Ghana – A Further Push for Transparency in the Petroleum Sector

by King & Spalding
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Many countries rich in natural resources are notorious for secrecy, corruption, and the mismanagement of revenues from oil and gas activities. But Ghana, following the success of its Jubilee development brought on stream in December 2010, and with expected future investment in the sector of at least $20 billion over the next five years and its commitment to the Extractive Industries Transparency Initiative (EITI) -- has been reviewing the effectiveness of its regulatory framework, and in particular, has prioritized building into that framework transparency and accountability measures.

Petroleum Revenue Management Act 2011

The first step was taken in 2011 with the passing of the innovative Petroleum Revenue Management Act providing for:

  • the publication of records of petroleum receipts in the newspapers and online;
  • the Minister of Finance to reconcile quarterly petroleum receipts and expenditures and submit reports to Parliament as well as publish the reports in the newspapers;
  • audits of the petroleum accounts – internal audits, external audits, annual audits and special audits; and
  • the Minister of Finance to submit an annual report on the Petroleum Account and the Ghana Petroleum Funds as part of the annual presentation of the budget statement and economic policies to Parliament.

In addition, the law also established two new institutions: the Public Interest and Accountability Committee (PIAC) - a citizen-based committee responsible for independent oversight of the management of petroleum revenues as well as consulting the public on priority setting for spending petroleum revenues; and the Petroleum Commission.

The law also outlines clear mechanisms for collecting and distributing petroleum revenue. It specifies what percentage should help fund the annual budget, what should be set aside for future generations, and what should be invested.

Petroleum revenue is broadly defined to include:

  • royalties, additional oil entitlements, surface rentals, and receipts from petroleum operations and from sale or export of petroleum;
  • receipts from government's participation in petroleum operations;
  • corporate income tax receipts from petroleum companies; and|
  • other direct or indirect revenue from petroleum, such as capital gains tax from sale of oil and gas interests.

All petroleum revenue is to be transferred into the Petroleum Holding Fund at the Bank of Ghana and from that Fund to three other funds: the Consolidated Fund, the Ghana Petroleum Funds (Heritage & Stabilization Fund), and Exceptional deductions.

But what of all this in practice? The Revenue Watch Institute, a global watchdog based in New York, has recently reported that Ghana's laws and mechanisms, which regulate the use of its natural resource funds, are the best in Africa and the natural resource funds that the Ghanaian government uses to manage oil revenues are relatively well-governed.

The Petroleum Exploration and Production Bill 2014

More recently, the Petroleum Exploration and Production Bill has received cabinet approval and will shortly be presented to Parliament.

Transparency is again firmly on the agenda:

  • Section 10 (1) of the draft bill provides for an open and competitive bidding process for awarding oil concessions. Under the existing Petroleum law, the Minister of Energy is empowered to establish a competitive bidding procedure, but to date, all awards have been "open door".

Section 10 (2) of the new Bill has attracted criticism as it empowers the Minister to ignore the outcome of an open and competitive bidding process and to do sole sourcing. Section 10 (3) also gives the minister the power not to even begin the bidding process in the first place if he thinks the efficient way to go is sole sourcing. Lobby groups are particularly concerned given the rush of recent awards of petroleum contracts and are lobbying for a moratorium until the new Bill is passed.

These wide discretions will no doubt come under further scrutiny when Parliament reviews the Bill.

  • Lobby groups are also concerned that the new Bill does not require disclosure of the beneficial ownership information of prospective investors (as, for example, is required in Sudan).
  • In May 2011, several companies' oil contracts were published on the SEC's website as part of the listing process. Soon after, the Minister of Energy ordered the publication of those contracts. Some oil companies have voluntarily published their contracts on their websites. However, there is no clear legal requirement for contracts to be published, and GNPC does not provide any information on contracts it enters into on behalf of the state. This will change. The Bill provides for the disclosure of all oil contracts.
  • Through the Government's initiatives to improve transparency, together with the country's progress in strengthening its institutions and determination¸ there is hope that Ghana may become a role model for other oil and gas producing countries throughout the developing world.

Hywel Jones
London
+44 20 7551 7569
hjones@kslaw.com
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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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