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Managing Natural Resource Revenue- The Case of Ghana

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					               Joe Amoako-Tuffour
     (jtuffour@acetforafrica.org)
              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 , 2013
           Maputo-Mozambique
Dividin
g The
Oil &
Gas
Cake




  Compliments of
  Revenue Watch
  Institute


11/24/2013

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

 11/24/2013          Joe Amoako-Tuffour Oil & Gas Revenue Mgmt   GHANA   3
  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)
11/24/2013          Joe Amoako-Tuffour Oil & Gas Revenue Mgmt   4
1. Western Basin

2. Central Basin

3. Eastern Basin

4. Voltaian Basin




                    5
       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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How Much Revenues Should We Expect?




             Dr. Joe Amoako-Tuffour
11/24/2013                            7
             Oil & Gas Revenue Mgmt
11/24/2013   8
    2. Why Ghana’s Petroleum Revenue
              Management Law?
                   4 Reasons
a) Lessons from International Practices
b) Production Profile and Resource Depletion:
2011-2025
c) Lessons from Natural Resource Revenue
Management
d) Protect petroleum revenues from predatory
expenditure earmarking
 c. Provisional Production Profile & Depletion Rate of
                     Petroleum




11/24/2013        Joe Amoako-Tuffour Oil & Gas Revenue Mgmt   10
   c) Lessons from Managing Resources Revenues
• 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). Oil & Gas Revenue Mgmt
                    Joe Amoako-Tuffour                              11
        3. The Making of the Law


3.1 Six Challenges in the Design of Resource
Revenue Management Framework
3.2 Five Guiding Principles
3.3 Ten Fundamental Questions
3.4 Public Participation & Role of Parliament
     3.1 The 6 Challenges in the Design of Revenue
                      Management
1)     Assessment, Collection and Accounting Challenge
2)     Inter-temporal Spending-Saving Challenge
3)     Budget Allocation Challenge
4)     Savings Management Challenge
5)     Accountability, Transparency Challenge
6)     Social Expectations Challenge


11/24/2013          Joe Amoako-Tuffour Oil & Gas Revenue Mgmt   13
             3.2   The Guiding Principles
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.
11/24/2013           Joe Amoako-Tuffour Oil & Gas Revenue Mgmt   14
                3.3 The Ten Questions
1. Who should assess and 6. Who should manage the
 collect the revenues?        fund(s), and how?
2. Should petroleum          7. Who may authorize
 revenues be treated as       withdrawals from the fund(s)?
 part of general revenues? 8. How do we ensure
3. How much of the            transparency and
 revenues should be spent accountability?
 now?                        9. How do we ensure adequate
4. What should be the         public oversight?
 spending priorities?        10. What safeguards may be
5. Should Ghana establish     needed to protect the
 savings fund(s)?             revenues from abuses?
11/24/2013         Joe Amoako-Tuffour Oil & Gas Revenue Mgmt   15
             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

11/24/2013                Joe Amoako-Tuffour Oil & Gas Revenue Mgmt     16
         4. THE
GHANA PETROLEUM REVENUE
    MANAGEMENT LAW
11/24/2013   Joe Amoako-Tuffour Oil & Gas Revenue Mgmt   18
                      Collecting Petroleum Receipts


   Royalties (oil &                                                          Carried and
   gas) plus AOE                                                            Participating
                                                                       Interest: Net revenue
                                                                         inflow from equity
                               Actual Petroleum                           less NOC’s share
                              Revenues into PHF


     Corporate                                                           NOC’s Dividend
    Income tax


                                   Other Revenues




11/24/2013                 Joe Amoako-Tuffour Oil & Gas Revenue Mgmt                           19
11/24/2013   Joe Amoako-Tuffour Oil & Gas Revenue Mgmt   20
     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

11/24/2013         Joe Amoako-Tuffour Oil & Gas Revenue Mgmt   21
                       Savings-Withdrawal Model

             Active production period t< T*                    No more production, Depletion
Allocation of $1 of Revenue
Allocation during production period (T*)                 • Allocation after production
             $0.70 Allocation to Budget                    period (t > T*)
             ABFA
$1                        $0.09
                          GHF                            • ABFA <= Dividends + real
             $0.30                                         return on GPWF
             Savings
                          $0.21          GSF*
                          GSF                            • GPWF = GHF + GST(at T*)




11/24/2013                        Joe Amoako-Tuffour Oil & Gas Revenue Mgmt                    22
              MANAGING THE SAVINGS

                       Parliament of Ghana


                         Ministry of Finance &
                         Economic Planning


             Bank of                                      Investment Advisory
             Ghana                                               C’ttee

  Operations Mgmt of Funds
                                                          Advisory services to
  Oversees Investment Mgmt
             Via                                               Minister
     Investment Managers                                  Oversight functions
11/24/2013               Joe Amoako-Tuffour Oil & Gas Revenue Mgmt               23
              Structure of Delegation of Responsibility

DELEGATIO
N OF DUTIES                                                         PIAC



                                                                           IAC




                                                                            REPORTING




 11/24/2013             Joe Amoako-Tuffour Oil & Gas Revenue Mgmt                24
               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.

11/24/2013         Joe Amoako-Tuffour Oil & Gas Revenue Mgmt   25
                                                                      (……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;




11/24/2013                Joe Amoako-Tuffour Oil & Gas Revenue Mgmt         26
                                                              (…. 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;




11/24/2013        Joe Amoako-Tuffour Oil & Gas Revenue Mgmt          27
             6. Is Act 815 a Law for the sake of Having a Law?
• Preventing Political Conflict • Efficient Revenue Mgmt
   – Inconclusive 2012 electoral  and Compliance
             outcome                 – Institutional Coordination
• Efficiency Macro Mgmt                between GRA, MoFEP,
                                       GNPC
   – Deteriorating budget
                                     – The technical capabilities of
      balances
                                       GRA & MoFEP
   – Unprecedented fiscal overrun
                                     – Overestimation of BR
      in peacetime (12% against
                                       (ABFA) – limiting transfers
      target of 6%)
                                       to savings
   – Fitch Downgrade
                                  • Transparency and
   – Rising Public Debt             Accountability Challenges
                                                         – Inconsistent reporting
                                                         – Limiting public oversight (PIAC)
11/24/2013                 Joe Amoako-Tuffour Oil & Gas Revenue Mgmt                          28
      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?
 11/24/2013                                               29
                        Finally,

• Financing of the NOC
• Fiscal risks and the oversight
• Political patronage & the NOC as quasi-fiscal
  institution




11/24/2013
• 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.




11/24/2013
THANK YOU

				
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