SIAKON MEDIA

DON'T SAVE OIL MONEY
...in the midst of poverty

Dr. Nii Moi Thompson, an economist, has said that he is not a "fan" of the Heritage Fund, one of the three streams in the utilization of the expected oil revenue, which, in the main, is to "provide a heritage for future generations of citizens from savings derived from excess revenue."

Speaking at a Civil Society Forum on Oil and Gas, the renowned economist argued that in the midst of countless developmental challenges, it would be better to invest in infrastructure and the social sector, adding that future generations stand to benefit from the investments the country makes today.

Dr. Nii Moi Thompson did not also see anything wrong with mortgaging future oil revenues for today's needs. After all, he argued, even the ongoing Bui Dam project is being funded partly by mortgaging cocoa proceeds.

What Ghana requires, however, is effective financial management systems and the need to ensure that most of the funds do not go into recurrent expenditure instead of capital expenditure, as happened with mining, he said.

Dr. Thompson's position was underlined by the Deputy Director of the Revenue Watch Institute, Mr. Antoine Heuty, who argued that Norway, which has often been cited as a success story, initially invested its oil money in infrastructure. The funds, he observed, were established later. In Ghana's case, he asked if it was economically sensible and politically sustainable to save the oil money, in the face of its huge infrastructural needs.

But the Deputy Minister of Finance, Hon. Seth E. Terkper, in an interview with Public Agenda, said the proposed Heritage Fund is not money "to be stashed away." What government is seeking to do, he explained, is to achieve a balance between saving to strengthen the external aspect of the economy and the macro economy "and making sure we do not become a liability on future generations."

The Heritage Fund must therefore be seen in the context of managing the external economy. This is because, "excessive spending now can also be injurious to the future."

A draft Ghana Petroleum Revenue Management Bill mentions, aside the Heritage Fund, the establishment of a Ghana Petroleum Account and a Stabilisation Fund.

Indeed, opinions vary considerably on the best use oil money could be put to. In July 2009, Prof. Arnold Harberger of the University of California, delivered a lecture in Ghana, in which he advised government to invest the oil revenue abroad and bring the income home gradually when there are good projects to invest in.

Alternatively, he said the money could be retained at home to be invested in viable projects. In doing this though, he advised that there must be an effective cost/benefit analysis such that projects to be invested in must bring maximum returns. He further warned that it could be a waste of good oil money if political maturity is not applied in making the priority list.

The IMANI Centre for Policy and Education, also believes 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 five 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," IMANI adds.

Other economists recognize that for an already struggling economy, investing the oil money abroad may not be the option to consider. According to Jeffrey D Sachs et al, "it may make much more sense for poor countries to turn oil earnings quickly into physical assets and human capital. It may even make sense in these countries to borrow against future oil earnings for the sake of increasing investment outlays on high-return public investments."

In 2007, Ghana made discoveries of Oil and Gas in two deepwater blocks: Cape Three Points and Tano by Kosmos Energy and Tallow respectively. Appraisals conducted indicate that the two discoveries referred to as the "Jubilee Field," contains "expected recoverable reserves of about 800 million barrels of light crude oil, with an upside potential of about 3 billion barrels." The discovery is also said to include "significant quantities of associated natural gas."

Other discoveries have since been made although they are yet to be developed. With the arrival of the Floating Production Storage Offloading System (FPSO) at the Jubilee Field a week ago, oil production is expected to begin in the last quarter of the year.

Ghana is therefore in a frantic search for options especially when the examples immediately available to her are nothing to write home about. Does the country save for the future? Does it put the money in the budget and blow it as it comes or does it even mortgage the expected revenue to support deficit spending?

The Civil Society Platform on oil and Gas is making the case that whatever options are chosen should be to the benefit of all and not some Ghanaians. "For public investment, priority should be given to the development of human capital: education, health, agriculture, industrialization and infrastructure such as roads, railways and energy; but human capital development should come ahead of physical assets."

At a citizens' forum on oil and gas in Accra last week, the need for transparency, accountability and local participation, capacity building, among others, kept coming up as several speakers came and went.

Author: Basiru Adam/Public Agenda 

Kofodidua (E/R), Aug. 6, GNA - Ghana is to adopt the Norwegian model which divides petroleum revenue into three pools - budget, heritage and stabilization funds.

This is contained in the Petroleum Revenue Management Bill, which is before Parliament.

Whereas the Heritage Fund will ensure intergenerational equity because of the finite nature of resource revenue which compels some governments to save windfall revenues for future generation, the Stabilization Fund would be used to mitigate volatile situations that might arise in future.

At a two day workshop organised for Members of Parliament by the Parliamentary Centre at Koforidua in the Eastern Region, Mr Atoine Heuty a representative of Revenue Watch Institute stated that money to the overall national budget would be limited. 

According to him, majority of the petroleum revenue should be channeled into the Heritage and Stabilization funds because government could earn returns on them if the funds were invested in stable securities.

The workshop was to enable Members of Parliament to discuss the Petroleum Revenue Management Bill in the context of international practice and the challenges facing the Ghanaian economy.

It was also to develop a response to Ghana's Bill and make recommendations to refine the bill-making process and also to adopt the methodology of sharing international experiences that discuss trade-offs and policy options.

Mr Heuty noted that since oil and mineral revenues were not perpetual, if a country did not employ them efficiently they might never help in achieving a better development.

He said if public organs and citizens grew accustomed to large inefficient public expenditure, the decline in the petroleum production could cause a severe shock and degenerate into the "Dutch Disease".

Mr Heuty said the Dutch Disease phenomenon negatively affect an economy which could lead to a sharp inflow of oil foreign currency to the detriment of other sectors of the economy.

He said the inflows normally would lead to currency appreciation making the country's other products less price competitive on the export market.

Dr David Nguyen-Thanh of German Technical Cooperation (GTZ) noted that experience elsewhere suggested that proper and responsible management of petroleum revenue was essential for the future development of the country.

"The Bill provides the framework that will guide the collection, allocation and management of petroleum revenue for the benefit of the current and future generations," he said.

He added that the Bill addresses three specific challenges - how much of the revenue will be spent now? How much of it to be saved and the means of de-coupling government spending from the volatility of petroleum prices? How to safeguard the rest of the economy from undue exchange rate approach?

Dr Nguyen-Thanh said the idea was to make sure that management of petroleum revenue was based on sound sustainable fiscal policies because resources were finite.

He said the Bill conforms to international good practice such as assigning clear roles and responsibilities to relevant stakeholders involved, and setting out clear quantitative rules to guide the inflow of petroleum receipts.

Dr Nguyen-Thanh said the Bill clearly defines conditions under which savings of the revenue could be withdrawn and be used for annual spending through the budget.

In addition, he said, the Bill has incorporated checks and balances and provisions to ensure transparency, effective oversight and accountability.

He said the aspect of the Bill that received much discussion was the issue of how much revenue receipts to be allocated for annual budget, adding that some have supported voting a high share of the revenue now, because of the huge investment the country needs.

Dr Nguyen-Thanh said others have also argued that it was wise to spread spending over time to avoid adverse macro-economic effects today because of limited absorptive capacity and to ensure inter-generational balance use of the fund.

Referring to a research document on Ghana's oil revenue, he said: "if Ghana would wants to strike a meaningful balance between today and future generation's interest, one would have to settle with a rate of 60 percent or less of the oil revenue that will be allocated straight for the Consolidated Fund."    

Mr Albert Kan-Dapaah Chairman of Parliamentary Select Committee on Public Account said oil and gas revenues must be watched and managed properly for the benefit of all Ghanaians. 

GNA