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GHANA’S OIL AND GAS INDUSTRY Management of Oil Revenue: How Can Northern Ghana Benefit? by Sulemana Stevenson, PhD. (Development Consultant)

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Presentation on theme: "GHANA’S OIL AND GAS INDUSTRY Management of Oil Revenue: How Can Northern Ghana Benefit? by Sulemana Stevenson, PhD. (Development Consultant)"— Presentation transcript:

1 GHANA’S OIL AND GAS INDUSTRY Management of Oil Revenue: How Can Northern Ghana Benefit? by Sulemana Stevenson, PhD. (Development Consultant)

2 Overview of Ghana’s Oil & Gas Discovery and Expected Revenues

3 Overview of Ghana’s Oil & Gas Discovery Oil and Gas exploration in Ghana began in the early 1970’s, with occasional reports on discoveries from 1970 to late 1990’s. Various exploration teams and companies had identified and mapped out basins with rich potential in oil and gas. It was however not until in the early 2000’s that definite and clear discoveries were made. The discoveries have been welcomed and hailed by Ghana and its development partners as “very welcome news for the economy of Ghana”

4 Some Commonly Used Terms Upstream – refers to all operations involving exploration, drilling, crude oil production, shipping, etc. Downstream – refers to all operations related to refining, storage and distribution of petroleum products to the final consumer Oil Revenues – refers to money paid to the State by oil exploration and production companies as various categories of taxes, royalties, fees, etc. for production and exportation of crude oil. Oil Taxes: Currently Ghana’s Oil Revenue is only from taxes levied on petroleum products and paid by consumers (Ghanaians)

5 Legal and Institutional Frameworks In Ghana petroleum operations are governed by the Petroleum Law of 1984 which empowers Ghana National Petroleum Corporation (GNPC) to operate in all open acreage of the country on its own or in association with foreign partners. The basic contract between the State, the GNPC and the private companies is the Production Sharing Agreement.

6 Legal and Institutional Frameworks The legal framework governing Petroleum exploration and production is being reviewed to create a very competitive business environment for investment in Ghana over others in the sub- region and the international oil industry

7 Legal and Institutional Frameworks Advantageous terms of the contract with Oil Exploration companies include: No front end payments such as signature or production bonuses; negotiable royalties and income tax (currently at 35%); no limit on cost recovery, low rental payments, no restrictions on the repatriation of funds, and no import duties on exploration and production equipment and materials.

8 Ghana’s Offshore Oil Basins and Drilling Prospects Ghana’s Offshore Oil Basins Ghana has five sedimentary basins 1. Offshore Tano Basin (West, North and South Tano) 2. Offshore Saltpond Basin 3.Offshore Accra/Keta Basin, 4.Inland Voltaian Basin, 5.Offshore Cape Three Points Basin (East,& West)

9 Ghana’s Oil & Gas Drilling Prospects Field Basin Year Fluid type Saltpond Saltpond 1970 Oil & Gas C. T. Points C. T. Points 1973 Gas South Tano Tano 1978 Oil & Gas 3-AX block Tano 1979 Gas North Tano Tano 1980 Gas West Tano-1 Tano 2000 Oil

10 Current Operations Devon Energy Gh. Ltd: Offshore Keta Basin - Jul 2006 Vanco Ghana Ltd: DeepW Cape 3-Points - Aug 2002 Kosmos Energy Gh. HC, Anadarko Petroleum Energy and Tullow Gh. Ltd.: West Cape 3-Points - July 2004 Tullow Gh. Ltd., Sabre Oil & Gas Ltd.: Shallow Water Tano Basin -July 2006

11 Tullow Gh. Ltd., Sabre Oil & Gas Ltd., Kosmos Energy Gh. HC : DeepWater Tano Basin - July 2006 Vitol Upstream Gh. Ltd, Offshore Cape 3-Points - March 2006 Amerada Hess Gh. Ltd.: DeepWater Tano CTP - July 2006 Gasop Oil Gh. Ltd: Offshore Saltpond Basin - July 2006 Saltpond Offshore Prod. Company (Lushann Eternit Energy Ltd.): Saltpond Field- July 2004

12 Expected Revenues from Oil and Gas Industry

13 Expected Revenues from Oil and Gas Industry Ghana is expected to start commercial oil and gas production by December 2010 Revenues are expected to be received from Oil Companies registered with the Ghana National Petroleum Corporation and other State Agencies Ghana is expected to receive US$1.0 billion annually over the next 10 years, with incremental growth of revenues as new oil and gas fields are established

14 Expected Revenues from Oil and Gas Industry Ghana has estimated total gas reserves of between 1.5 Trillion Cubic Feet, and 1.7 Trillion Cubic Feet including reserves not yet discovered. It has an estimated 840 billion cubic feet of gas in place. Natural gas was first discovered in the Cape Three Points Basin in Tano Gas reserves are estimated to be sufficient to power a megawatt (MW) power plant for 15 to 20 years

15 Expected Revenues from Oil and Gas Industry Under the proposed Bill the fiscal package negotiated and agreed upon between the parties in the event of a commercial discovery are as follows: Royalty in respect of Oil and Gas are 12.5% and 7.5% respectively; GNPC carried interest 10%, GNPC additional interest (subject to reimbursement of GNPC to contractor for its proportionate share on its participating interest) is 10% Corporate Income Tax 35%.

16 Current Measures to Ensure Accountability and Transparency Ghana Integrity Initiative (GII) Ghana Extractive Industries Transparency Initiative (GEITI) Capacity building and sensitization workshops for media practitioners in the emerging oil and gas industry Ghana Oil and Gas Stakeholders Network

17 Actions and Pressure from Civil Society Organisations For increased transparency and free release of information on Oil & Gas revenues by Companies and by the Government of Ghana Transparency International Revenue Watch Institute Global Witness Tax Justice Network National Civil Society Platform on Oil and Gas (NCSPOG)

18 Ghana Petroleum Account Receipts Ghana’s Petroleum Revenue is expected to come from: 1. The gross revenue, royalties, all additional oil entitlements, initial carried interest from any petroleum operations including, prospecting or exploration for, and development, exploitation, transportation, sale or export of, petroleum and other activities relating thereto. 2. Any amount received from direct or indirect participation of Government in Petroleum Operations.

19 Ghana’s Petroleum Revenue (cont.) 3. Corporate income taxes in cash from all upstream and midstream petroleum companies;. 4.Any amount received by Government from the investment of petroleum funds. 5.Any amount received by Government directly or indirectly from petroleum resources not covered in paragraphs (a) to (d) above, including capital gains tax derived from the sale of ownership of exploration, development and production rights.

20 Ghana’s Petroleum Revenue (cont.) It is expected that all petroleum revenues assessed as due in each month shall be collected via electronic transfer of funds by the 15th day of the ensuing month, with quarterly reconciliation of petroleum receipts due and actual amounts collected.

21 Ghana’s Petroleum Revenue (cont.) In the event that the Government participates in petroleum operations indirectly, through the GNPC or any other national petroleum company, the receipts of the Ghana Petroleum Account shall include the following: (a) any amount payable by the GNPC or other national petroleum company as tax, royalty or any other due in accordance with Ghanaian law; and (b) Dividends from GNPC or other national company for Government’s equity interest.

22 Ghana’s Petroleum Revenue (cont.) GNPC is entitled to receive the additional “paid” participating interest of Government, as direct operating revenue according as the additional paid interest is financed. All initial carried interest is expected to be collected by the Ghana revenue Authority as part of direct petroleum receipts to Government.

23 3.0 PROPOSED CHANNELS OF UTILIZATION OF OIL REVENUE

24 Special Oil and Gas Revenue Account to Channel Oil Funds As part of strategies and channels for management of Oil Revenue, it has been proposed that a special Oil and Gas Revenue Account should be set into which all proceeds would be lodged. By this, it is proposed that the Account should be allowed to accumulate funds before spending commences. This is referred to as the Delayed Spending Strategy.

25 Government Central Budget Financing and Spending Another school of economists propose that all revenue from the Oil & Gas industry should be channeled into the Central Budget of Ghana Government, and used to finance annual national budgets, as it is the case of externally derived Aid funds. This is the current mode of financing of all sectors of the Ghanaian economy. This is referred to as the Conventional Spending Strategy.

26 Dedicated Sector Funds for Ministries Still, another school of thought has proposed that Oil & Gas Revenue should be dedicated to some specific sectors that need immediate revamping and capital injection. Such sectors include education sector, roads and transport sector (railways, water transport, etc.), energy sector (alternative sources of energy), agriculture (modernization, industrialization, etc.). This approach is termed the Sector Spending Strategy.

27 Special Posterity Fund Allocations A radical school of advocates and activists have proposed that Ghana Government should dedicate at least half of the accruing revenue from the Oil & Gas industry into a Special Posterity Fund reserved for future spending when the Oil and Gas resources are exhausted. The proposed strategy is based on the premise that Ghana’s Oil & Gas Resources (and therefore, revenues) belong to present and future generations yet unborn. Spending of Oil & Gas funds should therefore take into account the future generations of Ghanaians, and so the Posterity Fund Strategy has been proposed.

28 4.0 WHY THE NORTH SHOULD BE GIVEN INCREASED ATTENTION

29 1. Northern Ghana Lags 400 Years Behind the Rest of Ghana The arrival of Portuguese explorers on the shores of Gold Coast in the 1400’s marked the turning point in the development of the native peoples of the coastal regions and the hinterland. Interactions between the White People and the Coastal peoples gave birth to commerce and education. Schools were established to train native people to serve and protect the interests of White merchants.

30 It was not until in 1905, that the first White man cross the Volta River and set foot into the then Northern Territories. Socio- economic development activities were confined to the South of Ghana for 400 years. The advent of the infamous Slave Trade depleted the Northern Territories (which was a source of slaves) of its strong men and women, and left behind children and aged people to carry on with their socio- economic development.

31 The intensive mining of gold and other minerals led to the establishment of mines in Southern Ghana. These mines were fed with unskilled human labour from the Northern Territories. As often quoted, the British Governors deliberately refused to develop the peoples of the Northern Territories so that “they will continue to serve as hewers of wood and fetchers of water for their brethren in the Gold Coast and Ashanti regions”.

32 These 400 Years‘ of Dark Ages” in Northern Ghana are the cause of unequal development between Southern Ghana and Northern Ghana.

33 2. Northern Ghana Lost 30 Years In Government Spending After independence in 1957, the CPP Government under Dr. Kwame Nkrumah, embarked on massive social infrastructural development of all regions of the newly independent Ghana. So vibrant were development programmes that Ghanaians were excited and contributed immensely to the development of Ghana. Ghana soon became the “England of West Africa” and attracted many migrants from other West African countries.

34 The Wheel of Intensive Development was however brought to a halt after the overthrow of Dr. Kwame Nkrumah. From 1987 until 1987, the focus of Government Spending was shifted to the development of the Southern Ghana, to the detriment of socio-economic development of Northern Ghana. This neglect has resulted in underdevelopment, poverty, conflicts, etc., creating the current negative image of Northern Ghana.

35 3. Failure To Achieve MDGs in Northern Ghana Affects The Rest of Ghana If Ghana is to achieve it lustrous goal of being a “Middle Income Country” by 2020, then all concerted efforts have to be exerted to virtually ‘drag’ Northern Ghana along with the rest of the country. The achievement of the Millennium Development Goals (MDGs) in Ghana cannot be fulfilled if Northern Ghana remains in its current state and pace of development.

36 None of the 8 MDGs can be said to have made any significant progress, as abject poverty, poor quality education and infrastructure, gender abuse and women disempowerment, high infant and maternal diseases and death, environment degradation, and total absence of social partnerships and collaboration resulting in strife, ethnic conflicts and social upheavals. Ghana cannot afford to continue to pay ‘ blind eyes and deaf ears’ to the plight of Northern Ghana.

37 4. Northern Ghana Can Be Developed into the Food Basket of West Africa The vast agricultural resources of Northern Ghana can be transformed into the food basket of Ghana and subsequently of West Africa. The vegetation, relief and topography of Northern Ghana is no different from those of South Africa, Botswana, Malawi, and Zimbabwe. Yet these countries have developed their “Steepe” lands into great agricultural production areas that feed themselves and export grain and livestock to other African and South-East Asian countries.

38 Large and continuous investments are needed to raise the current state of underdevelopment, abject poverty, low productivity, gender disparities, and strife and conflict. Developing Northern Ghana socio-economically, would also pave the way for transforming it into the industrial hub of West Africa. Tamale, Bolgatanga and Wa are currently the commercial centres for Burkina Faso, Mali, Niger and Chad.

39 5. Northern Ghana Can Be Transformed Into the Intellectual Hub of Ghana and West Africa History and various studies have shown that the people of Northern descent have high intellectual capacities and capabilities for excellent academic and professional performance. This evidenced by the pockets of excellent performance of students in Northern Ghana given the very poor educational facilities and abject poverty under which they raised.

40 With the right resources, students in Northern Ghana can perform excellently and Northern Ghana will soon serve as the source of intellectuals for Ghana and for West Africa sub- region, as in the case of India in South East Asia region. With all the debilitating disadvantages in socio- economic development, Northern Ghana has produced so many intellectuals who are serving in national and international missions, the UN and other international organizations, and are very active in the political arena of Ghana. A conscientious focus on education and human capital development as expected to be done through SADA, would transform Northern Ghana as a suppliers of intellectuals and professional resources.

41 5.0 AREAS AND PROGRAMMES THAT CAN BENEFIT NORTHERN GHANA

42 Development of Social Infrastructure and Social Capital Northern Ghana falls far behind the rest of the country in terms of social infrastructure and social capital development. A focus on the development of social infrastructure and human resources through education, health, environmental management, etc. would catapult Northern Ghana into a position that will induce massive development of its regions, districts and communities.

43 Enhancement of Economic Productivity and Industrialization Through the SADA initiative, there should be concerted efforts at turning every resource in Northern Ghana into points of economic activity. Existing industries and sectors of the economy of Northern Ghana should be supported with massive investments to be transformed in terms of productivity, scale of economics, and export potential.

44 Facilitation and Strengthening of Private Sector and Entrepreneurism Another area that needs to be strengthen with large investments is the private sector in Northern Ghana. Entrepreneurism and partnerships should be stimulated and encouraged, as was in the case of South Korea, Malaysia and Japan in the late 1900s. Northern Ghana has been estimated to have over 250,000 small commercial enterprises, not mentioning the over 3 million small scale farmers who are actively engaged in agricultural production and processing.

45 Stimulating cooperative activity, micro- financing (savings and loans), processing and value chain development, quality control and standardization of products, as well as encouraging the establishment of partnerships and corporate companies, would pave the way and foster collective effort towards the socio-economic and financial transformation of Northern Ghana.

46 Consistent Dedicated Funding of SADA, and Donor-funded Programmes For SADA to achieve its laudable goals, there is a strong need for continuous consistent dedicated funding. Present and succeeding governments should be encouraged to continue to provide support for SADA as this is one vehicle that can achieve the aspirations of Ghanaians. SADA and other donor programmes such as MiDA, Northern Rural Growth, NORPREP, etc. should be supported by Government Annual Budgets and the necessary counterpart funding released on timely basis for programme implementation.

47 6.0 THE WAY FORWARD

48 Opportunities for Policy Advocacy on Management of Oil & Gas Revenues Presence of a growing body of networks and platforms of Key Actors (State, Local Authorities, Civil Society, Private Sector) that are keen to support policy advocacy initiatives on Ghana’s Oil and Gas Resources and Revenues Various Legislative and Institutional Frameworks formulated and implemented by Government of Ghana create space and opportunities for policies and regulations to be studied, monitored and critiqued

49 Growing Levels of Initiatives that promote Transparency and Accountability through increased access to information on Oil and Gas resources and revenues in Ghana through the Right-To-Information Bill and similar laws, all create opportunities for Civil Society to advocate for sustainable management of Ghana’s Oil and Gas resources and revenues.

50 The unavailability of a stable long term development strategy for the use of Oil & Gas Revenue is another opportunity for policy advocacy The need for strengthening the fund management capacities of State institutions especially sub-National Government Structures who are the recipients of major outflows for local community developments.

51 Opportunities for Monitoring Government Spending on Development in Northern Ghana Roles that the Peoples of Northern Ghana Can Play Civil Society’s Roles in Holding Government Accountable to the North Ghana’s External Partners and Counterpart Funding for the Development of Northern Ghana

52 7.0 Strategies for Effective Policy Advocacy on Ghana’s Oil & Gas Revenues in Favour of Northern Ghana

53 Strategies for Effective Policy Advocacy on Ghana’s Oil & Gas Revenues 1. Strengthening of Ghana Oil & Gas Stakeholders Network to decentralize its programmes and activities to sub-national levels (regional and district levels)

54 Strategies for Effective Policy Advocacy on Ghana’s Oil & Gas Revenues 2. Strengthening of CSOs in research, information management, and advocacy on policies and regulatory frameworks relating to the operations of Ghana’s Oil & Gas industry and to the sustainable management of Ghana’s Oil & Gas Revenue

55 Strategies for Effective Policy Advocacy on Ghana’s Oil & Gas Revenues 3.Strengthening national and sub-national level structures in the administration of revenues from the Oil and Gas sector disbursed by the Ghana Petroleum Account through the national development financing frameworks and institutions

56 Strategies for Effective Policy Advocacy on Ghana’s Oil & Gas Revenues 4. Continuous capacity building and strengthening of media, press, and independent private sector activists to engage Ghana Government machinery and hold them accountable for the sustainable use and management of Oil and Gas resources and revenue

57 5.0 Conclusion

58 Conclusion There are great prospects for Policy Research and Advocacy on Ghana’s Oil and Gas Revenue Management. The central concern of Ghanaians is how the State Machinery can manage Oil and Gas revenues sustainably so that Oil and Gas Resources will be a Blessing and not a Curse.

59 Conclusion There is need for continuous education and interest building in Ghanaian public circles concerning the present and future mechanisms for sustainable management of Ghana’s Oil and Gas Resources and Revenues.

60 Conclusion Civil Society Organizations should sit up and ‘walk the talk’ in actively monitoring and tracking the equitable distribution of Ghana’s Oil and Gas revenues, with clean hands and highest levels of integrity.

61 Conclusion Successive Governments should build on policies and institutional frameworks established by preceding Governments on the sustainable management of Ghana’s Oil and Gas resources and revenues

62 Conclusion The Youth of Northern Ghana should be encouraged and empowered to sit up and pay particular interest in the sustainable management of Ghana’s Oil and Gas resources and revenues since the Future of Ghana is theirs. A Better Ghana Agenda is their Agenda.

63 End of Presentation Thank You for the Rapt Attention You Afforded the Presentation Long Live Ghana’s Oil and Gas!!! Long Live Northern Ghana!! Long Live Ghana!


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