A decade after oil discovery: The bold steps, mistakes, lessons, and the future
The country appeared to have lost momentum following the 2009 political transition
When Ghana discovered hydrocarbons in commercial quantities a decade ago in 2007 under the erstwhile Kufour administration, the expectation was that proceeds of the oil find would expand the country’s national income base and eventually be utilised in addressing its teething developmental challenges.
Of course, there were others, who feared that Ghana might suffer from the Dutch disease, where the nation’s attention would be diverted to the oil sector at the expense of other sectors of the economy, leading to a decline in the contribution of the neglected sectors to the economy.
This rather pessimistic outlook of the discovery was borne out the several decades of under-utilisation and mismanagement of Ghana’s gold, bauxite and other mineral resources.
After exploiting these minerals for over 100 years, this country cannot boast of much, in terms of their development outcomes.
The Governance Framework
As part of its avowed determination not to repeat the sordid mistakes made in the mineral sector over the decades, the Government of Ghana, soon after the discovery of hydrocarbons, organised a five-day Oil for Development Conference in February 2008 to gather input from various stakeholders for the framing of national policies and legislations to govern the emerging oil and gas industry.
The country however appeared to have lost momentum following the 2009 political transition, such that, not a single petroleum-related law had been passed before first oil from the Jubilee Field in December 2010.
The delay in the passing of new laws and regulations led to the signing of contracts with International Oil Companies (IOCs) under the outdated Petroleum Exploration and Production Law of 1984 (PNDC Law 84) which the February 2008 conference had deemed obsolete because of changes in the industry.
The inadequacies of PNDCL 84 was brought to bear when it proved incompetent in addressing a dispute over GNPC’s claim of ‘right of first refusal’ at a time when Kosmos Energy sought to offload its stake in Jubilee to ExxonMobil.
It further manifested itself in the matter involving a supposed Kosmos liability for spilling some toxic mud in its operational area.
The Petroleum Revenue Management Act (PRMA) 2011, (Act 815) was the first petroleum sector law to be passed. It is indeed an anomaly to have passed that law ahead of the replacement of PNDCL 84 in August 2016.
The PRMA was followed by the Petroleum Commission Act 2011, Act 821, which established an independent regulatory body – the Petroleum Commission of Ghana.
The Local Content and Local Participation Regulations, 2013(LI2204) followed in 2013 to ensure that the expertise, goods, and services of Ghanaians are employed or engaged in most petroleum related activities.
Petroleum Receipts
Since commercial production of oil started in December 2010, a total of US$ 3.3 billion revenue has been generated with the ABFA (70 percent of net petroleum receipts allowable for spending through the budget) so far receiving US$ 1.4 billion, representing 43 per cent of total oil revenue.
The Ghana Petroleum Funds i.e. the Stabilisation Fund, and Heritage Fund, assigned 21 percent, and 9 percent of net petroleum receipts respectively, have cumulatively bagged US$874 million for the same period; while the national oil company, GNPC has received a total of US$ 959 million.
Dealing with Oil’s Challenge to Democratic Accountability While oil discovery presents enormous opportunities for economic growth and poverty reduction, it also has a huge propensity to erode democratic accountability.
The establishment of the Public Interest and Accountability Committee (PIAC) under Section 51 of the Petroleum Revenue Management Act 2011, (Act 815) with the main objective of monitoring and evaluating the usage of the petroleum funds by government and other relevant state agencies was therefore an important step aimed at strengthening social accountability in Ghana’s oil and gas sector.
PIAC, which is composed of people selected from civil society, including faith-based groups, traditional authority, NGOs, and professional associations, provides avenues for public information and participation in the management of oil revenues in line with defined national goals.
PIAC, as an oversight body, has since raised some concerns about the management of the oil revenue by government among which includes what it describes in its 2015 Annual Report as the poor management of the volatility effect of petroleum and other commodities prices on the budget, which it attributes to the low capping of the stabilisation fund.
Some civil society organisations, like the Integrated Social Development Center (ISODEC), the Civil Society Platform on Oil and Gas (CSPOG), Africa Centre for Energy Policy (ACEP), among others, have also led the charge in critically assessing the petroleum sector with a view to helping to identify and address weaknesses. They also have served as checks on the actions of state institutions, international oil companies and other stakeholders directly or indirectly in the value chain.
Local Content and Value Addition
It is rather unfortunate that, not even a barrel of the millions of barrels of oil so far produced by the Jubilee Field has been refined locally. Ghana continues to sell its oil in its crude state to be refined abroad, and spends money importing finished petroleum products for domestic use.
It was, therefore, welcoming when early this year the Tema Oil Refinery (TOR) started refining one million barrels of crude from the Tweneboah Enyerra Ntonme (TEN) field with a promise to refine between 16 – 18 million barrels in 2017 alone. The refinery’s operations had to be halted just few weeks after TOR received crude from the TEN fields, due to an explosion at the Crude Distillation Unit (CDU).
It is important to prioritise repair works at the refinery to enable it resume work early enough to take advantage of value addition opportunities that crude oil production affords. In the second quarter of 2016, Cabinet ordered the Ministry of Transport to transfer operations of the PSC Tema Shipyard and Dry Dock Company to the Ghana Ports and Harbours Authority (GPHA). It was the hope of government that the Shipyard would attract the needed resources in the long term, to venture into the building of Floating, Production, Storage and Offloading (FPSO) vessels for the oil and gas industry even as it continues to provide services to the ports and harbours and related sectors in the short to medium term. The Tema Shipyard, one of the largest in Africa, has the capacity to do ship repairs and refurbishment, dry-docking, shipbuilding, steel fabrication, and general engineering. Just as South Korea and Japan are leading Asia with sophisticated shipyards, Ghana can also lead Africa, with the necessary and adequate capital investment. The attendant benefits, beyond job creation, are enormous. Transparency in the award of contracts and licenses CSOs have raised concerns over the somewhat opaque nature of the award of contracts and granting of licenses to companies operating in the petroleum sector. According to them, allocation of oil blocks are not competitive enough but rather reduced to a ‘first come, first served’ basis. This, they believe, creates opportunities for rent seeking, fronting and other corrupt practices on the part of politicians and other public officials. Concerns have also been raised about the manner in which some oil contracts are rushed through parliament under ‘certificate of urgency’. This is however about to change, following the passage of the Petroleum Exploration and Production (E&P) Bill into law in August 2016. The new law provides for open and competitive bidding and contract disclosure. The E & P law also includes provisions for Beneficial Ownership Disclosure (BOD) where information on the actual owners of contracting companies is made public. There are however concerns about the lack of conflict of interest provisions in the E & P Act for public office holders, which have been taken care of in other jurisdictions. Gas for Energy and Agriculture The Construction of the Atuabo Gas Processing Plant in the Western Region, operated by the Ghana National Gas Company was a strategic investment to cash in on natural gas from the Jubilee Fields, to power thermal plants in order to satisfy the energy needs of the country. The plant is also said to be producing about 70 per cent of the national requirement of Liquefied Petroleum Gas (LPG). The US$ 1billion Atuabo plant is currently unable to deliver gas to the eastern corridor (the Tema industrial enclave), which lies some 220 miles away from Atuabo. Ghana Gas Company has, however, this month, sealed a deal with Chinese multinational company Yantai Jereh Group for the construction of a 278 km onshore natural gas pipeline from Aboadze to the Tema power enclave under a Build, Operate, and Transfer (BOT) arrangement spread over 15 years. Ghana has the potential of producing more gas with the coming on stream of TEN and the development of other hydrocarbon potentials in the future. This makes it fertile for setting up of factories to produce fertilizers for domestic use and also for export. Such a move will establish a mutually beneficial interface between agriculture and petroleum, with a high chance of unleashing the revolutionizing capacities the two sectors. Fishy Treatment of the Environment A paper prepared by the Civil Society Platform on Oil and Gas in July 2016, titled: “Status of Oil and Gas Governance in Ghana,” states among other issues the need to protect aquatic fauna and flora in the context of hydrocarbon extraction. It observes under the heading ‘Environment and Social Issues’ that: “ EPA has no research vessel to facilitate independent data collection; no records of whale beaching in Ghana; criteria for choosing communities for social consultations not open; quantitative weightings not given to impact assessment, making views and assumptions subjective; no detailed assessment of fugitive emissions; assessment of uncertainty impacts are inadequate and need to be improved; fishing area excluded considered small 2.355 km2 = 0.001% of Ghana EEZ). The small area, the report said, may harbour very important species to fishermen. It is apparent that the issue of fisheries impact assessment has so far been trivialized in the Jubilee and TEN project ESIAs and that the requirement of a separate Fisheries Impact Assessment has not been complied with. The Jubilee Partners have excused themselves from complying with the provision on the grounds that their ESIA took account of the requirement of the Fisheries Act and for that matter integrated an assessment of fisheries impact into the study. But, the Civil Society Platform on Oil and Gas says in a protest letter it filed with the IFC board of directors, that, “The ESIA which was undertaken by Jubilee Partners was flawed in many respects and would not have passed in any country which is serious about its environment”. The group adds that, “If a proper Fisheries Impact Assessment had been undertaken it would have been possible to explain the unusual high incidence of recorded whale deaths along the coast of Ghana” (CSPOG, 2009). According to CSPOG, only ENI, the Italian oil giant, has so far taken steps to comply with the Fisheries Act of 2002, Act 625 by opting to undertake a separate Fisheries Impact Assessment for its project area. Conclusion Even though one can point to material lapses in the way Ghana has managed its petroleum industry so far, there is no doubt that the country has made remarkable improvement on its performance in the mineral sector. Provisions in law, which promote transparency, accountability, and trust between duty-bearers in Ghana’s petroleum sector and citizens, are in conformity with international best practices and the tenets of the Africa Mining Vision, which all AU-member states are enjoined to comply with, as part of efforts to reverse the resource curse syndrome that has plagued many of them. CSOs and citizens are doing their bit to improve resource governance, but they will require the support of both the state and development partners to step up their game. The capacity of groups and individuals in the social accountability sphere will need to be built and deployed to analyse sector reports, and to check possible abuses and grave errors of judgment on the part of public officials.
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