Thursday, December 16, 2010

How does Ghana avoid the oil curse?

Ghana begins drilling for oil today. An oil field called Jubilee should produce 120,000 barrels a day for the next 20 years.

We have seen oil be a curse more so than a blessing in other parts of Africa. Bad governance has sucked all of the oil revenues away into a few corrupt pockets instead of being used to bless the people. The country of Ghana is often held up as a good example of governance by the western world. So how does Ghana avoid from falling into the same curse?

We have two different perspectives on this topic. First the website The Africa Report has an exhaustive study on the Ghana oil. One sidebar to the study concentrates on the how to avoid the oil curse.

This time it must be different. That is the oft-heard demand from 
activists, politicians and business-people when discussing oil’s potential in Ghana. The discovery of the Jubilee field – with about 1.8bn barrels – is different from its African counterparts. It is the first time substantial amounts of oil and
gas have been found in one of Africa’s established democracies.

Estimates on the quantum of Ghana’s oil wealth vary hugely. The common starting point is that Jubilee will produce about 120,000 barrels per day and some $1.2bn in government revenue a year for 20 years. The adjacent Tweneboa field is reckoned to be as big as Jubilee’s, but industry experts forecast the biggest finds will be onshore in the Keta basin. With companies like Exxon Mobil, BP, ENI and Sinopec
vying to buy equity in the Jubilee field, the assumption is that Ghana has several billion barrels of reserves. 

A key imperative, according to the World Bank’s Sébastien Dessus, is revenue transparency. That means signing up to full disclosure under the Extractive Industries Transparency Initiative and working with civil society groups on the analysis of contracts and the monitoring of environmental impact. Then there are the corrosive effects of revenue accruing to an over-centralised government. Worst of all is the ‘Dutch disease’, under which the currency appreciates as oil revenues flow. Bank of Ghana Governor Kwesi Bekoe Amissah-Arthur says he is determined to hold down the value of the cedi against the US dollar to maintain the
competitiveness of exports.

Next, this Oxfam press release points to the lack of transparency that they already find in Ghana's oil production.

On Wednesday, December 15, Ghana will celebrate the start of oil production at the major offshore “Jubilee” field, kicking off an oil boom expected to bring billions of dollars into the country. As Ghana prepares to “turn on the tap” with an elaborate inauguration ceremony, international humanitarian organization Oxfam America urges the government to quickly address large gaps in the legal framework needed to make the most of the billions in government revenue Ghana will receive from the sector.

“The start of oil production represents an important opportunity for Ghana. However, we are concerned that three-and-a- half years after discovery of the Jubilee field, there is still no oil revenue management law in place and no independent regulator established for the sector. Ghana has an enviable recent track record of progress on fighting poverty and improving democratic accountability, but the sudden onset of oil wealth often comes at the expense of good governance and effective development. Ghana’s challenge as an ‘oil hot spot’ will be to manage this industry with transparent and accountable policies and practices, so the people of Ghana can truly benefit over the long term,” said Ian Gary, Oxfam America’s Senior Policy Manager for Extractive Industries and author of the Oxfam report, Ghana’s Big Test: Oil’s Challenge to Democratic Accountability.

By early 2011, estimates are that Ghana will be producing approximately 120,000 barrels of oil per day. The Jubilee field has 500 million barrels of proven reserves and a potential for over 1 billion barrels. The production rate is expected to supply more than $400 million to the government’s 2011 budget and around $1 billion per year into the country in the early years. Promising indications from adjacent exploration oil wells could mean even higher levels of production and reviews in the next few years.

The Ghanaian government must establish a legal framework that ensures transparent publication of oil payments received, open and competitive contract bidding and contract disclosure, and active monitoring and participation by civil society. While there have been some positive signs – Ghanaian President John Atta Mills promised disclosure of oil contracts in March 2009 and a petroleum revenue management bill tabled in the Ghanaian Parliament in July contained important transparency and safeguard provisions – with first oil right around the corner, the necessary laws and systems have not been put in place. Despite government commitments, oil contracts remain unavailable to the public.

“The Ghanaian Parliament is currently debating an oil revenue bill, and important provisions – such as a prohibition against using oil revenue as collateral for loans – have already been stripped out of the bill. A Petroleum Exploration and Production Bill, which had numerous weaknesses, has been shelved. Celebrations of first oil are clouded by the fact that the government has yet to establish an independent regulator since the Jubilee discovery was announced in 2007,” said Richard Hato-Kuevor, Oxfam America’s Extractive Industries Advocacy Officer in Accra, Ghana. “These oil laws involve national questions that require national consensus. There is simply too much at stake for Ghana to adopt inadequate laws to manage this massive industry.”

The removal of a ban on using future oil revenues as collateral for loans is particularly worrying. Many oil producers around the world – such as Nigeria, Angola and Congo-Brazzaville – have gone deep into debt due to unsustainable oil-backed borrowing. Such loans, with steep interest rates and short repayment terms, are often taken out in secret with little or no parliamentary or public scrutiny. Recent press reports have noted that the state oil company, the Ghana National Petroleum Corporation, is working with Deutsche Bank and other private banks to secure a $500 million loan. The terms and purpose of the loan are not clear.

Ghana is one of the most peaceful and relatively prosperous countries in West Africa but remains poor with the majority of Ghanaians living on less than $2 a day. While poverty needs are pressing, stabilization and savings funds must be established and funded to avoid the price shocks and wasteful spending in the early years of an oil boom, which have bedeviled other countries.

Historically, the exploitation of natural resources in Africa has far too often led to increased poverty and conflict, a phenomenon often referred to as “resource curse.” In 2009, Africa produced 13 percent of the world’s oil with great investment and exploration throughout the continent, but this has yet to translate into tangible benefits for Africa’s poor. In fact, resource-rich countries in Africa have actually experienced lower growth rates than countries with scarce resources.

“Oil wealth threatens the growing democratic accountability that has been built in Ghana’s recent history,” said Mohammed Amin Adam, convener of Ghana’s Civil Society Platform on Oil and Gas. “This industry presents very real risks to Ghana’s fragile economy, including incurring too much debt through oil-backed loans. We as Ghanaians need to see December 15th as a day to wake up to these challenges and hold our government accountable for the management of this enormous opportunity for the country.”

In March 2011, Oxfam will publish a “Readiness Report Card” analyzing Ghana’s efforts to prepare its oil boom.

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