Joe Amoako-Tuffour ([email protected]) St. Francis Xavier University, Antigonish, Nova...

Joe Amoako-Tuffour([email protected])

St. Francis Xavier University, Antigonish, Nova Scotia, Canada

&African Centre for Economic Transformation

Accra, Ghana

Managing Natural Resource Revenue- The Case of Ghana

27-28 February, 2013Maputo-Mozambique

Dividing The Oil & Gas Cake

2Dr. Joe Amoako-Tuffour Oil & Gas Revenue Mgmt

04/19/23

Compliments of Revenue Watch Institute

OUTLINE

1: Ghana’s Natural Resources Facts

2: Why Ghana’s Petroleum Revenue Mgmt Law?

3: Some Challenges & Guiding Principles in preparation of the Law

4: Public Participation and Public Preferences in the Making of the Law

5: Key Features of the Legislation

6: Is Act 815 a law for the sake having it? –Reporting, Governance, Auditing, and Public Oversight

7: Lessons and Challenges 2-years on

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1. Ghana’s Commodity Endowment

Leading Exports Minerals (Gold, Manganese) Cocoa,

Timber

• Cocoa – 2nd largest producer. – 34% of exports• Gold – Among top 10 exporters in the world, – 2nd exporter in Africa (after SA)• Minerals: 55% of total exports, 13% of GDP• Lumber - 9% of exports, nearly 8% of GDP

• Oil and Gas (about 4-5% of GDP: 2011-13)• Oil Revenues (about 13%-20% of Total Revenue:

2011-2013)404/19/23

Joe Amoako-Tuffour Oil & Gas Revenue Mgmt

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1. Western Basin 2. Central Basin

3. Eastern Basin

4. Voltaian Basin

2. Petroleum: Facts and Figures• Fast track Development since July 2007• Reserves (Jubilee Field Development)

– 800 Million Barrels of Oil – Upside of about 3.0 Billion barrels (MoE, Ghana Energy

Policy, 2010).

– 36.5OAPI Sweet Crude (Light, (Brent –WTI)– Gas potential (Associated & Non-Associated)– Phase 1 (120,000 bopd), Phase 2 (250,000 bopd)

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Revenue Mgmt

How Much Revenues Should We Expect?

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Oil & Gas Revenue Mgmt7

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2. Why Ghana’s Petroleum Revenue Management Law?

4 Reasonsa) Lessons from International Practicesb) Production Profile and Resource Depletion: 2011-2025c) Lessons from Natural Resource Revenue Managementd) Protect petroleum revenues from predatory expenditure earmarking

c. Provisional Production Profile & Depletion Rate of Petroleum

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c) Lessons from Managing Resources Revenues


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• No active or strategic approach to the use of mineral resources • No fiscal guidelines.• No clear cut administrative process on how to assess, how to

collect and how to account for the revenues.

Results: • Budget execution & fiscal policy mgmt. vulnerable to

commodity price fluctuations.• Poor accountability and lack of transparency• No strategic savings from natural resource revenues –cocoa,

timber & minerals• No considerations for inter-generational equity.

d) Protection from predatory statutory expenditure earmarking (e.g DACF).

3. The Making of the Law

3.1 Six Challenges in the Design of Resource Revenue Management Framework3.2 Five Guiding Principles3.3 Ten Fundamental Questions3.4 Public Participation & Role of Parliament

3.1 The 6 Challenges in the Design of Revenue Management

1) Assessment, Collection and Accounting Challenge2) Inter-temporal Spending-Saving Challenge3) Budget Allocation Challenge

4) Savings Management Challenge

5) Accountability, Transparency Challenge6) Social Expectations Challenge


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1) Petroleum revenue shall be integrated into the budget process.

2) Ensure additional revenue to support the development budget.

3) Establish fiscal guidelines - minimize potential negative effects on the management of the economy in general, and on public spending in particular.

4) Provide savings for future generations.5) Maximize transparency and accountability in the

collection, management and use of petroleum revenue.


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3.2 The Guiding Principles

3.3 The Ten Questions1. Who should assess and

collect the revenues?

2. Should petroleum revenues be treated as part of general revenues?

3. How much of the revenues should be spent now?

4. What should be the spending priorities?

5. Should Ghana establish savings fund(s)?

6. Who should manage the fund(s), and how?

7. Who may authorize withdrawals from the fund(s)?

8. How do we ensure transparency and accountability?

9. How do we ensure adequate public oversight?

10. What safeguards may be needed to protect the revenues from abuses?


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3.4 Public Participation and the Making of the Law

• Desk Research & Country Visits. • Nation-wide Town-Hall Consultations• Local media• Nation-wide Survey Questionnaire • Draft proposal of key issues posted online • Colloquium of academics, UNICEF forum for school

children. • High-Level Institutional Consultations – Council of State, Bank

of Ghana, President’s Economic Advisory Council, Individual Gov’t Agencies, IMF. World Bank, Revenue Watch, NORAD, Commonwealth Secretariat, DFID, GIZ, DANIDA, & NGOs


Revenue Mgmt

4. THE GHANA PETROLEUM REVENUE

MANAGEMENT LAW


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4. Schematic Outline of Petroleum Revenue Management Bill

1. Quantity Assessment Committee

Calibration & Measurement of oil

and gas obtained

GNPCRegulator

GRA

3. Actual Revenue Collection: Apply Fiscal Regime to assess royalties, relevant interest, applicable taxes and AOE : GRA GNPC, MOE, MoFEP

Petroleum Account

GRA BoG

Determine Annual Budget Funding Amount (ABFA) = a percent of the BR

Percent is set: (50% -70%)

GHANA PETROLEUM FUNDS: Ghana Heritage Fund

Ghana Stabilization Fund

4. Annually Determine (a) Forecast price

and Quantity of Gov’t Take

(b) Determine Benchmark Revenue (BR)

Oil & gas Rev.

2. Pricing Formula or Guideline for tax purposes

6.

Saving (SAV) = Actual Revenue - ABFA

Triggers for Expenditure smoothen - transfer from Stabilization Fund into Consolidated Fund for current spending.

Budget

7.

8. Processes and Institutions

Saving and Withdrawal rules

Investment Policy, Strategy & Mgmt Guidelines

Accounting and Transparency Guidelines

Auditing

Reporting Guidelines

• Budget Funding

•Ghana Heritage Fund

•Ghana Stabilization Fund

5

Collecting Petroleum Receipts


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Royalties (oil & gas) plus AOE

Carried and Participating

Interest: Net revenue inflow from equity less NOC’s share

Corporate Income tax

Actual Petroleum Revenues into PHF

NOC’s Dividend

Other Revenues


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Institutions Involved in Revenue Management

• Parliament• Ministry of Finance & Economic Planning• Ghana Revenue Authority• Ghana National Petroleum Cooperation• Auditor-General• Investment Advisory Committee• Public Interest and Accountability

Committee


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Savings-Withdrawal Model

Allocation of $1 of Revenue

Allocation during production period (T*)

$0.70 Allocation to BudgetABFA

$1 $0.09 GHF

$0.30Savings

$0.21GSF

GSF*

• Allocation after production period (t > T*)

• ABFA <= Dividends + real return on GPWF

• GPWF = GHF + GST(at T*)


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Active production period t< T* No more production, Depletion

MANAGING THE SAVINGS

Parliament of Ghana

Ministry of Finance & Economic

Planning

Bank of Ghana

Investment Advisory C’ttee

Operations Mgmt of Funds

Oversees Investment Mgmt

Via Investment Managers

Advisory services to Minister

Oversight functions23


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Structure of Delegation of Responsibility

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PIAC

IAC

DELEGATION OF DUTIES

REPORTING


5. KEY FEATURES (1/3)

1. Establishes the procedural, accountable and transparent mechanisms from assessment and collection of revenue to final use and management of savings;

2. Sets fiscal guidelines to determine the how much of the petroleum revenues may be spent through the budget and on how to allocate the savings.

3.Captures the desire of Ghanaians to save and the objection to direct revenue distribution.


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(……2/3)4. Establishes the Heritage Fund (HF) and the

Stabilization Fund (SF) and allocates savings between them in a way that puts immediate emphasis on the need to ensure smooth and effective budget implementation.

5. Makes provisions for withdrawals from the SF to support budget implementation in the event of unanticipated shortfall in petroleum revenues. But places ceilings on the amount that can be withdrawn.

6. Places limitations on borrowing against petroleum revenues and savings.

7. Seeks to ensure and secure the efficient planning and proper execution and management of the national budget in the face of optimum petroleum revenue inflows;


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(…. 3/3)8. Makes great effort to respond to the

needs for accountability and transparency.

9. Provides clear auditing, transparent and reporting mechanisms to safeguard the management of petroleum revenues;


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6. Is Act 815 a Law for the sake of Having a Law?

• Preventing Political Conflict– Inconclusive 2012 electoral

outcome

• Efficiency Macro Mgmt– Deteriorating budget

balances – Unprecedented fiscal overrun

in peacetime (12% against target of 6%)

– Fitch Downgrade – Rising Public Debt

• Efficient Revenue Mgmt and Compliance– Institutional Coordination

between GRA, MoFEP, GNPC

– The technical capabilities of GRA & MoFEP

– Overestimation of BR (ABFA) – limiting transfers to savings

• Transparency and Accountability Challenges– Inconsistent reporting– Limiting public oversight (PIAC)


Revenue Mgmt

7. Fine Law Embedded in Deep Seated Challenges in Budgetary Process and Public Financial Management

• Comprehensiveness of Budget and alignment with MTEP and National Development Plan

• Weak public financial mgmt.• Weak budgetary processes• Persistence of off-Budget Expenditures• Mgmt of public sector wage bill• Subsidies

Is the law sufficient safeguard against weak economic governance?

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Finally,

• Financing of the NOC • Fiscal risks and the oversight• Political patronage & the NOC as

quasi-fiscal institution

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• Policy borrowing, learning, and diffusion of best practices are common in developing policy.

• Samuel Asfaha (2007):• Each country should undertake its

own assessment and come up with the model that best reflects public preferences, cultural forces that shape public policy and fit the country’s political economic reality.

04/19/23

THANK YOU

Joe Amoako-Tuffour ([email protected]) St. Francis Xavier University, Antigonish, Nova...

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