Ghana oil and gas sector scores high in Resource Governance Index 2017

Ghana’s oil and gas sector scores a satisfactory 67 of 100 points in the 2017 Resource Governance Index (RGI), making it the best performer in sub-Saharan Africa. 

This is contained in a Natural Resource Governance Institute (NRGI) release copied to the Ghana News Agency.

The Index measures the quality of resource governance in 81 countries that together produce 82 per cent of the world’s oil, 78 per cent of its gas and a significant proportion of minerals, including 72  per cent of all copper. 

It is the product of 89 country assessments (eight countries were assessed in two sectors), compiled by 150 researchers, using almost 10,000 supporting documents to answer 149 questions.

It said the country has a favorable enabling environment and also performs well in revenue management. 

Its sovereign wealth fund is the second-best governed among 34 funds assessed in the Index. 

Furthermore, Ghana’s Petroleum Revenue Management Act allocates oil revenues transparently between the budget, the national oil company and two funds, it said.

Yet, it notes that the country has accumulated a large budget deficit and borrowed heavily against future oil revenues, even though oil revenues presently constitute only four percent of total government revenues. 

It said rules for managing petroleum revenues are disconnected from those governing broader public finances.

Challenges with public financial management

Ghana’s oil and gas sector performs consistently across all three components of resource governance—value realization, revenue management and enabling environment. 

However, within the revenue management subcomponent, its performance varies considerably between 93 of 100 points in sovereign wealth fund governance and 36 of 100 in national budgeting.

Poor performance in national budgeting reflects the challenge of developing rules that link petroleum revenues to general public financial management. The Petroleum Revenue Management Act (PRMA) establishes a rule governing the balance between saving and spending of petroleum revenues. However, these rules have not stopped Ghanaian officials from borrowing against projected oil revenues, changing the rules themselves, and over-estimating revenues. 

It added that amendments to the PRMA in 2015 allocated more resources to the Public Interest and Accountability Committee (PIAC), a citizen’s oversight body, thereby strengthening reporting and accountability around petroleum revenues. But the amendments did not address the weaknesses of the overall framework outlined above.

“This example shows that rules that only govern the share of government revenues deriving from petroleum revenues do not suffice in the absence of numerical fiscal rules setting a binding constraint on borrowing and spending—such constraints are considered an important feature of sound public financial management. 

Recent proposals to use oil revenues to fund social services, such as health and education, should also therefore be viewed in the context of overall budget sustainability,” it said.

It suggested that Legislators are expected to pass fiscal rules that set constraints on borrowing and spending as part of Ghana’s upcoming Fiscal Responsibility Law.

The 2017 RGI indicated PRMA does not provide for sharing of oil and gas revenues with subnational authorities and hence subnational revenue sharing is not assessed as part of country’s oil and gas sector governance. 

However, some communities and traditional authorities adjacent to offshore oil and gas projects have demanded a share of oil revenues.

It said a weak score of 58 of 100 points in local impact reflects the absence of disclosure of environmental impact assessments and environmental mitigation management plans. 

Following the introduction of the aforementioned laws, yet to be fully operationalized, Ghana performs slightly better in indicators measuring laws and regulations than those measuring practice and implementation.

State-owned enterprise governance

The Ghana National Petroleum Corporation scores 75 of 100 points and ranks eighth among state-owned enterprises (SOEs) in the index, compared to the global average of score of 49. 

This result is due to Ghana’s rules on fiscal transfers between GNPC and the government (established in the PRMA), disclosure of these transfers; parliamentary and audit oversight requirements; and disclosure of information on subsidiaries and joint ventures. 

However, GNPC scores 15 points less than the best SOE performer in the Index, Chile’s Codelco. This differential reflects GNPC’s spending on non-commercial activities and the absence of rules or transparency around commodity sales.

Governance performance across oil, gas and mining sectors

As in most dual-sector countries assessed by the Index, Ghana’s oil and gas sector exhibits better governance than its mining sector. 

In Ghana this difference is due to revenue management practices. The government has published information on the oil and gas sector, including projections of oil revenues, but has not done the same for the mining sector. 

Following the passage of the Petroleum Revenue Management Act in 2011, which created institutions to support transparency and accountability for petroleum revenues, civil society organizations have advocated for a comparable minerals revenue management act. 

Ghana’s petroleum funds top the rankings for transparency and accountability measures and contributes to the good revenue management score in the oil and gas sector. 

In the mining sector, however, lack of disclosures and audits of subnational revenue sharing bring revenue management performance down.

Ghana performs well in taxation in both sectors due to good disclosure of extractive sector data, transparency of tax rates in legislation, and audits of companies and the national tax authority. 

The mining sector’s taxation score of 72 of 100 points is slightly lower than the oil and gas sector’s score because of the absence of a legal requirement to disclose extractive companies’ payments to the government. 

Disclosure of company payments is also less timely in the mining sector because this information is released via Ghana EITI reports, which disclose data at a significant lag.

These three overarching dimensions of governance consist of 14 subcomponents, which comprise 54 indicators calculated by aggregating 133 questions and external data.

Independent researchers, overseen by NRGI, in each of the 81 countries completed a questionnaire to gather primary data on value realization and revenue management. 

For the third component, the 2017 RGI draws on external data from over 20 international organizations. 
The assessment covers the period 2015-2016. 

By Maxwell Awumah

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