High Expectations, Good Regulation, Little Profits: A Developing Narrative on Ghana’s oil and gas sector

High Expectations, Good Regulation, Little Profits: A Developing Narrative on Ghana’s oil and gas sector

by Ernest Armah

The discovery of ‘black gold’ at a time when households and industry were bearing the brunt of a critical energy crises was a light at the end of a tunnel. The economic prospects of oil revenues to fix the energy crises were exciting to erase a period of frustration and despair. The jubilee oil field was estimated to produce 1-2 billion barrels of light and sweet crude oil projected to bring in US$1.8 billion revenue to Ghana annually. This was a strong basis for optimism, to be interjected by bad reports of oil revenue mismanagement in Angola, Gabon and Nigeria which serve to remind us that a country can grow rich whilst its people wander in hopelessness and crippling poverty.

Policy frameworks, institutional measures and civil society monitoring are playing important roles in ensuring that the benefits of Ghana’s oil revenues are grafted in sustainable and inclusive growth. As a consequence, transparency in revenue management remains one of the key policy objectives for the oil and gas sector. For the first half of 2016, a total revenue of US$ 126.4m was earned, from which US$22.7m was allocated to the Ghana National Petroleum Corporation (18%), US$13.5m to Ghana Stabilisation Fund (11%), US$64.4m to annual budget funding amount (51%), and US$5.8m to Ghana Heritage Fund (4.6%).  ABFA funding is the percentage of petroleum revenues allocated to national budgets to support development financing, specifically financing of infrastructural projects within the oil and gas sector.  It is for this reason that 71% of ABFA funds went into roads and other infrastructure followed by capacity building (22%) and agriculture (6%).

Another important policy objective is interventions to build the capacity of Ghanaians to participate in all segments of the oil and gas industry. This was established in the 2013 petroleum (local content and local participation) regulations (L.I 2204). This regulation requires a contractor, subcontractor, license, the Corporation or other allied entity carrying out a petroleum activity to ensure that “local content is a component of the petroleum activities engaged in.” According to the Petroleum Commission (2015), nearly all the 85 of the 415 registered companies which submitted their local content report met this requirement.

The percentage and number of Ghanaians employed in the sector in addition to number of Ghanaians in management, technical and other positions in the industry are among critical indicators for local participation. An estimated 413 Ghanaians are employed by the 32 major oil companies in Ghana – 10% in management positions, 56% in technical positions and 34% in other positions.  Unavailable is empirical data on whether the Ghanaians in these positions are receiving work benefits equivalent to their foreign counterparts.

The technology and chemicals used in the exploration and production of petroleum products have improved over the years but still provoke environmental concerns. Oil spillage due to negligence, accidents or sometimes deliberate vandalism is one of the biggest risks. Between 1980 and 2010, 1.2 billion gallons of oil was spilled into the ocean. What makes this disturbing is that “a spill of only one gallon of oil can contaminate a million gallons of water.” (Minnesota Rural Water Association). Of greater concern is the fact that a number of these spills were deliberately instigated to cause economic and environmental devastation. In 1991, during the gulf war, Iraqi forces deliberately spilled between 252-336 million gallons of oil into the Persian Gulf.

This grueling history of oil spillage makes concerns for human and aquatic habitability of the world in the face of petroleum activities, well grounded. The oil and gas industry in Ghana is required to operate in consistency with international standards on environmental sustainability. The Environmental Protection Agency (EPA) audits activities at the jubilee field to examine compliance with conditions and standards set out in the environmental management plans (EMP) permit. The 2015 audit showed 95% compliance, marginally short of the 100% target.

Have we successfully hooted at the ‘natural resource curse’ and its discontents? Have all the ticked boxes of legislation, regulation, transparency, civil society activism and oversight translated into material improvement in the quality of living of Ghanaians? The Paramount Chief of Essikado (in the Western region where Ghana’s jubilee field is located) and Professor of History, Nana Kobina Nketsia thinks otherwise and believes the oil money has gone into fewer pockets. According to him, “we were in a rush to get the industry started and we got so many things wrong” and allowed the “internal dynamics of politics” to influence preparations for the commercial production of oil.

We have not seen the magnitude of corruption and antagonism of citizens and industry players oil has wreaked on other nations. This is largely due to the regulatory regime and institutional measures put in place coupled with the advocacy activities of civil society organisations in the sector. If outputs emanating from these activities are not enough, what do we have to see to recognize that Ghana is managing its oil revenues responsibly for the greater good? This is where the narrative on Ghana’s oil revenues will conclude. After all, beyond aligning industry activities to national policy objectives, a real account of responsible use of proceeds from a non-renewable natural resource is strategic investment into human resources.

Prev Report on the Citizen's Concerns on Oil & Gas [Download]
Next Life after oil: How Better Off are we?