Ghana oil revenues to gush without spending plan

With oil set to flow in a matter of months, critics are worried that Ghana has failed to come up with a detailed national strategy for spending an estimated $1 billion a year in revenues from a vast, newly discovered oil field or a framework to manage the money and regulate the country’s fledgling petroleum industry.

More than 250 representatives from environmental, human rights, watchdog and community-based organizations participated in a summit last month in Accra, Ghana, and strongly urged the government not to spend any of its newfound oil revenues until it has created a “long-term development plan.” Participants at the Citizens’ Summit on Oil and Gas sought to make sure that the oil revenues benefit the local people, 80 percent of whom live on less than $2 a day.

“The absence of a long-term national development strategy with broad consensus on spending priorities may encourage wrong investment decisions, wastefulness and mismanagement of petroleum revenues with serious negative implications for the economy,” according to a statement adopted by the summit’s attendees and made public last week.

Antoine Heuty, deputy director of the Revenue Watch Institute, who participated in the summit, said Ghana lacked a “blueprint on how to spend the money well.”

“The country lacks a detailed development plan,” he said. “How do they want to transform oil revenues into human and physical capital?”

The 2007 discovery of a vast reservoir of oil in the deep waters off Ghana’s coast by a small U.S.-based oil-exploration company named Kosmos Energy has promised to turn the poverty-stricken country into an oil-rich nation almost overnight.

The find, now known as the Jubilee Field, was one of the biggest in West Africa in years. Now Ghana and Kosmos are fighting over who ultimately will control the field - where up to 1.8 billion barrels’ worth of oil are said to be contained and where more might be discovered.

The dispute, which The Washington Times reported in March, has threatened to damage the warm relationship between the United States and Ghana. The Obama and George W. Bush administrations have praised the African nation’s successful transition to democracy.

Many fear that Ghana could fall victim to the “resource curse,” a phenomenon of bad governance and increased poverty in some countries where a wealth of natural resources has been found.

Mohammed Amin Adam, national oil coordinator for a coalition of watchdog groups called Publish What You Pay-Ghana and one of the organizers of the summit, said the Ghanaian government needs to be prepared by creating laws, regulations and institutions that can manage the billions of dollars in new revenue coming into the country.

“In my view, the government will not be ready,” he said. “First oil is expected in November 2010, and yet the legislations and the structures needed for the industry are not ready.”

He said the government should have implemented “a new comprehensive petroleum regulatory law. But because we are late, they are only amending certain sections of existing legislations,” which he said are obsolete.

Participants at the summit called for the government to publicly release amendments on petroleum regulation. They also sought a moratorium on licenses to search for and develop additional oil fields and on production until Parliament enacts laws to regulate the industry. They said in their public statement that the delay in passing the legislation is “dangerous before the first flow of oil.”

Such concerns about Ghana’s readiness are long-standing.

Ian Gary, senior policy adviser for extractive industries at the international relief group Oxfam America, wrote in early 2009 that challenges posed by Ghana’s oil boom are “broad, deep and complex and should not be underestimated.”

“Ghana’s challenge as an ’oil hot spot’ will be to ensure the right institutions and transparent policies are in place before production even begins,” he wrote in a report titled “Ghana’s Big Test: Oil’s Challenge to Democratic Development.” “Oil could undermine gains made in Ghana on democratic governance and development.”

Mr. Gary participated in last month’s summit and reiterated his concerns in an interview with The Times.

“The government of Ghana has consistently supported broad principles of transparency and accountability and gone some way to encourage public input, but the devil is in the details. With oil production only a few months away, these good intentions must be translated into concrete safeguards built into the new laws and regulations to govern the oil and gas sector,” he said.

A top Ghanaian official addressed the criticisms by saying that the country would be ready for the first flow of oil.

“We definitely will have the laws in place,” said Seth Terkper, Ghana’s deputy minister of finance and economic planning. “We have the frameworks in place.”

Mr. Terkper said he expected Parliament to pass the petroleum regulatory and revenue management legislation before the end of the year.

“We are not about creating entirely new institutions in every instance just to prepare for the onset of oil in Ghana,” he said, pointing out that Ghana has had petroleum laws and tax laws for years, so the country did not have start from scratch but did have to amend existing laws.

Mr. Terkper said the amendments, including what he described as “substantial” amendments to petroleum regulatory laws, will be reviewed by the Cabinet and will be sent to Parliament soon.

He said it was unfair to say that Ghana did not have a long-term national development strategy. Ghana has had strategic or development plans for spending, he said, but “what is lacking is funding.”

In December, members of Parliament from all the major political parties issued a statement calling for the government to stop issuing new licenses for oil production until it could come up with a plan for better regulation of the oil industry and management of the expected oil revenues. The members said they were upset that, with less than a year before drilling, no bills dealing with oil were before Parliament.

In March, the government made public a proposed draft of a petroleum-revenue-management bill that is supposed to be introduced in Parliament in the next month.

Officials with Revenue Watch Institute, a nonprofit that promotes responsible management of natural resources, praised the draft bill’s “clear system of controls” for collecting revenue and allocating it to the budget. But the group said Ghana still needs to have a “long-term development plan in place” for spending its oil revenues.

Mr. Adam said he doubts that such a plan will be in place before the first oil flows because there have been no discussions of it.

Mr. Heuty of the Revenue Watch Institute and others have said the Ghanaian government also has to manage the people’s expectations.

“They need to be clear ahead of time on how much oil can do. They need to manage expectations,” said Mr Heuty. “The life of a Ghanaian is not going to change.”

Officials with the International Monetary Fund also have said that Ghana has to manage expectations, pointing out that “the initial scope of spending from oil revenues could be relatively modest” because of the need to reduce the deficit and pay debts.

In April, Ghana’s ambassador to the United States, Daniel Ohene Agyekum, told an Oxfam America-sponsored panel called Can Ghana Beat the Oil Curse that the government of Ghana was working to make sure the oil funds would be used transparently and for the benefit of communities.

“The greatest asset that we have … is the people of Ghana. And that is why, as a policy, it is our determination to ensure that the interests of the people of Ghana are respected at all times,” he said. “When the oil has come and gone … we [must] have a quality of life that is much better than we have had so far.”