Elections and Oil—Ghana’s Choice
Ghana’s next government must focus on completing the job of constructing a transparent and accountable system for managing the oil and gas sector.December 3rd, 2012 | by Ian Gary
Ghanaians go to the polls for presidential and parliamentary elections this Friday and political observers and polls both indicate an extremely tight contest between the ruling National Democratic Congress (NDC) and the opposition New Patriotic Party (NPP).
These two main parties have profound differences when it comes to managing the oil sector and spending revenues. In an African nation that stands out by having five democratic elections in a row, including two peaceful transfers of power between parties, this election also stands out as the first where control of oil revenues is an important political “prize”.
Ghana’s “world class” Jubilee field started producing oil in late 2010 with great fanfare—so far, though, production results have been disappointing and revenues have been well under the $1 billion a year predicted. Ghana’s oil boom comes with big challenges to Ghana’s democratic development and in many countries oil has fueled increased conflict, corruption, and authoritarianism.
Ghana has made progress putting a transparent system for managing oil revenues in place.
The passage of 2011’s Petroleum Revenue Management Act mandated the establishment of the Public Interest and Accountability Committee (PIAC) which is tasked with monitoring compliance with the revenue law. All payments are disclosed by the government on a quarterly basis and the current government has taken the notable and step of disclosing many of Ghana’s petroleum agreements—a rare step in the African oil context.
Much of this progress is directly attributable to a vibrant civil society sector—including the Civil Society Platform on Oil and Gas—that has demanded policies and taken government, parliament, companies and donors to task when they haven’t delivered. The legal framework is still incomplete. A Petroleum Exploration and Production Act, Ghana Extractive Industries Transparency Initiative Act, and implementing regulations for the newly created Petroleum Commission and PIAC are still in limbo. In addition, contract disclosure is currently at the whim of the present government and not required by law.
Creating a transparent system is one thing, holding government to account quite another. It is heartening to see that when the PIAC issued its first report earlier this year noting that some payments were misdirected or not reported the government and state oil company—the GNPC—were forced to respond. Yet, the government has not provided the new accountability and regulatory institutions—the PIAC and Petroleum Commission—with the bare minimum of resources to be able to function.
How do the two main parties differ on the approach to managing Ghana’s oil boom?
First, the NDC has focused on investing oil revenues in infrastructure while the NPP believes that the country should go to the private capital markets for big ticket infrastructure items such as roads. Instead, it has campaigned on a platform of “free” secondary education for all Ghanaians with a focus on building human capital. (Both parties are likely overpromising based on the expected levels of oil revenues.)
Second, they differ on the role of the state in relation to oil production. The NDC believes that government revenues should be used to build up and capitalize the Ghana National Petroleum Corporation (GNPC) so it can eventually become an operator of oil fields and not just a passive partner. The NPP, meanwhile, would see GNPC as a joint venture partner, raising money on capital markets rather than relying on government subvention.
Third, before losing power, the NPP had favored working with Trinidad and Tobago to develop Ghana’s gas potential. The NDC has gone with a Chinese contractor, Sinopec, and is in the process of constructing gas processing infrastructure. It is unclear whether this strategy would change if the NPP gained power and whether they would re-evaluate the Sinopec contract, which has been the subject of controversy regarding whether the government was getting value for money. Yet, both parties are keen to use gas reserves to fuel a local petrochemical industry.
Ghana’s next government must focus on completing the job of constructing a transparent and accountable system for managing the oil and gas sector. Contract disclosure, competitive and transparent licensing, and disclosure of beneficial owners of oil and gas blocks should become mandatory. New institutions such as the PIAC and Petroleum Commission must have the resources, implementing regulations and political space to do their job. The Ghana Revenue Authority must have the expertise and staff to be able to properly monitor and collect oil revenues. Ghana’s budget preparation and execution system must be strengthened; including by bringing more transparency to the process (Ghana scores poorly on the Open Budget Survey). Finally, the government should respect the rights of local communities who are and will suffer the onshore and offshore impacts of Ghana’s oil boom.