Managing Natural Resource Revenue- The Case of Ghana

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					               Joe Amoako-Tuffour
              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
g The
Oil &

  Compliments of
  Revenue Watch


     Dr. Joe Amoako-Tuffour   2
     Oil & Gas Revenue Mgmt
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:
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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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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:
c) Lessons from Natural Resource Revenue
d) Protect petroleum revenues from predatory
expenditure earmarking
 c. Provisional Production Profile & Depletion Rate of

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   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.

• 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
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

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             3.2   The Guiding Principles
1) Petroleum revenue shall be integrated into the budget
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
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                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?
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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
• 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

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         4. THE
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                      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

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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

             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*)
$1                        $0.09
                          GHF                            • ABFA <= Dividends + real
             $0.30                                         return on GPWF
                          $0.21          GSF*
                          GSF                            • GPWF = GHF + GST(at T*)

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                       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
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              Structure of Delegation of Responsibility

N OF DUTIES                                                         PIAC



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               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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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 • Efficient Revenue Mgmt
   – Inconclusive 2012 electoral  and Compliance
             outcome                 – Institutional Coordination
• Efficiency Macro Mgmt                between GRA, MoFEP,
   – Deteriorating budget
                                     – The technical capabilities of
                                       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)
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      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

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

• 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.


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