5).

Section 11: Use of the Annual Budget Funding Amount
1) All use of petroleum revenue whether directly from the Ghana
Petroleum Account or from the Ghana Petroleum Funds shall be part of
the national budget and shall be subject to the same budgetary
processes and mechanisms that are necessary to ensure efficient
monitoring of such use.
3) Should a national development plan not be in place, the allocation
within the budget should give priority to:

A. The strengthening of the state’s institutional capacity in
governance, maintaining law and order, and enhancing public safety and
security as approved by parliament;
B. Agriculture and agro-business
C. Human resource development - education, health,
D. Infrastructure (roads, rail, water and sanitation)
E. Rural development,
F. Alternative energy sources,
G. Forest management and protection of water bodies.

These “projects” are ill defined and in our history we have tended to
have the most corruption waste and mismanagement applying money to
these areas. These are the same areas Aid money has failed to deal
with.

2. SAVINGS ABROAD

IV Central Features of the Proposal
10. (ii) Ghana Petroleum Funds intended as savings funds for two
purposes: in the short run to smoothen government spending,
and in the long run to preserve part of the value of the
oil capital while living on the interest.

iii. It is proposed that
• All withdrawals from the collection account shall be guided
by rules and guidelines and shall be integrated into the
national budget.
• All transfers from the collection account shall go either into the
Consolidated Fund to support the budget or into Ghana Petroleum
Fund(s) for savings.
• What is set aside as savings, if any, in the Ghana
Petroleum Funds shall be prudently managed by investing in
specific low-risk securities abroad, with allowance for Domestic
Strategic Investments on commercial basis, and by having an
investment board to provide oversight on how the funds are
invested.

We believe these will be counter productive,
Savings will yield interest over time; interest rates are very low
especially abroad. Investing in infrastructure will have a multiplier
effect on the economy and the net gain will be higher than savings
interest

Intergenerational equity
It is better to leave our children good education and health, better
roads and telecoms, than to leave them raw dollars, worse still, our
neglect of these areas (as we save the money) will lead to loss of
life which will be avoided if we give people health and education now.


3. DUTCH DISEASE, WHERE OTHER INDUSTRIES WILL BE NEGLECTED AND MAY SHRINK

Section 13: The Ghana Petroleum Funds: Ghana Stabilization Fund and
Ghana Heritage Fund
(2) The objectives of the Funds are to:
(a) Cushion the economy from the impact of unanticipated petroleum
revenue shocks, and safeguard macroeconomic stability.
(b) Cushion the impact on or sustain public expenditure capacity
during periods of revenue shortfalls whether caused by a fall in
prices of crude oil or natural gas, or through production changes.
(c) Generate alternate stream of income to support public expenditure.
(d) Provide a heritage, through the Ghana Heritage Fund for future
generations of Ghanaians from savings and investment income derived
from petroleum revenue.

Here it is proposed that we spend the Oil revenue, to “cushion the
economy from revenue shocks and safeguard macro economic stability”,
In other words use it as a buffer for masking failed economic policies
and breed laziness in the management of our economy by promising money
to fill the gaps. This will be the start of all the problems.

4. POLITICAL CONTROL AND INCREASED POLITICAL TENSION WITH DIRE
CONSEQUENCES AS PEOPLE DO ANYTHING TO GET ACCESS TO THE LOOSELY
GUARDED OIL REVENUE

Spending Decisions
Most of the public oversight should come through existing structures
of Parliament, Finance and Public Accounts Committees. It is proposed
that if their capacities are in doubt, then public oversight can be
strengthened by setting up an independent Public Oversight Committee
(POC) with the appropriate oversight of Parliament. The composition of
the POC will be structured to ensure competence and public legitimacy.

In addition,
• It is proposed that key spending and saving decision parameters not
be left to the discretion of government on year-to-year basis, but
rather come up for review periodically to accommodate changing
circumstances and development needs.

• The law does not make recommendations for cash distribution of
revenues to individuals or any fixed percentage payments to regions
outside of existing mechanisms of resource transfers within the
context of the national budget.

However, there may be a case for:
i. Specific mitigating regional or community interventions as deemed
appropriate and necessary.
ii. Strengthening fiscal decentralization and devolving some spending
decisions to local governments in order to better address specific
social and demographic needs, as in education, health, housing, water
and sanitation, transportation and public safety.

In any event, any such additional boost in spending through the
District Assembly Common Fund (DACF) or through periodic budgetary
allocations, say specific or block grants, should be accompanied by
clearly defined spending and accountability guidelines. We recommend
the use of block grants rather than changes to the DACF allocation.

Board
(1) The President on the advice of the Minister shall appoint the
Investment Advisory Board for the Ghana Petroleum Funds.
(2) The Board shall comprise of five (5) members, to be selected from
among persons of proven competence in matters of finance, investment,
economics, business management or law, including a senior officer of.—
(a) the Central Bank; and
(b) the Ministry responsible for finance and/or economic planning
(3) At least one of the officers shall be a female.
(4) The President shall appoint a member to be the Chairman of the
Board on the advice of the
Minister and the Governor
(5) Members of the Board shall be appointed for a term of two or three
years staggered, shall be eligible for reappointment for no more than
2 consecutive terms, and shall have security of tenure for their term
subject to the provisions of section 28(8) of this Act.
(6) In addition to the competencies mentioned in subsection (2), each
member shall be required to satisfy the criteria for a fit and proper
person contemplated in the Banking Act, 2007 Amended.
(7) The members of the Board shall be paid such allowances as shall be
determined by the Minister and approved by Parliament.

These provisions virtually give all the control to politicians who
will clearly use it to their best political advantage. That is likely
to increase tension because it will inevitably be used to consolidate
power, and create the problems mentioned in the first law of
petropolitics (attached)

5. AGITATION IN THE WESTERN REGION, FEARS OF NEGLECT AND DEGRADATION
There is no specific provision for taking care of the sources of the
Oil, (investing in those areas specifically). This in addition to the
problems we anticipate will lead to serious problems in the Western
Region, which produces the bulk of our national primary resources.
Expectations there are high, the youth there are mostly uneducated and
under-employed, the elders there have witnessed a lifetime of
extraction without equitable development. It seems we already have a
lethal mix; we shouldn’t ignite it with more insensitivity to the
western region.

6. PUBLIC OVERSIGHT COMMITTEE (POC)
A POC is proposed, we have compared this proposal to the earlier one
made of an OIL REVENUES COMMISSION, (see attached document). It is our
view that the POC here suggested is likely to be ineffective. it is
controlled largely by Politicians, Governments in power will
manipulate it.
Our Proposal is to have a body or regional representative similar to
the Council of State, but modeled after the GETFUND Board, with good
enough representation from politicians designed in a way that prevents
extreme manipulation. This is likely to be more independent and
effective in guarding our nation. The key issue here is national
cohesion, if we fail in the control of the resources we could
compromise our stability.

Section 43: Public Oversight Committee
(1) There is hereby established a Public Oversight Committee
(2) Functions
The functions of the Public Oversight Committee shall be to:
a) Oversee and advise Parliament on matters relating to the
management, performance and operation of the Ghana Petroleum Reserves
Accounts;
b) Advise Parliament in a timely manner on the appropriations from the
Ghana Petroleum Funds, or any proposed use of petroleum receipts as
proposed by the Minister;
c) In the context of the budgetary process, advise Parliament on
whether the appropriations of the Petroleum Revenues for public
investment are being used effectively to the benefit of current and
future generations.
d) In the context of the Economically Targeted Investments in the use
of some of the Heritage Fund, advise Parliament on whether the
appropriations for those investments are being used effectively and on
commercial basis to the long-term benefit of current and future
generations.
(3) Functioning of the POC
a) In conducting its activities, the Pubic Oversight Committee shall
take into account the overall objective that Petroleum Revenues are to
be used for the benefit of current and future generations of Ghanaians
and the principles for the management of all Ghana Petroleum Reserves
Accounts.
b) For purposes of advising Parliament, the Public Oversight Committee
shall consult widely relating to the use of Petroleum Revenues.
c) The Public Oversight Committee shall determine the rules of
procedure under which it will operate, and its decisions shall only be
binding if taken by a majority, with a quorum of seven (7) members.
d) Parliament shall approve and provide adequate funding for the
operations of the Public Oversight Committee, including appropriate
allowances for members of the Committee, through the budgetary
appropriation for the operation of Parliament.
(4) Membership
The Public Oversight Committee shall consist of ten members and shall
include the following:
a) 3 members of Parliament from three different parties, elected in
accordance with rules laid down by Parliament.
b) A former Governor or Deputy Governor of the Bank of Ghana who
effectively served
in office for at least 2 years.
c) A former Minister of Finance who effectively served in office for
at least 2 years.
d) 2 members nominated to represent economic think-tanks and civil-society.
e) A member nominated by the Council of Churches to represent
religious organizations.
f) A member nominated by House of Chiefs.
g) A former University Vice-Chancellor nominated by the Council of
Higher Education

(5) Tenure of Members and Eligibility for Appointment
a) Tenure of Members
i) Term of office of members shall be for between 2 and 4 years.
ii) A members appointed for a 2-year term may be eligible for
re-appointment but not for more than 2 consecutive terms, and shall
not be eligible for e-appointment after their second term. Members
appointed for 3-year or 4-year term shall not be eligible for
reappointment.
b) A person shall not be eligible for appointment if the person has
been removed from office,
has been convicted of a criminal offence, is on trial in a court of
law, has been declared bankrupt or insolvent, or has been an executive
member of a political party.
c) Members appointed to the Committee have security of tenure, and
unless otherwise provided for by law or for medical reasons, may not
be suspended, retired or removed from office.
(6) Economic Advisor to the Public Oversight Committee
Subject to the approval of Parliament, the Public Oversight Committee
may appoint as an expert advisor on economic and financial matters for
a tenure of two years renewable once, an academic or professional of
highest reputation and competence with the appropriate and relevant
competencies.

7. CONCLUSION
The Proposal itself raised the issues of concern, and stated that
these problems must be avoided; we are at a loss how the proposals
seem to go in ways that are almost guaranteed to create the listed
problems. The Proposal says inter alia -

1. The assignment is to propose a petroleum revenue management framework that:
(a) serves the best interests of Ghanaians,
(b) ensures that the use and management of petroleum revenues are
transparent and properly accounted for, and
(c) is informed by international best practices.

4. In putting together this proposal, we have been keenly aware of the
so called “oil curse” that has come to be associated with oil rich,
developing countries. This is the risk that, for many developing
countries oil resources have often become a source of great waste and
corruption, rather than a source of growth and of improvements in
standards of living. The overarching concern for many Ghanaians is
that petroleum wealth should be a blessing not a curse.

5. Proper and responsible management of the revenues should be the
answer to the curse. Other policies matter as well: Setting up the
right regulatory environment to guide the activities of all industry
players is important; so is having an effective fiscal regime that
determines the appropriate share of the petroleum revenues to Ghana.

8. The proposal also seeks to safeguard Ghana’s oil resources
and to ensure that the collection, accounting, use and
management of all the revenue due to the State are placed
within the context of transparent processes and accountable
institutions, with mechanisms to ensure adequate public
oversight (Accountability and Transparency challenge).


CALL TO ACTION

This is not intended to be a criticism of the current (or any)
government. It is in a spirit of contribution, that we bring the best
ideas to the table and insist that the people who run the country
either present better ideas, or do what is best for the country. We
are therefore open to debate and suggestion, in the hope that the best
ideas come up and are implemented.


Please send comments and questions to Mr. Kofi Bentil,
(kofi@imanighana.com) Convener & Fellow, IMANI & AfricanLiberty.org
/ALIWA Thought Leadership Forum.