Offensive ministerial discretion mars management of Ghana’s oil money – Think Tank

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Ghanaian officials have not efficiently managed revenues accruing from oil revenues during the first two years of commercial oil production, a report released on Wednesday has revealed.

Chiefly, the report chides the minister of finance and the Ghana National Petroleum Corporation (GNPC) for offensive ministerial discretion and inefficient management of funds, respectively. It also expresses disapproval for the allocation of funds to the Ghana National Gas Company (GNGC), calling it “irregular.”

Over the period, there have been widespread breaches of the Petroleum Revenue Management Act, 2011 (Act 815) and application of oil funds to projects which do not deliver value for money, according to the report titled “The two sides of Ghana – How a good oil revenue law does not stop oil revenues from going down the drain.”

The 35-page report is authored by the Africa Centre for Energy Policy (ACEP), a local think tank, with the support of Oxfam and was outdoored at a meeting with select journalists in Accra on Wednesday morning. It contains six major findings and three key recommendations derived from desk study and field case studies on the management of oil revenues received by the Ghana government in 2011 and 2012.

One of the key findings was that “Ghana is not deriving value for money from the infrastructure projects funded with oil and gas revenues as most of the projects have been delayed, operating under costly extensions and leading to cost over-runs.”

Mohammed Amin Adam, Executive Director of ACEP, who walked journalists through the report, said the Centre also found that the GNPC’s ability to manage its share of oil revenues allocated to it has come under serious doubt. He criticised the national oil company for continuing to make huge investments at the risk of low returns, citing that the Corporation’s equity share (stake) dropped from $132,484,814 in 2011 to $124,630,628 in 2012 whereas its investment portfolio rose from $75,479,488 in 2011 to $106,319,298 in 2012.

An additional finding was that in the past two years, allocation of the Annual Budget Funding Amount (the percentage of oil revenue dedicated to budget financing) to some of the expenditure items did not demonstrate significant allocation efficiency as they were allocated to areas other than social and economic priorities. Besides, “The exercise of discretion by the Minister of Finance could provide room for politically motivated project selection as was demonstrated by high political consideration for ‘equity’ at the expense of efficiency and value for money.”

Foremost on the list of recommendations was that “The exercise of discretionary power by the Minister of Finance must be curtailed” and made to conform to the provisions of Article 296 of the 1992 Constitution of Ghana. The provision requires that persons exercising discretion apart from a Judge must publish by constitutional instrument regulations to govern the exercise of those powers. ACEP, therefore, urged the Minister of Finance to comply with the provisions of the Constitution before the presentation of the 2014 Budget and Policy Statement of the Government to Parliament.

The Minister of Finance is expected to announce a new set of priority areas in the 2014 budget for oil revenue spending in accordance with Section 21 of Act 815, having first set priority areas in the 2011 budget. Under Section 21(5 & 6), the Minister is mandated to prioritise not more than four areas when submitting a programme of activities for the use of petroleum revenue to ensure the maximisation of impact. This prioritisation is to be reviewed every three years after the initial prioritisation.

Commenting before performing the official launch of the report, Ian Gary, Oxfam’s Senior Policy Manager in charge of Extractive Industries, said the report demonstrated that Ghana has a lot of work to do, and feared that the nation did not adequately heed forewarns delivered in the days leading to oil production.

He recalled, for instance, that in 2009 the Integrated Social Development Centre (ISODEC) and Oxfam (America) jointly launched the “Ghana's big test: Oil's challenge to democratic development” report and provided copious amount of caution, including stressing the need for institutions, regulations, and transparency measures to be in place in time to avoid the corrosive and corrupting effects of oil booms seen elsewhere in Africa.

Released in February 2009, the ISODEC/Oxfam document warned that “Increased public spending often feeds a patronage system rather than being effective in reducing poverty and increasing public goods.”