Government prepares to battle the “oil curse”

Two oil exploration companies recently said the discovery of an estimated three billion barrels of oil is set to propel the country into the league of the big African oil producers when production starts in 2010.

Some 18.2 percent of Ghana’s 22 million people are deemed “extremely poor” by the UN as they live on less than a dollar a day, struggling to access basic social services like health, water and education.

The potential for the oil finds to transform the economy and the lives of the poorest people is manifold.

Ghana’s officials, however, say they are concerned that the oil discovery is “perhaps the greatest managerial challenge” facing the West African country in the 51 years since it gained independence.

“At this point we acknowledge that we lack the know-how to manage this enormous resource but we are blessed with the experience of others,” said Francis Ackah, engineering manager of the Ghana National Petroleum Company (GNPC), the agency which oversees the country’s petroleum resources.

In March 2008 Ghanaian President John Kufuor, speaking at an extractive industries forum, warned that “instead of being a blessing, oil sometimes proves the undoing of many… nations who come by this precious commodity”.

Avoiding the Nigeria scenario

Oil revenues in countries like Angola, Chad, Cameroon, and Equatorial Guinea have not translated into a significant improvement in basic living standards for many of the poorest people in those countries. Nigeria is the largest oil exporter in Africa, producing 2.5 million barrels per day, but between 2004 and 2005, it dropped seven places on the UN human development index, from 151 to 158 out of 177 countries monitored. Over 70 percent of Nigeria’s 130 million inhabitants survive on less than a dollar a day, according to the UN, even though world oil prices have soared. The oil-rich south is plagued by protracted unrest as local communities demand a share of the revenue. This situation is what Ghanaian officials say they are keen to avoid.

Money starts flowing

The first major discovery that hinted at the riches under Ghana’s coastline was announced in June 2007. A second major find was confirmed in February 2008. Both discoveries were 65km off the coastal town of Effasu.

The government is aiming to produce 100,000 barrels per day in early 2010. Output is expected to reach 200,000 barrels in five years, when Ghana would be the seventh largest oil producer in Africa.

The GNPC estimates revenue levels of almost US$3 million per day, or some US$1.6 billion per year. Ghana’s current gross domestic product (GDP) is US$31.23 billion and per capita income is US$1,400.

The money has already started flowing. On 1 April US-Canadian company Tullow Oil, one of the exploration groups, declared payment of tax liabilities of US$2.3 million to the government.

Transparency

Farouk Al-Kasim, an oil resource management consultant from Norway who is in Ghana to assist in capacity building, told IRIN the biggest challenge the Ghanaian government faces is ensuring transparency from the outset and avoiding corruption.

To achieve this, the country must first review its legal framework, specifically the Petroleum Exploration and Production Law passed in 1984, Al-Kasim said.

Accusations are already flying that transparency is not working as it should.

“We need to keep an eagle eye on the contracts we are signing with the oil companies,” said the Executive Secretary of Transparency International’s local chapter, Vitus Azim.

He said the current agreement-signing processes with the oil companies had been “less than desirable” and that if civil society and local communities were not allowed to monitor the deals from the outset it “could spell disaster”.

Ghana has consistently scored averagely on the Transparency International corruption perceptions index. In 2007 it was ranked 69 out of 180 countries surveyed worldwide.

Kojo Kwarteng, a spokesperson for the government, dismissed the concerns. He told IRIN the government was currently most concerned about making sure it could independently verify the profits oil companies were making so it could make sure it was getting its cut.

Under existing law, companies involved in the exploration and production of oil will pay royalties to the government of 5 percent, as well as interest, and income tax of 35 percent.

“What we need is clear guidelines backed by law to make sure we are not shortchanged,” Kwarteng told IRIN.

The “Norway model”

GNPC official Francis Ackah said the government’s longer-term plan was to adopt the so-called “Norway model” of resource allocation, a revenue management scheme employed in Norway, the world’s third largest oil exporter.

Norway in 1990 set up the Petroleum Fund of Norway. Run by the central bank, the fund converts oil revenues into stocks and bonds. The fund then hires external managers to invest the assets. Finally, the money is allocated to social services like roads, schools, houses, and health centres, and is given out as loans to small-scale businesses.

Steve Manteaw of the Ghanaian non-governmental organisation ISODEC said Ghana is “not developed enough” to employ this model and cannot afford to put money away in a fund when it has so many immediate needs.

“We must develop a ‘Ghanaian model’ that will factor in our peculiarity, but incorporating all best practices across the world,” he said.

Transparency International’s local chapter, however, believes the “Norway model” is the best for Ghana “because of its core principles of transparency and independence in oil revenue management”, said Transparency International’s Azim.

Communities

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As civil society and the government haggle over oversight at the top level, community leaders have made it clear they are not going to remain silent.

“We will not sit down for the wealth to elude us, we are ready to fight for what rightfully belongs to us,” warned Asagyefo Ogyeahohoo, the traditional chief of one of the communities whose shores will soon play host to oil exploration activities.

“The battle has just begun,” he promised.

The Ghanaian government has already barred these communities from fishing around areas where oil exploration is under way; a move some of the community representatives say threatens their livelihoods.

Manteaw of ISODEC said: “Dialoguing with the communities to agree on a formula for distributing the oil wealth is a right the communities cannot be denied.”

Drawing on the experience of Nigeria, he told IRIN that excluding local communities in the decision-making process would “breed mistrust that could trigger the sort of conflict witnessed in Nigeria’s Delta region”.

Some civil society groups have even called for the country’s Human Rights Commission to be involved - to check that any promises made by government to the communities are honoured.

Manteaw noted that according to the Extractive Industries Transparency Initiative, “after 100 years of mining gold in this country there is little to show [for it] in these communities.”

For him, promises by government to share out the gold wealth fairly with local communities have been nothing more than empty. Much of this he attributes to corruption.

Government spokesperson Kwarteng said critics should keep an open mind. “We are committed to doing things differently now; the lessons are being learnt; we hope our actions so far will be a testament to our resolve to make this enormous resource benefit the people,” he said. 

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