Date: October 22, 2012, 12:05 pm


SPECIAL FOCUS ON PETROLEUM REVENUE MANAGEMENT


AS I REFLECT ...
Scaling the hurdles of Petroleum Revenue Management Law


\\\"A challenge only becomes an obstacle when you bow to it.\\\" -Ray Davis
Ghana is known among the comity of nations not only as a trail blazer in the passage of laws but also a repository of good legislations. In rare cases when the country is not the first with a law, her later enactment invariably stands out as one of the best if not the best on the African continent.
Ghana\\\'s Petroleum Revenue Management Act, 201, (Act 815), one of the laws governing the Oil and Gas industry, shares in the aforementioned second characteristic. Relative to the case of other countries, Act 815 came into being rather late; however, industry experts acknowledge that it is one of the best on the continent.
The good nature of this law notwithstanding, its implementation has brought to light some challenges which have to be addressed if Ghana as a nation is to maximise the benefits of oil revenue and \\\"enjoy the goodness of the of oil industry rather than a curse\\\", which have plagued many a developing country endowed with hydrocarbon resources.
In this day and age when transparency has become the in thing in democracies globally, it is rather curious that oil contracts are held in confidence. This in turn impacts negatively on the assessment of oil revenues which are based on the fiscal terms negotiated in contracts. There is also no open and competitive bidding for oil concessions including concessions where the country has quality data. It is therefore important that revenue transparency will become meaningful with contract transparency so that stakeholders will be certain that the exact right revenues are accruing to the state.
Similarly, Section 49 of the Act 815 confers on the Minister of Finance the power to withhold information or data that, in his discretion \\\"could prejudice significantly\\\" the performance of funds. As I Reflect is of the view that this provision is an affront to citizen\\\'s fundamental right to information, hence it should be expunged. I am of the view that there is even the need for detailed regulations and procedures governing citizen\\\'s right to information under this Act.
Besides, there are some variations between national tax laws and the petroleum sector taxes. These need to be harmonised especially those relating to capital gain tax, withholding taxes and income tax exemptions for expatriate employees. This will simplify the administration of taxes in the petroleum sector, a major requirement for petroleum tax revenue accounting.
Section 60 of the Act requires the Minister to make regulations to cover reference pricing, measurement of the quantity of petroleum and the operational and management guidelines of the Petroleum Funds. But going by the country\\\'s experience, regulations take time to come; a classic example is the Minerals Act and the Disability Act. Thus there are genuine fears that the regulations for petroleum revenue management may delay and which will subject very important assumptions in accounting for the revenues to Ministerial discretion, a practice that is unreliable and unpredictable.
The Act also provides for collateralisation of the Annual Budget Funding Amount for 10 years. There is no doubt that with oil exports and petroleum revenue inflows, both the solvency and liquidity ratios of Ghana\\\'s debt sustainability indicators will improve creating fiscal space for more borrowing. However, due to the serious problems with public financial management, and the low technical and institutional absorptive capacity, Ghana is likely to accumulate more debts without a corresponding development value.
In the absence of fiscal rules that define targets for debt levels, Ghana must develop a debt management policy which among others will provide an exit strategy from oil revenue collateralisation at the end of the legally mandated ten-year period. The argument here is that it is not enough to provide that the collateralisation of the Annual Budget Funding Amount shall be allowed for ten years, without a clear alternative debt substitution policy. The debt circle will engulf our country and affect fiscal sustainability, as well as postponing the burden of repaying unproductive debts to future generations, a situation that is morally wrong.
Furthermore the Act permits compensation to be paid out of the Petroleum Holding Fund to communities that are adversely affected by petroleum activities. However, the law is silent on the procedures that would guide communities seeking to make a claim. It only provides that compensation will be paid in accordance with relevant laws. As I Reflect finds this unconventional and an aberration, hence there should be clear regulations clarifying this provision and providing mechanisms for the communities to make claims.
The Act places primary responsibility for the investment strategy or management of petroleum revenues on the Minister of Finance, and although the Act establishes an Investment Advisory Committee (IAC) as per sections 29 and 30, its guidance is, regrettably, not binding on the Minister. This is counterproductive to the principle of good governance. We are of the view that the advice of the IAC should be made binding on the Minister or at least restrict and specify circumstances under which the Minister may make investment decisions without the Committee\\\'s advice.
Challenging as the hurdles above might seem, we as a country can scale over them if we resolve to do so. We should be guided by the admonition of Roy Davis, to wit, \\\"A challenge only becomes an obstacle when you bow to it.\\\"

 

ADDRESS CHALLENGES OF PETROLEUM LAWS
... Group demands


The Civil Society Platform on Oil and Gas is demanding that urgent steps are taken to address potential challenges that confront the Petroleum Revenue Management and the Petroleum Commission laws to ensure the efficient and effective governance of the petroleum sector.
The demand was made at a workshop to disseminate the findings of its analysis of the challenges that confront the effective deployment of the laws in Accra recently.
The Group argues that, even though the passage of the Petroleum Revenue Management and the Petroleum Commission laws constituted a major step towards the efficient management of the emerging industry and revenues derived thereof, Ghanaians know too well that whether or not the objects of the policy being pursued by the laws are met, will to a very large extent depend on the smooth and efficient application of the laws themselves. This, it says, means all ambiguities, lacunas, and potential barriers to implementation must be identified and remedied through regulations, rules, procedures, institutional re-alignment and re-tooling.
Presenting the findings and recommendations of the study, Bishop Akolgo, who represented the team of consultants that carried out the analysis, stressed on the need to reverse the negative trends of mismanaging the country\\\'s natural resources by ensuring that policies and laws that govern the natural resource sector stand the test of time and promote backward and forward linkages between the resources and the rest of the national economy. He explained that even though managing revenues efficiently is important, it is the linkages that will enhance local participation, value addition, and benefit maximisation.
Mr Akolgo proceeded to present highlights of what the consultants considered positive aspects of the Petroleum Revenue Management, (Act,2011), stating among others that: The Act provides a clear description of the purposes of the Stabilisation and Heritage funds; a conservative range of investment instruments; mandatory auditing and reporting. It also maintains a strong theme of transparency; and encourages public access to information about petroleum revenue management.
In spite of the positives, the consultants identified several gaps, weaknesses and potential barriers to implementation.
Touching on the Petroleum Holding Fund (PHF) receipt, Mr Akolgo noted that Sections 4 and 8 of the PRM Act do not provide for a reference price or achieved price, as GNPC terms it, to be able to know the size of income that goes into the PHF. Meanwhile, section 6 provides for indirect payments to government but since this is added to the total revenue received from the fund, according to the manner of disclosure procedure, such payments are difficult to figure out. In addition, the Law allows companies to hide funds owed to the state through dubious accounting systems and tax havens to avoid payment of tax on profits made. Capital gain tax was also not provided for in the Petroleum Income Tax Act 1987 (PNDCL 188).
On the Heritage Fund, he said Section10(4) gives the sitting government the power to attack and empty the fund through majority parliamentary support to misappropriate the fund before the time set by the Act for its utilisation.
Mr Akolgo prompted the house that the Annual Budget Funding Amount Section 21(5) provides latitude of discretion to the Minister which should be closed in order not for him to embark on what he described as political projects.
The presenter, on the stabilisation fund (section 23(3)) said this section empowers the Minister to use his discretion to spend, even in settlement of debts, which the law failed to stipulate which type of debt to be settled. He noted that the challenge is that the Minister, with the support of his majority as practiced by our parliament, may get excess funds transferred to the contingency fund for his or party benefit.
On exceptional expenditures, the specific fund from which communities affected by petroleum activities to be compensated as well as the method of compensation were not clearly stated in the Law, Mr Akolgo pointed out.
On the Investment Advisory Committee (IAC), he noted that the Minister has too much room to operate according to Sections 25 and 38 of the Act, (Act 815). This renders the IAC ineffective because the decision or advice of the committee may favour the political interest of the Minister, who appoints the members. Additionally, the advice on guidance of the IAC is not binding on the Minister, which worsens the situation. Again, the Act did not make any provision as to when the minister may declare a situation \\\"urgent\\\" or limit the Minister as to how far the urgency should go.
Regarding the issue of transparency the presenter cited section 49(1) of the Act which requires that management of petroleum revenue and savings shall always be carried out to the highest internationally accepted standards of transparency and good governance, and points out a contradiction of this provision by section 49(3) which mandates the minister to withhold information based on his own discretion. Such information shall not be made available to the public unless after 3 years.
Also, Mr Akolgo observed that, the establishment of Public Interest and Accountability Committee (PIAC)(Sections 51-57) though a welcome novelty, the law does not clearly define its authority as well as responsibility to operate as independent body, to carry out investigations on its own or as an urgent command of law makers. Where to obtain information for its work is also a challenge.
The presenter also pointed out the absence of restriction to check conflict of interest as a lacuna that must be bridged by regulations, rules and procedures to the law.

Mr Bishop Akolgo made the following recommendations:
1. That, there is the need for either a regional or global spot reference price. Added to his recommendations is that indirect payments from the hydrocarbon resources and their treatment and reporting format be separated.
2. That, Ghana Revenue Authority needs adequate capacity to be able to verify tax returns and not to transfer the mining sector weakness to the petroleum sector operations.
3. That, there is the need for dividend agreement with GNPC.
4. That, there is the need to limit the Minister\\\'s power to withhold information from the public, committees and anybody who needs them.
5. The PIAC needs to be empowered to investigate issues on its own including power to query officials when necessary.
6. That the law should clarify roles and responsibilities among the agencies, such as the Petroleum Commission, EPA, GNPC and MoE.
Other recommendations he made were the specification of public reporting requirement to the public, parliament or the executive; removal of the power of the Minister to nominate and compensate committee members; and lastly, the need to develop regulations to supplement and strengthen the transparency and access to information provisions of the Act.
The Civil Society Platform on Oil and Gas is a coalition of Ghanaian civil society groups and individuals working to ensure that Ghana escapes the resource curse trap as the country joins the club of oil producers.

 

Mixed reactions greet first PIAC Report
...Chairman dragged to court


The Public Interest and Accountability Committee (PIAC), an additional public oversight in the management of Ghana\\\'s petroleum revenues, created by the Ghana Petroleum Revenue Management ( Act 2011), and whose membership is drawn exclusively from identifiable civil society groups in Ghana, published its first annual report on petroleum revenue management (for 2011) in May this year.
Public reaction to the report has so far been mixed. While it has been praised by individuals and civil society groups for its scope and depth, some industry players have demonstrated outright hostility towards the Committee\\\'s report. The Saltpond Offshore Oil Company, operators of Saltpond Oil fields, threatened and subsequently went ahead to sue the Chairman of the PIAC, Major Daniel Sowa Ablorh-Quarcoo, over some comments he made about the company\\\'s obligations to the state.
The Chairman had granted interviews to the media, explaining that some of the gaps identified by the Committee\\\'s report, including its finding that both surface rental payments and receipts from the Saltpond oil field, which produces around 700 barrels per day, had not been captured in oil receipts. In other words, the Committee found no evidence of lodgment of these receipts into the Petroleum Holding Fund.
In general, the PIAC report compares oil revenue projections from 2011 against actual receipts. It also considered the roles assigned to the different institutions within the new petroleum law, and offers a critique of the 2012 projections.
Despite earlier assurances by the Ministry of Finance and Economic Planning that the Committee\\\'s report will be accorded serious and immediate attention, Resource Watch Agenda can confirm that the report is yet to be given full attention, including taking action on the numerous recommendations.
Below, we recap the key findings of the report:
- Ghana lifted 3.9 million barrels of oil, representing royalty payments, carried and participating interest
- Total revenues from the sale of lifting\\\'s came to $444 million, of which 47% was transferred to the national oil company
- Ghana budget received $164 million in contribution from petroleum revenues, 70% of which was allocated to capital expenditure projects (roads, agricultural modernisation, gas infrastructure & capacity building).
- Ghana saved $69 million from oil revenues in 2011. This is split between a shorter term Stabilisation fund and a longer term Heritage Fund
- Ghana revenues in 2011 only came to 53% of amount projected, principally due to non-collection of projected corporate taxes.
- Projections for 2012 revenues lower than for 2011 and still include corporate taxes, widely accepted to be non-forthcoming
- The forecasting methodology for petroleum revenue as specified in the Act 815 was not strictly complied with. This was reportedly due to the lack of historical price data on Jubilee crude oil, the failure of Ministry of Finance and Economic Planning to consider the advice of the Ghana Revenue Authority the tax-paying position of the oil companies and the lack of certification in line with established international practice. As a result, there were wide disparities in oil receipts for 2011 between the forecast and the outturn; and the Committee notes this precedent could be exploited to over-estimate the Benchmark Revenue to justify higher allocations to the Annual Budget Funding Amount.
- Ghana\\\'s lifting of crude oil was consistent with the Petroleum Agreements reflecting a royalty of 5% of gross production and a carried and participating interest of 13.75% of net production for the Jubilee Field. Lifting of crude oil in 2011 however spilled-over into 2012 in accumulated stocks of 649,138 barrels of oil, representing 2% of total production due to Ghana for 2011. This led to revenue overspill of US$74,463,275.
- Not all payments expected to go into the Ghana Petroleum Holding Fund were reported on. Act 815 covers all oil receipts and Section 6 of Act 815 lists surface rentals explicitly. The surface rentals were paid into Government of Ghana Non-Tax Revenue Account in 2011 and not accounted for in the Petroleum Holding Fund, nor were payments from the Saltpond field included.
- The selection of the priority sectors for spending of the ABFA was guided by the Ghana Shared Growth and Development Agenda, a medium term development framework which puts greater emphasis on road infrastructure and agricultural modernisation. The Minister therefore complied with sections 18(2) and 21(2) d of Act 815. However, this was not aligned to a long-term national development plan, as required under Act 815 because of the absence of such a long- term plan.
- The report also suggested ways of resolving the challenges it had enumerated. These, as captured in the recommendations section, are:
- The law should be followed in projecting revenues, since this key step affects amounts to be spent and saved. They also called for completion of a national development plan, since capital expenditures are based on a medium term plan- whilst this is not in contravention with the law, it does not guarantee the best long term decisions.
- MOFEP must use the methodology for determining the Benchmark Revenue set out in the law, involving all relevant institutions, and ensure the assumptions are certified by a reputable independent expert appointed in accordance with the Public Procurement Act, 2003 (Act 663).? This will avoid the likelihood of distortions in establishing the Benchmark Revenue and deriving the Annual Budget Funding Amount.
- MOFEP should take steps to account for the 2011 unaccounted proceeds in the Petroleum Holding Fund in a special report to Parliament and ensure that all receipts are reported on in future.
- Government must expedite the process for the development of a nationally owned long-term development plan in line with the provisions of Act 815 to guide the productive and efficient utilisation of petroleum revenues for national development.
- In the interest of public accountability and transparency, GNPC must publish an interim report on the utilisation of the funds it received as part of the appropriation of petroleum revenues in 2011 pending the release of its annual report and audited financial statements.
- The Minister of Finance and Economic Planning must sign the Operational Management Agreement with the Bank of Ghana as soon as possible.
vii. Government must provide the necessary resources for all institutions with responsibilities under Act 815 and ensure that they have the required capacity to carry out their responsibilities effectively.

 

Accountability Committee Secretariat ready soon
...Recruitment process for Co-ordinator begins


In a matter of weeks, if not days, the Public Interest and Accountability Committee (PIAC) would be operating from its own Secretariat.
The new Secretariat, to be located within Asylum Down, was secured under a two-year lease funded by government, Major Daniel Sowa Ablorh-Quarcoo, Chairman of PIAC, told Resource Watch Agenda in an interview last week in Accra.
\\\"There are adequate funds to pay for the two years,\\\" he stated as he avoided talking specifics in terms of the cost.
Public Agenda, our parent publication, had earlier indicated that the Ministry of Finance and Economic Planning (MOFEP) had released GHC150,000 to the Committee to enable it secure an office accommodation.
Resource Watch Agenda can also report that the Committee is close to naming a Co-ordinator for its Secretariat after conducting interviews for applicants last week.
The news of the Secretariat and possible appointment of a Co-ordinator may allay fears that government is not fully committed to the work of PIAC following revelations that relations between PIAC and the MOFEP had gone cold.
Public Agenda had indicated that the Ministry stood accused of dragging its feet at releasing money to finance a GHC950,000 (about US$500,000) budget presented by PIAC and covering planned expenditure for the latter part of 2011 and the entire period of 2012.
The PIAC has had to depend on the benevolence of NGOs, particularly international ones, to keep its head above the waters in its formative stages, including meeting its first statutory obligation of issuing annual reports on petroleum revenue management.
This is confirmed in the foreword of the first annual report on petroleum revenue management released on Thursday, May 17, 2012. In that report, PIAC praised NGOs and donor agencies for \\\"their immense contributions to the Committee during this difficult formative period.\\\"
It emphasised that: \\\"One could boldly say that without the efforts of the Revenue Watch Institute\\\'s Africa Regional Office the Committee would have been still-born. Thanks to their initiative and support to the Committee, we were able to hold our inaugural meeting, elect our leadership, chart a work programme and implement our few activities. They kindly offered their offices as an interim secretariat, whilst formalities for establishing a permanent secretariat dragged on.
\\\"Special mention is also made of GIZ (Gesellschaft fur Internationale Zusammenarbeit) who provided financial support to the Committee to implement our programme and activities, and without which the preparation of this very report would not have been possible. The Institute of Economic Affairs (IEA) also deserves our commendation for making their premises available several times for Committee meetings and functions,\\\" the Committee further wrote.
It is certain that the NGOs have supported the preparation of PIAC\\\'s second report, which Resource Watch Agenda has gathered would be outdoored soon.
\\\"The law is silent on funding so if government is doing what they are doing no one can fault them,\\\" Major (Retd.) Ablorh-Quarcoo said when asked about what he thought of government\\\'s commitment.
His response was in reference to the provisions of the Petroleum Revenue Management Act, 2011 (Act 815). Section 53(2) provides that \\\"The Accountability Committee shall have its own secretariat that will facilitate the performance of its functions\\\" but does not make provision for how the Secretariat would be funded.
NGOs, noting the gap in the law, elected to assist the Committee but that gave a number of government functionaries, both from the executive and the legislature the opportunity to deem the Committee as an NGO.
For instance, Hon. Alfred Wallace Gbodzor Abayateye, Member of Parliament (MP) for Sege Constituency and Deputy Chair of the Committee on Finance, has not hidden his view about the Committee. According to him, the Committee had postured itself as an NGO, failing to recognise that it was set up under a law passed by the legislature.
\\\"We are trying to be very careful about the image that we portray,\\\" Major Ablorh-Quarcoo told Resource Watch Agenda. He said the Committee was unique in its character particularly because it was formed from membership of several groups in society.
Thus, the Committee is not part of the usual government structure, neither is it an NGO. \\\"We are independent; like the Electoral Commission [EC],\\\" he said, advocating that the Committee should be elevated to the status of the EC and given powers to enable it have bite.

 

PIAC so far - Perspectives of members

In furtherance of the implementation of the Petroleum Revenue Management Act (Act 815), the Public Interest and Accountability Committee (PIAC) was inaugurated by the Minister of Finance and Economic Planning, Dr Kwabena Duffuor, on September 15, 2011.
The objectives of the PIAC are monitoring and evaluating compliance with the Act by the Government and other relevant institutions in the management and use of petroleum revenues; providing a platform for public debate on spending prospects of petroleum revenues in line with development priorities; and providing an independent assessment on the management and use of revenues.
To achieve its objectives, the Committee\\\'s major function is to consult widely on best practices related to the management and use of petroleum revenues. The reporting requirements of the PIAC include: Publishing a semi-annual report and an annual report by the 15th September and 15th March of each year. This will be posted on the Committee\\\'s website, published in daily newspapers, delivered to Parliament and to the President; and hold public meetings at least twice each year to report on its mandate to the Ghanaian public.
The 13-member Committee is chaired by Major (Retd.) Daniel Sowa Ablorh-Quarcoo who represents the Institute of Chartered Accountants, Ghana. When contacted to share his views on the performance of the PIAC so far, Major (Retd.) Ablorh-Quarcoo wanted the public to assess the Committee\\\'s work and pass their judgment rather than him remarking about its delivery.
He said the public could examine the first report of the PIAC and determine whether, given its resource constraints, the Committee was able to live up to expectation or not. The PIAC chair also asked the public to scrutinise the Committee\\\'s second report which is expected to be released later this year.
The representative of civil society and community-based organisations on the Committee is Mr Ishmael Edjekumhene, who is the Executive Director of Kumasi Institute of Technology, Energy and Environment (KITE). In an exclusive interview with the Resource Watch Agenda, Mr Edjekumhene was upbeat about the performance of the PIAC. \\\"I mean, to be honest, the committee has done exceptionally well against the background of lack of resources. I believe the commitment of members of the committee is unparalleled in this country.\\\"
Despite the success story of the PIAC, Mr Edjekumhene was forthright with the challenges confronting the PIAC. \\\"There are a lot of challenges we face because the work of the committee thrives on resources to be able to fulfill our mandate by collecting data and conducting research. We need a secretariat to operate from but we don\\\'t have one now. We need to get to the ground to ascertain the facts and figures. This is a big problem for the committee.\\\"
He said in spite of the challenges, the fact that the PIAC was able to prepare and publish its first report is a testimony of its ability to overcome the odds and perform as expected of it. \\\"The committee can only get better and we expect our second report to be better than the first. Given adequate resources, we should be able to do thorough analysis and serve the people of Ghana better.\\\"
Mr Franklin Ashiadey represents the Ghana Extractive Industries Transparency Initiative (GHEITI) on the Committee. Mr Ashiadey, in an interview, was emphatic: \\\"We have done our best so far. I think we have done well, and we are operating within our mandate. It is not for us to praise ourselves. The public should assess our performance for themselves. But I believe we are executing our mandate despite the resource constraints.\\\"

This special focus is published by Public Agenda news paper, as part of an ISODEC implemented project on Extractives and funded by OSIWA



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