Thursday, May 27, 2010
INTRODUCTION
The process is underway to pass a law that will determine how we use our Oil resources. We at IMANI, AfricanLiberty.org and African Leadership Initiative) have been involved with the analysis of best options for a while.
Our review of the Proposals towards the law reveals that the provisions in the bill are likely to lead to the following here.
1. Resource Curse phenomenon, as with Nigeria
2. Dutch Disease, where other industries will be neglected and may shrink
3. Political tension with dire consequences as people try to get access to loosely guarded oil revenue
4. Agitation in the Western Region due to neglect and degradation
5. Serious dislocations in the economy
THE KEY ISSUE
We need to separate all Oil revenue from our current inflows, and treat it as a special fund for special purposes. This ensures that Governments are not slack in developing other areas of the economy and collecting taxes, which will avoid the Resource Curse and Dutch Disease.
Putting oil revenue in the consolidated fund or spending it as part of our annual budget will bring us the problems others have suffered from treating their oil revenue as another regular source of government income.
We propose that an account be set up for all oil revenues, and a body be setup, which ALONE will decide on which projects the oil revenue would be used.
We propose that all oil revenue be directed at infrastructure investments and development, because we currently have a $10 billion deficit in investment for key infrastructure such as Water, Energy, Health, Roads, Telecoms, and Schools.
Our projected revenue for the next 5 years from Oil is around $5 Billion from the Jubilee Field. We hope we will get more from Jubilee and the other fields. Whatever happens we are not likely to get $10 billion in 5 years, and we need these critical infrastructure projects badly, hence our proposal to devote all Oil revenue to that.
Investing the revenue in Infrastructural projects will soak up liquidity and prevent inflation whilst boosting national productivity and production, thus generating real growth. It will also have the effect of sequestering the revenue from the rest of our expenditures and thereby avoid the artificial rise in our currency value and the neglect of other industries (Dutch Disease).
Another effect will be that the money will not be available for misuse and corruption, we can’t prevent all corruption but this is our best shot at limiting it.
It will also not enter the consolidated fund for politicians to fight over getting access to it (which will have dire consequences for national stability and security)
THE WORRYING PARTS OF THE PROPOSED BILL
1. RESOURCE CURSE PHENOMENON
We are likely to suffer this if we implement the following parts of the bill
Section 10: Allocations and Disbursements from the Ghana Petroleum Account
6) (a) Transfer from the Ghana Petroleum Account to the Consolidated Fund for budget funding shall be in quarterly installment of one-quarter of the Annual Budget Funding Amount, or as the Minister may recommend.
(b) The total amount debited from the Ghana Petroleum Account for any fiscal year shall not exceed the appropriation amount approved by Parliament for that fiscal year in accordance with subsections (4) and (5).
Section 11: Use of the Annual Budget Funding Amount
1) All use of petroleum revenue whether directly from the Ghana Petroleum Account or from the Ghana Petroleum Funds shall be part of the national budget and shall be subject to the same budgetary processes and mechanisms that are necessary to ensure efficient monitoring of such use.
3) Should a national development plan not be in place, the allocation within the budget should give priority to:
A. The strengthening of the state’s institutional capacity in governance, maintaining law and order, and enhancing public safety and security as approved by parliament;
B. Agriculture and agro-business
C. Human resource development – education, health,
D. Infrastructure (roads, rail, water and sanitation)
E. Rural development,
F. Alternative energy sources,
G. Forest management and protection of water bodies.
These “projects” are ill defined and in our history we have tended to have the most corruption waste and mismanagement applying money to these areas. These are the same areas Aid money has failed to deal with.
2. SAVINGS ABROAD
IV Central Features of the Proposal
10. (ii) Ghana Petroleum Funds intended as savings funds for two purposes: in the short run to smoothen government spending, and in the long run to preserve part of the value of the oil capital while living on the interest.
iii. It is proposed that
• All withdrawals from the collection account shall be guided by rules and guidelines and shall be integrated into the national budget.
• All transfers from the collection account shall go either into the
Consolidated Fund to support the budget or into Ghana Petroleum Fund(s) for savings.
• What is set aside as savings, if any, in the Ghana Petroleum Funds shall be prudently managed by investing in specific low-risk securities abroad, with allowance for Domestic Strategic Investments on commercial basis, and by having an investment board to provide oversight on how the funds are invested.
We believe these will be counter productive,
Savings will yield interest over time; interest rates are very low especially abroad. Investing in infrastructure will have a multiplier effect on the economy and the net gain will be higher than savings interest
Intergenerational equity
It is better to leave our children good education and health, better roads and telecoms, than to leave them raw dollars, worse still, our neglect of these areas (as we save the money) will lead to loss of life which will be avoided if we give people health and education now.
3. DUTCH DISEASE, WHERE OTHER INDUSTRIES WILL BE NEGLECTED AND MAY SHRINK
Section 13: The Ghana Petroleum Funds: Ghana Stabilization Fund and Ghana Heritage Fund
(2) The objectives of the Funds are to:
(a) Cushion the economy from the impact of unanticipated petroleum revenue shocks, and safeguard macroeconomic stability.
(b) Cushion the impact on or sustain public expenditure capacity during periods of revenue shortfalls whether caused by a fall in prices of crude oil or natural gas, or through production changes.
(c) Generate alternate stream of income to support public expenditure.
(d) Provide a heritage, through the Ghana Heritage Fund for future generations of Ghanaians from savings and investment income derived from petroleum revenue.
Here it is proposed that we spend the Oil revenue, to “cushion the economy from revenue shocks and safeguard macro economic stability”, In other words use it as a buffer for masking failed economic policies and breed laziness in the management of our economy by promising money to fill the gaps. This will be the start of all the problems.
4. POLITICAL CONTROL AND INCREASED POLITICAL TENSION WITH DIRE CONSEQUENCES AS PEOPLE DO ANYTHING TO GET ACCESS TO THE LOOSELY GUARDED OIL REVENUE
Spending Decisions
Most of the public oversight should come through existing structures of Parliament, Finance and Public Accounts Committees. It is proposed that if their capacities are in doubt, then public oversight can be strengthened by setting up an independent Public Oversight Committee (POC) with the appropriate oversight of Parliament. The composition of the POC will be structured to ensure competence and public legitimacy.
In addition,
• It is proposed that key spending and saving decision parameters not be left to the discretion of government on year-to-year basis, but rather come up for review periodically to accommodate changing circumstances and development needs.
• The law does not make recommendations for cash distribution of revenues to individuals or any fixed percentage payments to regions outside of existing mechanisms of resource transfers within the context of the national budget.
However, there may be a case for:
i. Specific mitigating regional or community interventions as deemed appropriate and necessary.
ii. Strengthening fiscal decentralization and devolving some spending decisions to local governments in order to better address specific social and demographic needs, as in education, health, housing, water and sanitation, transportation and public safety.
In any event, any such additional boost in spending through the District Assembly Common Fund (DACF) or through periodic budgetary allocations, say specific or block grants, should be accompanied by clearly defined spending and accountability guidelines. We recommend the use of block grants rather than changes to the DACF allocation.
Board
(1) The President on the advice of the Minister shall appoint the Investment Advisory Board for the Ghana Petroleum Funds.
(2) The Board shall comprise of five (5) members, to be selected from among persons of proven competence in matters of finance, investment, economics, business management or law, including a senior officer of.—
(a) the Central Bank; and
(b) the Ministry responsible for finance and/or economic planning
(3) At least one of the officers shall be a female.
(4) The President shall appoint a member to be the Chairman of the Board on the advice of the
Minister and the Governor
(5) Members of the Board shall be appointed for a term of two or three years staggered, shall be eligible for reappointment for no more than 2 consecutive terms, and shall have security of tenure for their term subject to the provisions of section 28(8) of this Act.
(6) In addition to the competencies mentioned in subsection (2), each member shall be required to satisfy the criteria for a fit and proper person contemplated in the Banking Act, 2007 Amended.
(7) The members of the Board shall be paid such allowances as shall be determined by the Minister and approved by Parliament.
These provisions virtually give all the control to politicians who will clearly use it to their best political advantage. That is likely to increase tension because it will inevitably be used to consolidate power, and create the problems mentioned in the first law of petropolitics (attached)
5. AGITATION IN THE WESTERN REGION, FEARS OF NEGLECT AND DEGRADATION
There is no specific provision for taking care of the sources of the Oil, (investing in those areas specifically). This in addition to the problems we anticipate will lead to serious problems in the Western Region, which produces the bulk of our national primary resources.
Expectations there are high, the youth there are mostly uneducated and under-employed, the elders there have witnessed a lifetime of extraction without equitable development. It seems we already have a lethal mix; we shouldn’t ignite it with more insensitivity to the western region.
6. PUBLIC OVERSIGHT COMMITTEE (POC)
A POC is proposed, we have compared this proposal to the earlier one made of an OIL REVENUES COMMISSION, (see attached document). It is our view that the POC here suggested is likely to be ineffective. it is controlled largely by Politicians, Governments in power will manipulate it.
Our Proposal is to have a body or regional representative similar to the Council of State, but modeled after the GETFUND Board, with good enough representation from politicians designed in a way that prevents extreme manipulation. This is likely to be more independent and effective in guarding our nation. The key issue here is national cohesion, if we fail in the control of the resources we could compromise our stability.
Section 43: Public Oversight Committee
(1) There is hereby established a Public Oversight Committee
(2) Functions
The functions of the Public Oversight Committee shall be to:
a) Oversee and advise Parliament on matters relating to the management, performance and operation of the Ghana Petroleum Reserves Accounts;
b) Advise Parliament in a timely manner on the appropriations from the Ghana Petroleum Funds, or any proposed use of petroleum receipts as proposed by the Minister;
c) In the context of the budgetary process, advise Parliament on whether the appropriations of the Petroleum Revenues for public investment are being used effectively to the benefit of current and future generations.
d) In the context of the Economically Targeted Investments in the use of some of the Heritage Fund, advise Parliament on whether the appropriations for those investments are being used effectively and on commercial basis to the long-term benefit of current and future generations.
(3) Functioning of the POC
a) In conducting its activities, the Pubic Oversight Committee shall take into account the overall objective that Petroleum Revenues are to be used for the benefit of current and future generations of Ghanaians and the principles for the management of all Ghana Petroleum Reserves Accounts.
b) For purposes of advising Parliament, the Public Oversight Committee shall consult widely relating to the use of Petroleum Revenues.
c) The Public Oversight Committee shall determine the rules of procedure under which it will operate, and its decisions shall only be binding if taken by a majority, with a quorum of seven (7) members.
d) Parliament shall approve and provide adequate funding for the operations of the Public Oversight Committee, including appropriate allowances for members of the Committee, through the budgetary appropriation for the operation of Parliament.
(4) Membership
The Public Oversight Committee shall consist of ten members and shall include the following:
a) 3 members of Parliament from three different parties, elected in accordance with rules laid down by Parliament.
b) A former Governor or Deputy Governor of the Bank of Ghana who effectively served
in office for at least 2 years.
c) A former Minister of Finance who effectively served in office for at least 2 years.
d) 2 members nominated to represent economic think-tanks and civil-society.
e) A member nominated by the Council of Churches to represent religious organizations.
f) A member nominated by House of Chiefs.
g) A former University Vice-Chancellor nominated by the Council of Higher Education
(5) Tenure of Members and Eligibility for Appointment
a) Tenure of Members
i) Term of office of members shall be for between 2 and 4 years.
ii) A members appointed for a 2-year term may be eligible for re-appointment but not for more than 2 consecutive terms, and shall not be eligible for e-appointment after their second term. Members appointed for 3-year or 4-year term shall not be eligible for reappointment.
b) A person shall not be eligible for appointment if the person has been removed from office,
has been convicted of a criminal offence, is on trial in a court of law, has been declared bankrupt or insolvent, or has been an executive member of a political party.
c) Members appointed to the Committee have security of tenure, and unless otherwise provided for by law or for medical reasons, may not be suspended, retired or removed from office.
(6) Economic Advisor to the Public Oversight Committee
Subject to the approval of Parliament, the Public Oversight Committee may appoint as an expert advisor on economic and financial matters for a tenure of two years renewable once, an academic or professional of highest reputation and competence with the appropriate and relevant competencies.
7. CONCLUSION
The Proposal itself raised the issues of concern, and stated that these problems must be avoided; we are at a loss how the proposals seem to go in ways that are almost guaranteed to create the listed problems. The Proposal says inter alia –
1. The assignment is to propose a petroleum revenue management framework that:
(a) serves the best interests of Ghanaians,
(b) ensures that the use and management of petroleum revenues are transparent and properly accounted for, and
(c) is informed by international best practices.
4. In putting together this proposal, we have been keenly aware of the so called “oil curse” that has come to be associated with oil rich, developing countries. This is the risk that, for many developing countries oil resources have often become a source of great waste and corruption, rather than a source of growth and of improvements in standards of living. The overarching concern for many Ghanaians is that petroleum wealth should be a blessing not a curse.
5. Proper and responsible management of the revenues should be the answer to the curse. Other policies matter as well: Setting up the right regulatory environment to guide the activities of all industry players is important; so is having an effective fiscal regime that determines the appropriate share of the petroleum revenues to Ghana.
8. The proposal also seeks to safeguard Ghana’s oil resources and to ensure that the collection, accounting, use and management of all the revenue due to the State are placed within the context of transparent processes and accountable institutions, with mechanisms to ensure adequate public oversight (Accountability and Transparency challenge).
CALL TO ACTION
This is not intended to be a criticism of the current (or any) government. It is in a spirit of contribution, that we bring the best ideas to the table and insist that the people who run the country either present better ideas, or do what is best for the country. We are therefore open to debate and suggestion, in the hope that the best ideas come up and are implemented.
Please send comments and questions to Mr. Kofi Bentil, (kofi@imanighana.com) Convener & Fellow, IMANI & AfricanLiberty.org /ALIWA Thought Leadership Forum.