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Finding Oil

In light of its recent oil discovery, Ghana has taken several precautions in an effort to evade the resource trap into which many African nations have fallen. The first oil discovery in Ghana dates back to 2007, and extraction first began three years later in early 2010. Much has been done since to regulate the growing oil sector, but much remains to be done to reap the greatest benefits and establish responsible practices.

Over the past decades, Ghana supported little domestic oil extraction and relied heavily on imports from Nigeria, where oil extraction  led to the collapse of other industries and heavy corruption. Learning from these experiences, Ghana is actively taking measures to sidestep the resource curse, and emerge from the oil riches as a further democratic and more developed nation. Ghana displays high chances of oil success, with its large industries and it being viewed as a model nation in West Africa in terms of democratic practice.

To ensure that oil revenues benefit the people in the best way, the government has facilitated the establishment of the Stabilization and Heritage Funds, the former serving to bolster the country in times of economic fluctuations, and the latter providing a fund for future generations if oil reserves run out. Remaining revenues are designated for public programs and further development of the oil sector in order to keep up with rising production levels.

As one of only four West African countries with an oil refinery, Ghana has the infrastructure and institutions in place to support the growing oil industry. The Ghana National Petroleum Company (GNPC) remains at the helm of oil operations after the discovery, and has taken an expanded role in increasing domestic production and refining. The activities of the oil sector were previously reported solely to the Ministry of Finance, but increased production has necessitated a stronger policing body that can ensure accountability.

In anticipation of the expanding corporate power of the firm and increased revenue flows, the Ghanaian government has set in place a regulatory committee to ensure more efficient revenue allocation from the expanding oil sector. The Public Initiative Accountability Committee (PIAC) is tasked with overseeing the proceedings of all players involved in oil extraction and processing. The PIAC collects reports from all players, and compiles a comprehensive report in which these findings are analyzed and recommendations are made.

The Commission has highlighted that the target revenue was met by a shortfall of around USD 300 million, caused mainly by the non-payment of taxes, as GNPC did not declare taxable profits. Furthermore, 47% of the total revenues in 2011 were allocated to GNPC, which was the only factor at the closing of the term that attained its target revenue levels. Allocation to the Heritage Fund and Stabilization Fund, as well as the allocation of funds for public projects, fell below target levels.

The PIAC justifies that GNPC must receive all target funds in order to pay construction costs and expand the oil sector. Nonetheless, the Committee highlights that the oil company has not yet submitted a report underlining what it is doing with the oil revenues; hence, while the GNPC is given substantial freedom, the company must submit an annual budget to be approved by parliament before making any expenditure, and this has yet to be done.

The PIAC further highlights the importance of the immediate creation of a long-term development strategy from oil revenues. So far, no plan has been passed, and all projects have been carried out by independent organizations, making it difficult to coordinate the development effort. Stronger yet is the call for funding for the committee itself. Although mandated by the government, the Committee has not received any government funding. Current efforts are supported by the Revenue Watch Institute and the German GIZ.

Thus without sufficient funding, the Committee´s efforts are hampered and accountability remains clouded. Although efforts to establish a Public Forum to spark dialogue among citizens have been shelved until further funding can be sourced, many Ghanaians are already talking about the issue and are calling for more regulation. They are demanding improvements in their cities, and not just on paper. It is up to the country’s leaders to take responsibility and keep the country on the right path and by doing so Ghana will most certainly benefit from its oil discoveries in the future.

 

 – Valerie Weber

 

 

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2 comments

  1. Very interesting, well-written and informative article! It’ll be interesting to see where Ghana’s oil takes it in the next decade. I hope Ghanaian politicians/policymakers have truly learned from the Nigerian experience and will neither let corruption become the order of the day nor condone environmental pollution and exploitation on the part of the oil companies at the expense of community development.

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