Oil’s Challenge to Ghana’s Democratic Development PRESENTATION AT DANNIDA DEVELOPMENT DAY EVENT – COPENHAGEN By Steve Manteaw (Ph.D) Campaigns Coordinator - ISODEC; Ag. Editor - Public Agenda; Convener - PWYP-Ghana; and Member, World Bank Extractive Industries Advisory Group

Over-riding Concerns in the emerging oil sector Oil has a huge potential to erode democratic accountability and could erode opportunities for ensuring that oil exploitation leads to lasting benefits for citizens. The shift from reliance on tax revenue in development financing to petroleum revenue undermines the social contract that exists between the state and the citizens

Ghana’s Oil and the Great Expectation Ghana widely perceived as a “model country,” on track to exceed 2015 MDG target of halving poverty Oil could boost or undermine that progress depending on how the oil boom is managed. Greatest threat – an undermined social contract. Other threats - “Resource curse” – oil booms linked to increased conflict, corruption, authoritarianism, loss of control of public spending, exposure to price shocks and neglect of other sectors of the economy IMF predicts gov’t revenues from oil and gas could reach US$20 billion over the production period of 2012–30 for the Jubilee field alone i.e. over a billion dollar a year. Ghanaians are highly expectant because with new fields being discovered and the exploitation of associated gas, revenues could be many folds higher.

Over-coming the Imminent Hurdles – Lessons from the Mining Sector The mining sector provides a mine of lessons to guide the development of the governance framework for oil and gas. Sequencing of the governance frameworks essential; Systemic weaknesses must be address; Over generous incentives – capital allowances, stability agreements, low royalty, subsidized energy Lack of data on the reserves and their rate of depletion Absence of social and environmental accounting Benefit maximization - The need to avoid creating an enclave economy in the oil sector;

Some Perspectives on the Oil Policy and legal frameworks 1. Policy strong on local content and indegenization; target though over ambitious Also strong on value addition, but no new refineries yet; all the oil exported. Plans to focus almost exclusively on gas 2. Revenue Management bill passed into law. Strong transparency provisions. Provides for additional layer of public oversight – The Public Interest and Accountability Committee Clear rules for managing revenues; and openly disclosed formulae for disbursements; Provides for collateralization in spite of public opposition

Some Challenges to managing the revenues (Contd) –Weaknesses in government revenue collection identified through experiences in mining sector. (WB 2008) – gov’t lacks capacity to collect revenues and audit payments from gold mining companies –Need for improved budget transparency (49% score in 2008 Open Budget Index) –Absorptive capacity issues and low quality public spending, e.g. in health, education –Need to strengthen procurement, competitive bidding, as well as auditing and oversight mechanisms

Some Perspectives on the Policy and legal frameworks (Contd) 3. Petroleum Regulatory Commission bill before parliament Defines GNPC as a strictly commercial entity, although the GNPC would still hold equity on behalf of the state Partially defines the fiscal regime Establishes disclosure and confidentiality rules for the sector Recognition of need to split functions Public announcement of petroleum blocks No gas flaring EPA permit mandatory Some disclosure required, but not of petroleum agreements Over-riding presidential powers No open, competitive bidding round mandated

Donor Community Conundrum –Norway closest to the government on oil issues –The Trinidadian model –Exchange of information and technical expertise –GTZ support to revenue collection reform –WB, Britain, France, Holland, and the EU have active program on natural resources and environmental governance ($31 million in 2008–9); primarily mining but likely spillover –Need to increase information flow and coordination among donors –Potential donor conflicts of interest

Conclusion Challenges posed by Ghana’s oil boom are broad, deep and complex and should not be underestimated Oil could undermine gains made in Ghana on democratic governance and development. To avoid this, –Ghana must control the pace of petroleum sector development so that it does not outstrip capacity of government to build institutions and safeguards –Pacing can lead to better negotiated deals over time –Stabilization clauses in new contracts can lock in weak regulatory regime –Sequencing, transparency and public participation are key to developing petroleum policy, master plan, laws and regulations –The mining sector experience must serve as a guide in managing the country’s oil wealth –THANK YOU