STAR Ghana Recommendations and Summary of Issues for Oil & Gas Call

8/12/2019 STAR Ghana Recommendations and Summary of Issues for Oil & Gas Call

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The Political Economy Analysis of the Oil & Gas Sector in

Ghana: Summary of Issues for STAR-Ghana.

Submitted to STAR Ghana

By H. Kwasi Prempeh & Cindy Kroon

February, 2012


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Table of Contents

Objectives of the political economy study on oil and gas ................................................... 3

Main findings of the study .............................................................................................................. 3

1. The gas sector ............................................................................................................................ 6

Local content ................................................................................................................................... 7

2. Social and environmental monitoring .............................................................................. 7

3. Monitoring revenue management and spending ......................................................... 8

4. Putting in place regulations to existing laws ................................................................. 9

5. Upcoming Exploration and Production bill .................................................................... 9

Preparing for a call for proposals on oil and gas ................................................................ 10


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Objectives of the political economy study on oil and gas

The objective of the political economy study on oil and gas is to update an earlier

study of the sector undertaken by STAR-Ghana during its Inception phase, give an

overview of the oil and gas sector in Ghana, with an emphasis on the current and

potential role of demand-side actors, and place it within the countrys political

economy context. Based on this analysis, priority areas and opportunities forcoalition building to achieve increased transparency and accountability are

identified for STARs funding in the sector. This document is a summary

document of the political economy study, explaining the main findings of the

study. It also includes suggestions for STAR-Ghanas next call for proposals on

oil and gas.

The study used the extractive industries value chain and international best

practices along the 5 stages of that value chain (contracting and licensing,

monitoring operations, revenue collection, revenue management and allocation,

and investing in sustainable development projects) as a reference framework.

Data for this study has been collected through primary and secondary sources.

About 15 interviews with representatives from private, public and civil society

sectors, including the media, have been conducted in Accra and in Takoradi.

Main findings of the study

The oil and gas sector in Ghana is new and legislation, regulations and policies are

under development and implementation as we speak. The political economy study

along the value chain shows that for each stage of the value chain there is no

shortage of issues that need to be addressed and that can increase transparency and

accountability in the sector. Some of the main issues identified are the following:

The focus of the government has been on revenue collection, revenue

maximization and revenue spending. Under the NDC government the Jubilee

field has been made ready for production in a record-time of only 3.5 years,

making sure that the NDC government could still reap some of the early benefits

of the field before the upcoming elections. Licenses were issued and production

started without legislation for revenue management in place. Stakes to stay or

come into power in the 2012 elections are high, as the winning party will have

access to revenues when the Jubilee field reaches maximum production.

Two main pieces of legislation have been passed so far, with the help of

extensive and effective lobbying of civil society organizations in partnership with

international donors. The Petroleum Revenue Management Act was passed in

2011 and addresses how petroleum revenues are collected, spend and invested. It

creates two Funds wherein revenues are saved for future use. An investment

advisory committee determines how the money in the Funds will be invested, but


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the committee has not been set up yet. Details on the Funds have not been

published yet, although that is required under the commendable provisions for

transparency and information sharing under the Act. The Act also creates the

Public Interest and Accountability Commission (PIAC), which consists of 13

public interest organizations (such as civil society organizations, think tanks,

professional organizations, and religious groups) and is mandated to overseepetroleum revenue management and allocation. The commission has been

inaugurated but lacks funding, a secretariat, and its real powers and access to

information remain unclear as its regulations are not drafted yet. The Petroleum

Commission Act was passed in 2011 as well and installs a Petroleum Commission,

which takes over the regulatory powers from the powerful and non-transparent

Ghana National Petroleum Company (GNPC). The GNPC has been resistant to

this change, and it remains to be seen how effective the Petroleum Commission

will be in practice, and if the GNPC will give up its powers to influence regulation

of the sector. The Petroleum Commission has been installed, but regulations have

not been drafted yet.

It is expected that in 2012 the Petroleum Exploration and Production Bill will be

re-introduced to Parliament. It will be the most important piece of legislation

coming up, because it addresses critical issues like the contracting and licensing

process, making it open and transparent and perhaps even including contract

transparency. It will reduce powers of the GNPC further.

There are signs of a government spending drift, which will be exaggerated by

the 2012 elections. For example, even though international best practice dismisses

collateralization, collateralization of petroleum revenues is allowed under certaincircumstances and the first collateralized deal has recently been signed with

SINOPEC. The government has also adjusted upwards the amount of petroleum

revenues it is allowed to spend under the budget (the Annual Budget Spending

Amount) in 2011. This is not allowed under the Petroleum Revenue Management

Act. Additionally the government has overestimated petroleum revenues for the

2011 budget.

It is critical that the government spends the revenues from the petroleum sector

wisely, diversifying the economy away from resource-dependence and stimulating

sectors like agriculture and manufacturing, thereby investing in long-term growth

and viability of the Ghanaian economy. The Petroleum Revenue Management Act

determines several priority spending areasfor petroleum revenues. In absence of

a long-term development plan, the Minister can use his discretionary power and

select a handful of these priority spending areas for the allocation of the budget. A

long-term development plan supported by both the ruling and opposition party

currently does not exist in Ghana, and is unlikely to be developed in the near

future. Not only because of the perverse incentive created by the Act, but also


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considering the partisan and hostile environment between the NPP and NDC the

upcoming elections are likely to create.

Only part of the 2011 petroleum revenues has been allocated to agriculture

projects. Most of the petroleum revenues have been allocated to the development

of the petroleum sector, such as the establishment of the Ghana National GasCompany for the implementation of the Gas Strategy and large allocations to the

Ghana National Petroleum Company. The allocations for the 2012 budget are

equal to the 2011 budget. The effectiveness of the projects funded by the 2011

budget allocations has not been evaluated. It is difficult to track budgetary

spending during the budget year, although in hindsight budget spending can be

tracked more easily. The PIAC should play a role in monitoring revenues and

influencing spending areas.

Social and environmental impacts in the Western Region have not been a

priority focus area of the government, even though these impacts adversely affectthe poor. The Environmental Protection Agency is weak and unable to perform its

oversight mandate. There have been reported negative effects of petroleum

activities in the 6 coastal districts of the Western Region, such as an increase in

rents (and thus evicted tenants) and sex workers. Fishermen have complained

about decreasing catch, dying fish, and an increase in whales that have washed

ashore has been reported in the newspapers. Because these effects are not well

documented and no comprehensive data exists showing the extent of the impacts,

a yes-no discussion exists between civil society/communities and the

government and the private sector, where the latter two deny any impacts.

Therefore, mitigation measures are absent. Additionally, it has been reported thatcommunity rights regarding resettlement and displacement have not always been

respected when determining the location of petroleum processing facilities.

Civil society has been very active in promoting good governance in the sector.

Most organizations focus on governance issues, macro-economic aspects and

legislative reforms and are based in Accra. Another focus area is that of public

financial management and budget analysis. Less organizations focus on

environmental issues and community aspects, and most of these organizations are

not based in Accra. Together all these organizations cover the main issues in the

extractive industries value chain. However, the levels of capacity vary greatly.

Some organizations are extremely well informed and connected, while others lack

analytical capacity to engage and advocate effectively. The most important player

in the petroleum sector is the Oil and Gas Platform, a network of about 135 civil

society organizations working on oil and gas issues. It has been set up in 2008

with support of Oxfam and the World Bank, and has quickly turned into a well-

respected and influential player. The platform will conduct a capacity audit early

2012, which will indicate what capacity exists and where it is lacking. In the


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coming years, with the passing of the petroleum laws, its focus will shift from

advocacy and lobbying to compliance monitoring and social and environmental

monitoring. Particularly on the latter two issues the capacity of the members of the

platform is weak. Not many community-based organizations are currently a

member, and with the discovery of petroleum in the Volta region CSOs in that

region need to be more reached out to as well.

The Ghanaian civil society engagement in the sector has been successful in

advocating for the adoption of legislation in line with international best practices

because of partnerships with international donors that has given space to engage

with the government of Ghana, in-depth knowledge of international best practice

and the sector in general and high quality (budget) analysis which has given much

credibility to the oil and gas platform, and an effective method of lobbying both

the government and parliament. Even though it has come a long way and took

time to develop, the relationship between some Western Region and national

CSOs and Tullow is improving. It is those organizations that understand thepetroleum sector and have a collaborative and constructive attitude that Tullow

approaches and engages with.

Key issues for STAR

If a selection needed to be made, the following five issues could be priority areas

where CSO engagement can be highly effective and opportunities for coalition

building exist:

1. The gas sector

Compared to the oil sector little civil society and donor engagement currently existin the gas sector. The sector is new and draws upon the gas strategy developed by

the Ministry of Energy. By the end of 2012 the infrastructure needs to be in place

to take gas from the Jubilee field and process it for domestic energy generation.

The Ghana National Gas Company has been set up, but because it has not been

enacted through an act of Parliament, its relation with the government is unclear.

Recommended areas for CSO involvement are:

- Monitoring the collateralized SINOPEC deal, its costs and implementation- Making sure community rights in the 6 coastal districts are respected when

fast-tracking the gas infrastructure project

- Starting a national dialogue about the objectives and the direction of the gassector

- Monitoring the newly established GNGC, its activities, income andexpenditures, including its relationship with the government

- Alliances with Parliament can be formed, as parliament can use itsoversight powers to monitor the SINOPEC and China Development Bank

deal, including clarifying the role of the GNGC


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Local content

Little donor and civil society activity currently exist on local content. Local

content (employing Ghanaians and contracting Ghanaian companies for petroleum

services) can generate employment and it can stimulate the local private sector.

Access to finance and lack of adherence to international health and safetystandards often hinder the participation of the local private sector as it prevents

them from winning bids. The local content policy currently in place was drafted

with help of civil society organizations but sets unrealistic targets for Ghanaian

participation in the petroleum sector. The policy is currently being translated into a

local content Bill, which will be tabled in 2012. With funding from Tullow the

Ministry of Energy plans to set up a training center in Takoradi to train the local

private sector for winning bids from international petroleum and service

companies.

Before civil society engages on the technical aspects of local content, buildingcapacity of civil society organizations on how to optimize and measure local

content might be necessary. Recommended areas for CSO involvement are:

- Advocate for the tabling of the Bill in Parliament as soon as possible- Making sure that the Local Content Bill is based on broad consultations and

in line with international best practices.

- Serving on the local content committee which is called for under the policy- Monitor the expenditures of the local content fund once the law has passed- Monitor local content targets-

Monitor the procurement of contracts issues by petroleum and servicecompanies

- Forge linkages between international petroleum and service companies andthe Ghanaian private sector

- Disseminating information and realistic contracting needs for services ofinternational petroleum and service companies to the Ghanaian private

sector

- Forge linkages with the Association of Ghana Industries to advocate for thelocal content law and its implementation

- The participation of Ghanaians and Ghanaian businesses in other parts ofthe country than the Western Region needs to be stimulated.

2. Social and environmental monitoring

Evidence-based social and environmental monitoring in the 6 coastal districts of

the Western Region by the EPA, civil society and by the private sector has been

weak. There is little donor engagement on this issue. It is not a priority of the

government, or for the private sector, and the EPA does not have the capacity to

monitor the approved Environmental Impact Assessments. Yet a lack of evidence-


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based monitoring, linking incidents like whales washing ashore to petroleum

activities without any sample analysis or other research, has lead to quarreling and

unproductive yes-no discussions between stakeholders. The impacts on women

and fishermen need to be particularly closely monitored.

Capacity building of civil society on sample analysis and baseline studies might benecessary, and exact needs of CSOs will become clear when the Oil and Gas

Platform has finished its internal capacity audit. Recommended areas for CSO

involvement are:

- Developing baselines and systematically monitor social and environmentalimpacts in the 6 coastal districts

- Find innovative ways to collect social and environmental information in theWestern Region, for example by involving community-based organizations

and stimulating community monitoring

- Involve the Petroleum Commission, EPA and Tullow in monitoringactivities from the start, and discuss results and potential mitigationmeasures on a regular basis. Linkages can be made with Parliament to

address the issues at the national level.

- Summarize and translate EIAs into understandable language anddistributing the documents amongst communities

- Develop a lessons-learned document from the Jubilee EIA process so thatcivil society is better prepared for engagement in future EIAs

- Continue efforts made regarding the multi-stakeholder group funded bySTAR in Takoradi and replicate it in other districts

3. Monitoring revenue management and spending

The Public Interest and Accountability Commission is tasked to oversee revenue

management and spending of the petroleum sector. The capacity of its members

needs to be adequate, its funding and access to information defined and a work

plan needs to be agreed upon. Fear is that PIAC will fall prey to much of the same

issues as CHRAJ, lacking real power to address issues and reform. Therefore civil

society needs to be able to monitor revenue management and spending even

outside of PIAC. In this areas there is also a large role to play by parliament as it

can audit accounts of the GNPC and the budget. Revenue Watch, Oxfam and the

World Bank are donors that are engaged on this topic.


- Advocate for the publishing of details on the Ghana Petroleum Funds andmonitor its investments. Links with universities that have experience and

the necessary equipment will be beneficial.

- Advocate for the installation of the investment management committee andadvocate for the publishing of its investment strategy


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- Develop and share petroleum revenue tracking and revenue spending tools.Link with organizations that have done this for other sectors can be

beneficial.

- Review projects funded by the ABFA in 2011 on their effectiveness andimpacts. Based on the findings, organize a discussion with policy makers

- A national discussion needs to take place to determine whether or not thechosen priority spending areas of ABFA are the right ones

- This can lead to an initial draft of a long-term national development planthat needs to be developed

- Influence the prioritization of ABFA allocation: make sure to diversityaway from the natural resources sector and stimulate the agriculture and

manufacturing sectors

- Monitor and scrutinize government forecasting of petroleum revenues.Links with parliament can be beneficial, especially when the new budget is

discussed

- Monitor GNPCs activities, income, and expendituresIn particular, PIAC should:

- Influence regulations that address its budget and rights to access toinformation

- Develop a work program- Comment on the 2011 and 2012 budget allocations- Organize a discussion around prioritization ABFA 2011 and 2012

4. Putting in place regulations to existing laws

One issue that has been flagged under the political economy factors hinderingreform in Ghana are the legislative instruments, or regulations, that are drafted by

the executive branch of government when a new law has passed. The regulations

are drafted without any input of demand-side actors and are often approved years

after which means that the law in practice has not come into effect yet.


- Make sure that the regulations for the Petroleum Commission Act aredrafted and approved

- Make sure that the regulations for the Petroleum Revenue Management Act(including the PIAC and the Investment Advisory Committee) are drafted

and approved so that implementation can begin.

- The same is true for any new piece of legislation, like the local content andexploration and production law that are likely to pass in 2012.

5. Upcoming Exploration and Production bill

The ENP Bill is expected to be reintroduced in 2012 and will be the most

important bill of this year. It will address contract transparency and open and


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transparent licensing procedures and it will further clarify the role of the GNPC,

which should be kept to a commercial one only.


- Advocate for the tabling of the Bill in Parliament as soon as possible- Organize broad consultations to discus the Bill- Advocate for the inclusion of international best practices like open and

transparent bidding procedures and contract transparency in the Bill by

lobbying the government and parliament. Linkage with donors like the

World Bank will be beneficial.

- Once the ENP Bill is passed into law and open and transparent biddingprocesses are the norm, civil society will need to monitor the contracting

and licensing procedures closely, and work with Parliament when it is

asked to approve an investment contract.

Preparing for a call for proposals on oil and gasSTAR-Ghanas call for proposals can use the value chain as a framework and

invite proposals under each stage of the value chain except for the third chevron

revenue collection, which is already sufficiently funded. Preference should be

given to proposals that address 1 or more of the 5 issues identified above.

Proposals that are aimed at developing linkages with CSOs that have traditionally

focused on relevant areas in other sectors (like budget monitoring in the education

sector, or environmental monitoring in the forestry sector, for example), linkages

with community based organizations, linkages with the Association of Ghana

Industries or other private sector organizations, linkages with Tullow, the media

and/or parliament should be encouraged.

It might be necessary to build the capacity of CSOs before they can effectively

engage on certain topics, such as social and environmental monitoring and local

content. The outcomes of the internal capacity audit of the Oil and Gas Platform

need to be known and built on before activities on social and environmental

monitoring are funded, and it will also show other areas for improvement of civil

society engagement which can be build upon. Even though it might not be an area

which STAR is willing to fund, it is important that the capacity of the Platform to

engage in knowledge exchange and dissemination amongst its members, for

example via an updated and maintained website with tools, papers and otherbackground materials developed by, and to be used by, its members.

Specific recommendations for the media are to publish more in-depth and

investigative work, and the strengthen ties with the government and the private

sector to collect information. Access to information has been indicated to be the


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main problem Ghanaian media organizations face. STAR-Ghana could fund

proposals that will result in innovative ways for information gathering.

Regarding Parliament, which has focused mainly on its lawmaking function and

not on its oversight or representative function, and is mainly driven by the Mining,

Energy and Petroleum Committee, STAR-Ghana should fund or start projects thataim to develop a sector-wide approach and involve committees like the Committee

for Environment, the Committee on Gender, and the Committee on State

Enterprises. A strategy for the petroleum sector should be developed together with

all relevant committees. A needs assessment and action plan for engagement of

parliament in the extractive industries sector should be developed with the

Parliament. STAR-Ghana could fund the development of the plan, its

implementation, or both.

For each of the activities funded it is key to track implementation regularly and

develop lessons learned at the end of each activity to inform future fundingdecisions.

Donor coordination in the oil and gas sector has been weak. It is therefore

imperative to coordinate with other donors active in the sector before the call for

proposals. The main donors are the World Bank, Oxfam, Revenue Watch, DFID,

and LOGODEP.

Tullow has indicated that it is willing to fund proposals or partnerships that are

well thought-through and that would be mutually beneficial. STAR could work

with civil society organizations that would be interested in approaching Tullowwith a proposal for funding a project to make sure that the proposals are well

drafted and that the proposed budgets are realistic.

Documents

STAR Ghana Recommendations and Summary of Issues for Oil & Gas Call