A CRITICAL EVALUATION OF GHANA’S UPSTREAM REVENUE MANAGEMENT

FROM 2014 - 2019

BY

KWABENA ANSAH-SEM

(BSc. Petroleum Engineering )

A thesis submitted to the Department of Planning,

Kwame Nkrumah University of Science and Technology, (IDL)

In partial fulfilment of the requirements for the award degree of

MASTER OF SCIENCE IN PLANNING, MONITORING AND EVALUATION

December, 2020
 DECLARATION
I hereby declare that this submission is a product of my own effort towards the award of Master
of Science in Planning, Monitoring and Evaluation. To the best of my knowledge and belief, no
part of this work contains material neither previously published by another person nor material
which has been accepted for the award of any degree or diploma at the Kwame Nkrumah
University of Science and Technology, Kumasi or any other educational institution, except

where due acknowledgment is made in the thesis.

Mr. Kwabena Ansah-Sem ………………… …………………

(PG7338719) (Signature) (Date)

Prof. Imoro Braimah ………………… …………………

(Supervisor) (Signature) (Date)

Prof. Michael Poku Boansi ………………… …………………

(Head of Department) (Signature) (Date)

i
 ACKNOWLEDGMENT
I am grateful to the Lord Almighty for the gift of life and good health over the entire period of
my master’s programme.

I am also immensely grateful to my supervisor, Prof. Imoro Braimah, for his invaluable guidance
and assistance throughout the period of my thesis. Your wealth of experience manifested through
constructive comments and reviews are very much appreciated.

I also acknowledge the support received from family and friends especially my wife, Mrs Ansah-
Sem for her patience and encouragement. Thank you for being my number one fan.

Last but not least, my heartfelt thanks go to all the resource persons who responded to my
interview sessions despite the challenges posed by the novel corona virus. My thesis could not
have been whole without your selflessness.

For all others who contributed in various ways towards making my work a reality I say thank
you and may the Almighty replenish all that you have lost in the process a hundred-fold.

ii
 ABSTRACT
The ability to properly manage the returns from natural resources has been proven to be quite a
daunting task. Revenue management laws are therefore enacted to offer direction regarding the
management of oil accounts in order to provide an assurance of high levels of accountability and
transparency.

In Ghana, the Petroleum Revenue Management Act (PRMA), 2011 (Act 815) and its
Amendment in 2015 (Act 893) is the law responsible for providing consistency and clarity on the
interpretation of crude oil revenue management laws. The law covers taxation, public
expenditure, royalties, benefits, local content, job creation, probity, accountability and public
oversight.

The study sought to assess how oil funds (specifically the Petroleum Holding Fund and the
Annual Budget Funding Amount) have been disbursed from 2014 – 2019 and whether they were
carried out in adherence to Ghana’s revenue management laws. It also sought to ascertain
whether the Act was consistent with international best practices.

The study found that the Petroleum Revenue Management Act was enacted following a series of
broad consultations with those of other countries including Norway, Trinidad and Tobago, Sao
Tome and Principe etc., who have been exemplary in properly managing their oil revenues and
are excelling at using these revenues to expedite the economic growth of their respective
countries. A series of public engagements were also conducted to ensure that the law adequately
represented the interests of the Ghanaian citizenry. The Natural Resource Governance Institute
further buttressed the satisfactory nature of Ghana’s revenue management practices through its
2017 resource governance report by scoring Ghana 65 out of a possible 89.

The study made a number of discoveries with respect to the disbursement of funds in the
Petroleum Holding Fund (PHF) from 2014 – 2019. The research findings indicated a non-
compliance with the 30% limit approved by parliament in 2013 for transfers from the PHF to the
GNPC from 2015 – 2018. The study indicates that the transfers exceeded the 30% limit by
2.71%, 8.64%, 2.78% and 1.24% during this period (2015-2018) in those respective years. It was
found that it was only in 2015, that government was not in compliance with the approved 70%
limit of net petroleum receipts that should be transferred to the Annual Budget Funding Amount
(ABFA). An additional US$ 53.9 million was conveyed from the Ghana Stabilization Fund

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(GSF) to the ABFA to cater for the shortfall in ABFA funds in 2015. Lastly, for the period under
review, it was revealed that the disbursement of the funds transferred to the Ghana Petroleum
Funds (GPFs) was conducted in strict adherence to the PRMA for all the years. Hence, the
Ghana Stabilization Funds (GSF) and the Ghana Heritage Funds (GHF) received 70% and 30%
of the GPF respectively as stipulated by the PRMA.

The study revealed that in 2014, government failed to spend on capacity building, one out of the
four priority areas approved by parliament. In the same year it was found that only 45% of the
total ABFA funds were disbursed across the four approved priority sectors. There was no
evidence of having invested the remaining 55% (i.e. 666.06 million cedis). The findings showed
a similar situation in 2016 where government failed to spend on Amortization of Loans for Oil
and Gas Infrastructure. This was because the Ghana National Gas Company was fully functional
and was expected to cover the amortization of the China Development Bank loan. In 2018 and
2019 the ABFA fund was credited with 827.65 million cedis and 1,270 million cedis
respectively. The research discovered that government in both years failed to finance the Ghana
Infrastructure Investment Fund account with proceeds from the ABFA as mandated by law and
was in clear violation in both instances

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TABLE OF CONTENTS
DECLARATION........................................................................................................................................i
ACKNOWLEDGMENT...........................................................................................................................ii
ABSTRACT..............................................................................................................................................iii
LIST OF FIGURES.................................................................................................................................vii
LIST OF TABLES..................................................................................................................................viii
ABBREVIATIONS...................................................................................................................................ix
CHAPTER 1: INTRODUCTION.............................................................................................................1
1.0 BACKGROUND TO THE STUDY................................................................................................1
1.1 PROBLEM STATEMENT.............................................................................................................3
1.2 AIMS AND OBJECTIVES.............................................................................................................6
1.2.1 RESEARCH OBJECTIVES....................................................................................................6
1.2.2 RESEARCH QUESTIONS......................................................................................................6
1.3 JUSTIFICATION OF STUDY.......................................................................................................7
1.4 RESEARCH METHODOLOGY...................................................................................................8
1.5 RESEARCH SCOPE.......................................................................................................................8
CHAPTER 2: LITERATURE REVIEW OF THE EXTRACTIVE SECTOR AND INDUSTRY
BEST PRACTICES...................................................................................................................................9
2.0 INTRODUCTION...........................................................................................................................9
2.1 REVENUE MANAGEMENT IN THE EXTRACTIVE INDUSTRY........................................11
2.1.1 CHALLENGES OF REVENUE MANAGEMENT IN THE EXTRACTIVE INDUSTRY
...........................................................................................................................................................13
2.2 EXTRACTIVE RESOURCE MANAGEMENT MODELS.......................................................16
2.2.1 AMERICA’s APPROACH.....................................................................................................16
2.2.2 NORWAY’s APPROACH.....................................................................................................18
2.2.3 BOTSWANA’s APPROACH.................................................................................................20
2.3 REVIEW OF OIL AND GAS REVENUE MANAGEMENT BILLS........................................22
2.3.1 THE PETROLEUM REVENUE MANAGEMENT BILL (PRMB), 2012 OF SOUTH
SUDAN.............................................................................................................................................22
2.3.2 REVIEW OF GHANA’S OIL & GAS REVENUE MANAGEMENT................................26
2.4 SUMMARY AND RESEARCH GAP..........................................................................................38
CHAPTER THREE: RESEARCH METHODOLOGY.......................................................................40
3.0 INTRODUCTION.........................................................................................................................40
3.1 RESEARCH APPROACH............................................................................................................40

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 3.2 DATA COLLECTION METHOD...............................................................................................41
3.3 SAMPLE SELECTION................................................................................................................41
3.4 DATA ANALYSIS.........................................................................................................................42
3.5 ETHICAL CONSIDERATION....................................................................................................42
CHAPTER 4: DATA ANALYSIS AND DISCUSSION........................................................................43
4.1 INTRODUCTION.........................................................................................................................43
4.2 DEMOGRAPHIC DATA OF RESPONDENTS/INTERVIEWEES.........................................43
4.2.1 GENDER AND AGE OF RESPONDENTS..........................................................................43
4.2.2 JOB POSITION OF RESPONDENTS..................................................................................45
4.2.3 YEARS OF EXPERIENCE...................................................................................................45
4.2.4 AREA OF EXPERTISE.........................................................................................................45
4.3 GOVERNMENT’S COMPLIANCE WITH THE PRMA WITH RESPECT TO THE
DISBURSEMENT OF PETROLEUM REVENUE IN THE PHF...................................................46
4.3.1 KEY OBSERVATIONS - 2014..............................................................................................48
4.3.2 KEY OBSERVATIONS - 2015..............................................................................................48
4.3.3 KEY OBSERVATIONS IN 2016...........................................................................................49
4.3.4 KEY OBSERVATIONS IN 2017...........................................................................................49
4.3.5 KEY OBSERVATIONS FOR 2018.......................................................................................49
4.3.6 KEY OBSERVATIONS IN 2019...........................................................................................50
4.4 THE PRMA AS COMPARED TO INTERNATIONAL BEST PRACTICES..........................50
4.5 ASCERTAINING GOVERNMENT’S ADHERENCE TO THE PRMA WITH RESPECT TO
THE DISBURSEMENT OF THE ABFA FUNDS............................................................................52
4.5.1 DISBURSEMENT OF THE ABFA FUNDS FROM 2014 - 2019........................................53
CHAPTER 5: SUMMARY OF MAIN FINDINGS, CONCLUSIONS AND
RECOMMENDATIONS........................................................................................................................57
5.1 INTRODUCTION.........................................................................................................................57
5.2 SUMMARY OF MAIN FINDINGS AND CONCLUSION........................................................57
5.2.1 ASCERTAIN GOVERNMENT’S COMPLIANCE WITH THE PRMA WITH RESPECT
TO THE DISBURSEMENT OF PETROLEUM REVENUE IN THE PHF...............................57
5.2.2 HOW DOES GHANA PRMA COMPARE WITH INTERNATIONAL BEST
PRACTICES?..................................................................................................................................60
5.2.3 COMPLIANCE WITH THE PRMA WITH REGARD TO THE DISBURSEMENT OF
THE ABFA FUNDS.........................................................................................................................60
5.3 RECOMMENDATIONS...............................................................................................................62
5.4 LIMITATIONS OF STUDY.........................................................................................................63

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 5.5 RECOMMENDATIONS FOR FURTHER RESEARCH..........................................................63
REFERENCES........................................................................................................................................64
APPENDIX I........................................................................................................................................69
APPENDIX II......................................................................................................................................72

LIST OF FIGURES
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Fig 2.1 Legal and Administrative Framework In The Extractives Value Chain ……………..............12
Fig 2.2 Volatile Revenues …..……………………………………………..………………….....14

Fig 2.3 Project Timeline of a Typical Oil and Gas Project …………………………….………..15

Fig 2.4 Dutch Disease and Drain Effect..……………………………………………………......15

Fig 2.5 Outflows from the PHF ……………………………………………….…………….......28

Fig 2.6 Spending Allocation of Oil Revenues under the PRMA …………….…………….........29

Fig 2.7 Petroleum Revenue Reporting Schedule ………………….………….……………........34

Fig 2.8 Institutions Involved in Petroleum Revenue Management …………….……………......37

Fig 4.1 Gender Distribution Chart of Respondents …………………..………….……………...43

Fig 4.2 Respondent's Age Distribution Chart ……………………..…………….……………...43

Fig 5.1 GNPC Petroleum Revenue Receipts from 2014 -2019 in Compliance with PRMA in

Percentages …………………………………………………………...………….……………...57

Fig 5.2 ABFA Petroleum Revenue Receipts from 2014 -2019 in Compliance with PRMA in
Percentages …………….……………………………………………………………...………...58

Fig 5.3 GSF Petroleum Revenue Receipts from 2014 -2019 in Compliance with PRMA in
Percentages …………………………………………………….………………………………………………………………....……………... 59
Fig 5.4 GHF Petroleum Revenue Receipts from 2014 -2019 in Compliance with PRMA in
Percentages …………………………………………………………………...….……………...59

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LIST OF TABLES
Table 2.1 Sources of Petroleum Revenue Collected by Government………………..…….…….27

Table 4.1 Job Position of Respondents ………………………………………………….............44

Table 4.2 Years of Experience of the Respondents ……….…………………………….….…...44

Table 4.3 2014-2019 PHF Disbursements…………………………………………………….…46

Table 4.4 Prioritized Areas of the Economy Qualifying for ABFA Funding……………..……..53

Table 4.5 Summary Breakdown of ABFA Account Expenditure from 2014 – 2016…................53

Table 4.6 Summary Breakdown of ABFA Account Expenditure from 2017 – 2019……………56

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ABBREVIATIONS
ABFA – Annual Budget Funding Amount

ACEP – Africa Centre for Energy Policy

ATI – Accountability and Transparency Initiatives

BBC – British Broadcasting Corporation

BoG – Bank of Ghana

Bopd – Barrel of Oil Per Day

CAPI – Carried And Paricipating Interest

CDB – China Development Bank

DWCTP – Deep Water Cape Three Points

E & P – Exploration & Production

ECDPM – European Centre for Development Policy Management

FDI – Foreign Direct Investment

GDP – Gross Domestic Product

GHF – Ghana Heritage Fund

GIIF – Ghana Infrastructure Investment Fund

GNPC – Ghana National Petroleum Corporation

GNGC – Ghana National Gas Company

GoG – Government of Ghana

GPF – Ghana Petroleum Funds

GPWF – Ghana Petroleum Wealth Fund

GRA – Ghana Revenue Authority

GSF – Ghana Stabilization Fund

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IEA – International Energy Agency

IAC – Investment Advisory Committee

IMF – International Monetary Fund

IOC – International Oil Company

JV – Joint Venture

MoE – Ministry of Energy

MoF – Ministry of Finance

MoFEP – Ministry of Finance & Economic Planning

NGO – Non Governmental Organization

NOC – National Oil Company

NPGC – National Petroleum and Gas Company

NRGI – Natural Resource Governance Institute

PHF – Petroleum Holding Fund

PIAC – Public Interest & Accountability Committee

PNDC – Provisional National Defense Council

PRMA – Petroleum Revenue Management Act

PRMB – Petroleum Revenue Management Bill

SME – Small Medium Enterprises

UN – United Nations

UNDP –United Nations Development Program

WAOFCO-2 – West Africa Fuel Company

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 CHAPTER 1: INTRODUCTION
1.0 BACKGROUND TO THE STUDY
The development of Ghana’s upstream petroleum industry dates back to the 19 th Century. The
first discovery well, WAOFCO-2, was drilled by the West African Fuel Company in 1896 to a
total depth of 35 metres. This well produced only five barrels of oil per day for a short time.
Following the passage of the Petroleum Exploration and Production Law (PNDC Law 84), in
1983 and the establishment of the Ghana National Petroleum Corporation, exploration became
better organized and maintained leading to greater interest and participation of international
companies (Petroleum Commission, 2017).

In 2007, Ghana’s Jubilee Partners found oil in commercial amounts and started production in the
Jubilee Field in 2010, with a typical daily production off 110,000 barrels per day (bbl/d)
(Petroleum Commission , 2019). Since the oil and gas discovery in commercial quantities in the
Jubilee Field in 2007, 25 more discoveries have been made plus the two new discoveries made in
the Deep Water Cape Three Points (DWCTP) Block in 2013. The upstream petroleum sector for
Ghana continues to grow progressively (Petroleum Commission, 2018).

In Ghana, the importance of the petroleum upstream industry to the growth and expansion of the
economy is enormous as it has resulted in the accumulation of revenue to the state and the
improvement of the standard of living. According to Baba (2018), the importance of the
petroleum upstream industry is that it has direct linkages with the economic, social, technology
transfer and Foreign Direct Investment (FDI) benefits for any country. Hence the discovery of
oil in Ghana is considered a blessing.

The petroleum upstream industry is said to result in the growth and expansion of the Gross
Domestic Product (GDP) and accounts for about 5 percent of GDP with an average revenue of
about US$ 599 million yearly from 2011 to 2019 (Aidoo, 2019; Ministry of Finance, 2019).
According to the Petroleum Revenue Management Act (PRMA), under the Annual Budget
Funding Amount (ABFA), proceeds from the petroleum upstream industry ought to be used for
the development of various parts of the economy, namely health, education, agriculture, among
others, with the goal of eradicating poverty and pursuing a complete diversification of the
economy. Due to State’s oil industry, it has been ranked the third major destination for inflows

1
of Foreign Direct Investment (FDI) due to the opportunities created in its upstream operation
areas.

According to Quartey & Abbey (2018), the management of the economic benefits from this
sector has been a challenge for many oil producing nations around the world. Due to these
challenges, the Government of Ghana (GoG) passed the Petroleum Revenue Management Act,
2011 (Act 815) and the Petroleum Revenue Management (Amendment) Act, 2015 ( Act 893) to
determine and establish the administration of the proceeds from the petroleum upstream industry.
The Petroleum Holding Fund (PHF), situated at the Central Bank of Ghana, is the preliminary
repository of all revenues due the state from upstream petroleum activities before being
disbursed (PIAC, 2017). The disbursement of funds held in the PHF is carried out in accordance
with the PRMA, Article16 as follows:

1. The Annual Budget Funding Amount (ABFA or Consolidated Fund) which are petroleum
revenues, shall be utilized in propping up the national budget.
2. The Ghana Petroleum Fund is established for the purpose of savings and investments. It
comprises the Ghana Heritage Fund (GHF) and the Ghana Stabilization Fund (GSF).
According to the PRMA the purpose of the GHF is to aid sustainable growth of unborn
generations to benefit from the country’s petroleum reserves after it has been depleted.
The act specifies that the GHF should receive nothing below 30 percent of the monies
awarded to the Ghana Petroleum Funds (not less than 30 percent of the remaining 30
percent) (PIAC, 2017). The Ghana Stabilization Fund (GSF) was created to cushion the
economy in times of shocks or unexpected deficits in oil proceeds (PIAC, 2017). This
fund is entitled to monies not exceeding 70 percent of the funds assigned to the Ghana
Petroleum Funds (70 percent of the remaining 30 percent) (PIAC, 2017).
3. The Ghana National Petroleum Corporation (GNPC), which is the national oil company,
shall finance its upstream petroleum operations and other related activities using oil
revenue. The PRMA specifies that the financial allocation to GNPC shall not be in excess
of 55% of the revenue generated from the cumulative sum of the carried interest and the
participating interest. These deductions will be effected only after the equity financing
costhas been subtracted from the oil revenue. The PRMA allows for exceptional transfers
besides the Consolidated Funds and the Ghana Petroleum Funds.

2
At least 70 percent of the Annual Budget Funding Amount (ABFA) shall be geared towards
public investment expenditures. This further speaks to the significance of the petroleum
upstream industry to the development of the country’s economy and well-being of its citizens. In
addition, incomes from the petroleum upstream industry are used to finance the infrasructural
development of the country with spillover effects in terms of job creation, improved incomes and
industrialization.

Generally, the benefits from petroleum upstream industry can be effectively realized through the
strict adherence to the PRMA which further stipulates the utilization of the oil and gas proceeds.
The PRMA also serves as a structure for the upstream sector which focuses much on the
accumulation, issuance and administration of revenues linked to the petroleum upstream industry
(PIAC, 2017). The focus of this study is on the management of revenue in the upstream
operation area.

1.1 PROBLEM STATEMENT

Africa has been known as a continent blessed with natural resources yet poverty is rife. It was
discovered that greater than 30 percent of the inhabitants in the resource rich sub-saharan Africa
live below $1.90 per day based on UN’s poverty line (Izvorski, 2018). Nigeria is the continent’s
biggest oil producer, producing on average 2.5 million barrels of oil per day. On the world stage,
Nigeria is rated as the sixth largest oil producing country, but it has now topped India as the
nation with the largest number of people living in abject poverty. Research indicates that 48%
(representing 95,903,776) of the country’s population live in extreme poverty (Lab, 2020). The
British Broadcasting Corporation (BBC) cited a report in 2012 which was commissioned by the
Minister of State for Petroleum Resources of Nigeria (Ross, 2012) with the following revelations
showing the level of inefficieny and unscrupulousness affecting Nigeria:

1. An amount of $29bn went unaccounted for in the last 10 years in an obvious price-fixing
scam entailing the transaction of natural gas;
2. The treasury lost $6bn per year from the theft of oil;
3. The treasury is owed over $3bn in royalties by the oil companies;
4. From 2005 -2011, Signature Bonuses were owed to a tune of $566m - the fees paid by a
company for the right to exploit an oil block;

3
5. From 2008- 2011, the Nigerian government found out that $183m in signature bonuses were
yet to be paid; and
6. About 250,000 barrels of oil are subject to theft daily, equating to a tenth of daily production.
The report further indicated that Nigerian officials of the government and private actors
camouflaged theft by tampering with the metering systems and shipping documents.

The Vice President of the World Bank for Africa, Dr Ezekwesili, mentioned in her speech titled
“ Corruption, National Development, the bar and the Judiciary” that Nigeria has lost more than
$400 billion to oil theft since the country commenced crude oil production. She further
mentioned that “poor governance of public resources and assets in Nigeria is worsening at every
level of government” (Nnochiri, 2012).

As Africa’s number 2 largest producer of oil, Angola, produces over 1.5 million barrels of oil
per day. According to the Human Rights Watch, the Government of Angola has misappropriated
a considerable amount of oil revenue. It was discovered that from 1997-2002 an amount of $
4.22 billion was unaccounted for. Further, the International Monetary Fund (IMF) utilized an
Oil Diagnostic System in consultation with the government of Angola and it was revealed that
billions of dollars from Sonangol, the state owned oil company, unlawfully bypassed the central
bank of Angola. The entire image painted by the Oil diagnostic system revealed gross
misappropriation of the country’s public funds, mainly obtained from the production and sale of
oil and gas. In Addition, the IMF detailed billions of dollars in expenditures which could not be
explained by the Angolan government due to its reluctance to reveal the usage of those funds.
According to Sobrinho (2019), Angola lost billions of dollars from its sovereign wealth fund.
The money was tapped into by a reprobate account manager, with others complicit, over
multifaceted financial deals moving through offshore financial hubs and financed in projects of
personal benefit. The newly formed Angolan government elected in 2017 replaced the
administration and subjected the former management to investigation.

Nigeria and Angola, both obviously Africa’s largest oil producers, depict clear signs of
corruption and mismanagement of petroleum revenue. If the governments of both countries
properly managed revenues from their petroleum earnings, funds could have been issued for the
realization of economic, social, and cultural rights, such as increased expenditure on education,
health, and other social services. As was the case of Nigeria, there are currently 5,002,799
4
Angolans (representing 20% of the entire population) living in extreme poverty (Lab, 2020). Oil
rich nations like Norway and the United Arab Emirates, that have properly managed their
country’s petroleum funds have only 0.3% and 0.2% of their citizens living in extreme poverty
respectively.

Ghana legislated the Petroleum Revenue Management Act, 2011, (PRMA) as amended in 2015,
to serve as a guide for gathering, distributing and administering petroleum revenue in an
accountable, honest, responsible and sustainable way for the well-being of the citizens of Ghana.
The passage of the act was also to safeguard against corruption and mismanagement of
petroleum revenues which have the tendancy to result in conflicts, poverty and under
development.

The Act prescribed that the proceeds from the the upstream operations ought to be allocated to
the Petroleum Holding Fund (PHF) and transferred into the Ghana Petroleum Fund (GPF) which
comprises the Ghana Stabilization Fund (GSF) and Ghana Heritage Fund (GHF). However, since
the PRMA failed to come out with penalties for infractions or gaps in the Act it leaves it open for
abuse. There are also no penalties defined for noncompliance with the PRMA. This has led to
frequent infractions as projected by the Public Interest and Accountability Committee (PIAC).
In relation to Ghana’s upstream revenue management, the 2018 PIAC Annual Report indicated
some instances of mismanagement with some oil and gas companies not adhering to their surface
rental obligations and also the government missapplying petroleum proceeds.

This notwithstanding, the government is mandated to spend within the confines of the oil and gas
proceeds and allocations. Additionally, the country’s upstream revenue management is further
faced with the issue of non-adherence to the Petroleum Revenue Management Act. The Act
mandates that, 25 percent of the revenues from the upstream activities should be issued to the
Ghana Infrastructure Investment Fund (GIIF) under the Annual Budget Funding Amount
(ABFA) but none was allocated in 2018 which was a breach of Act 893, Section 8(4)(b) and also
a contravention of Section 8(4)(a) of the Act under which 50.9 percent of the Annual Budget
Funding Amount (ABFA) was utilized on recurrent expenditure whilst 49.1 percent was on
public investment.

5
The Act provides a guide on how the returns from oil proceeds should be disbursed. The
utilization and savings of proceeds from Ghana’s upstream revenue management is believed to
be incomplete because Ghana has left out areas where more upstream revenue can be harnessed
and also the illegal use of upstream proceeds outside the confines of the Act. Therefore, to be
able to achieve the mandates of the Act, there is a need to critically examine the current revenue
management approach in order to determine how best it can be improved upon in order to
achieve its mandate.

1.2 AIMS AND OBJECTIVES

This research sought to evaluate Ghana’s upstream revenue management by delving into what
the Act stipulates with respect to how the proceeds from petroleum upstream activities should be
utilized. The study further sought to assess how oil proceeds have been spent across the twelve
(12) priority sectors of the economy and whether they were carried out in compliance with the
PRMA.

1.2.1 RESEARCH OBJECTIVES

This study is centred on Ghana’s petroleum fiscal regimes with emphasis on Ghana’s upstream
revenue management. The study sought to realize the following objectives:
1. To ascertain the positive sides of the PRMA and point out the non compliance,
infractions and penalties under the PRMA.
2. To understand the current state of Ghana’s upstream management framework as
compared with best practices around the world.
3. To identify and review compliance to priority areas as envisioned by the Petroleum
Revenue Management Act, 2011 (Act 815) and Petroleum Revenue Management
(Amendment) Act, 2015 ( Act 893).

1.2.2 RESEARCH QUESTIONS

The research seeks to respond to the following relevant questions;

1. What are the components of the revenue accruing to Ghana under the PRMA?
2. How does Ghana’s PRMA framework compare with internationally recognized best
practices?

6
 3. What are the priority areas for expenditure under the PRMA and to what extent are they
being complied with?

1.3 JUSTIFICATION OF STUDY

The upstream petroleum industry of Ghana is undergoing a series of developments as it is
considered to be very promising, with strong legal and regulatory instruments in place to regulate
its upstream operations. According to PIAC (2018), a total of US$977,093,285 was amassed in
the Petroleum Holding Fund (PHF) from the various upstream income items. It was further
reported that there had been an increase in revenue compared to 2017 due to the drilling of more
wells, increase in crude prices on the global scale and the production of oil from the Sankofa Gye
Nyame field. The revenues accrued to the Petroleum Holding Fund (PHF) were basically from
the sources listed in the Act. Revenues from the upstream operations are further disbursed across
12 priority areas of the economy which include agriculture and industry, education infrastructure,
potable water, telecommunications infrastructure, health infrastructure, environmental
protection, rural development, alternative energy, institutional governance and strengthening,
public safety and security and social welfare. This attests to the importance of the oil and gas
fiscal regimes of the petroleum upstream industry.

Nonetheless, the aim of this study is to evaluate Ghana’s upstream revenue management under
the oil and gas fiscal regime, as well as explore compliance with the Petroleum Revenue
Management Act, identify four priority areas where the revenues have been disbursed to,
determine revenues accrued from 2014 to 2019 and finally determine the amounts of revenue
disbursed under the Annual Budget Funding Amount (ABFA) as specified by the law and its
impacts.

This study is important because it brought clarity into the accountability for and the
management of revenues realized from Ghana’s upstream operations. It is anticipated that this
will serve as a guide for understanding the impacts of compliance with the Act.

Lastly, this research has contributed to the body of knowledge on Ghana’s oil and gas fiscal
regimes. In effect, it has broadened the scope of upstream revenue management and the
significance of Ghana’s hybrid fiscal regime of production sharing agreement and concessionary
agreement.

7
1.4 RESEARCH METHODOLOGY
Data for this study was obtained primarily from relevant journals, articles and reports regarding
the disbursement of funds. Information was sourced from the annual financial reports of state
institutions like the Bank of Ghana (BoG), Ministry of Finance and Economic Planning
(MoFEP), the Public Interest and Accountability Committee (PIAC), Ghana National Petroleum
Corporation (GNPC), the Ghana Revenue Authority (GRA), Ghana Audit Service and
Parliament who are directly involved in the disbursement process.

Primary data was obtained via interviews with subject matter experts in Ghana’s petroleum
industry as well as experts from the other state agencies involved in the disbursement of
petroleum revenue. The respondents were purposively sampled to ensure the feedback received
from the respondents are credible and informative for the research.

The data gathered during this study was analysed using a combination of both quantitative and
qualitative techniques. This approach ensured an objective analysis of information gathered from
reports whilst making provision for some amount of subjectivity expected from the erviews
conducted.

1.5 RESEARCH SCOPE

This study was focused on the adherence to Ghana’s PRMA from 2014-2019 with emphasis on
the upstream petroleum management. This period was selected because it provides a
comprehensive picture of the country’s upstream revenue management in relation to compliance
with the Act. It also covers the collection, allocation and disbursement of the oil and gas
proceeds, as well as revenues used outside the confines of the Act and areas of the Annual
Budget Funding Amount (ABFA) where revenues have been utilized and the impact on national
development.

8
 CHAPTER 2: LITERATURE REVIEW OF THE EXTRACTIVE SECTOR AND
INDUSTRY BEST PRACTICES
2.0 INTRODUCTION
The global economy is heavily reliant on crude oil in meeting most of its power needs. This is
also representative of the economic well-being of nations, advanced and under developed alike.
The International Energy Agency (IEA), projected that the internatioal need for crude oil will
reach 90 million barrels of oil per day (bopd) in 2010 and 104 million bopd, ten (10) years
afterwards (World Energy Outlook, 2009).

Reports indicate that along the Gulf of Guinea, specifically, the west central coast of West Africa
is heavily endowed with rich crude oil reserves. It is estimated that there are at least 547 offshore
oil and gas structures located in this territory capable of catering for the energy needs of Europe
and North America (Ayoade, 2002; IMF, 2005). Their studies show that nations like Angola,
Equatorial Guinea, Gabon and Nigeria are already engaged in crude oil production in this region.

Global interest is however now veering towards countries like Ghana, along the Gulf of Guinea,
because of their geopolitical and geographical locations which makes them less likely to be
subjected to attacks by pirates, ease of shipping, political stability and immunity from conflicts
and high quality crude oil, as opposed to territories like the Middle East, which are characterized
by conflicts, acts of insurgency and a host of other unfavourable activities (Mane, 2005).

Ghana’s hydrocarbon expedition into its sedimentary basins date back to 1896, in the onshore
Tano basin. This was motivated by the discovery of onshore crude oil seepages present within
the terrain. Twenty-one (21) shallow exploration wildcat wells were reported to have been drilled
between 1896 till independence in 1957. In 1970, Ghana recorded its first ever offshore drilling
in the Saltpond basin. In the same year, the Tano basin (Volta Tano well and the North Tano
field) also recorded its premier offshore exploratory success. In 1974, the Voltaian basin
recorded its first and only exploratory well. By 1978, crude oil production had kicked off in the
Saltpond basin with a peak production amount of 4,500 bopd. In the same year Ghana witnessed
its first deep water well, the South Dixcove – 1x, which was drilled in 900m of water offshore
Cape Three Points by Philips Petroleum (GNPC, 2016).

9
At the time, government saw the need to have in place a statutory legal framework for the
exploration of petroleum and the institutional capacity for the country’s Exploration and
Production (E & P) efforts. Hence the Ghana National Petroleum Corporation Law, the 1983
PNDC Law 64, and the Petroleum Law, the 1984 PNDC Law 84 were passed. The enactment of
PNDC Law 64, saw to the establishment of the Ghana National Petroleum Corporation (GNPC)
as the recognized entity mandated to handle the nation’s Energy & Petroleum activities. GNPC
begun its operations in 1985.

Once the corporation was fully operational, it financed the accession of numerous vintages of 2D
seismic over blocks onshore and offshore Tano, offshore Saltpond basin, onshore and offshore
Keta basin resulting in a densely gridded 2D seismic coverage offshore. It also spent several
years recovering, re-organising, re-processing and interpreting petroleum data for the
enhancement of Ghana’s exploration database and the attraction of major industry players. These
efforts led to the attraction of big players such as Anadarko, Tullow Oil, Kosmos Energy, Eni
etc. into the country.

Eventually, notable accumulations of crude oil were discovered in 2007 and production activities
in the Jubilee field commenced in December of 2010. Following these developments, the gates
opened for more investments and exploration activities.

The discovery of petroleum reserves is known to inspire hope in a nation. This hope stems from
the anticipation of what the revenues from these discoveries are expected to accomplish. The
discovery of oil and its associated revenues is characterized by scale and superiority (Ross,
2012). According to Ablo (2015), irrespective of the modesty of the oil find, it is of significance
to the economy and the environment with many other social implications.

Hence, the discovery of petroleum in Ghana is one looked upon as an opportunity to boost the
country’s spending on job creation, education, agriculture and infrastructure development for
accelerated economic growth.

Hence, there is the need for sound oil governance to facilitate the manifestation of these
expectations of accelerated development. Despite having in place a number of institutions and
sound regulatory measures to ensure the translation of oil production benefits into broader based
10
development, this has not necessarily been the case. The revenue from the production of oil and
gas has not always been immune to poor fiscal management.

A report by the Africa Centre for Energy Policy (2014), indicated that lucidity has soared in the
crude oil sector, yet areas such as accountability and revenue collection have not been the best.
Government has therefore been urged to do more towards efficiently spreading the benefits of oil
production.

Studies across the world over, indicate that the translation of oil findings through production to
returns, then to overall development is not a straight forward procedure. Especially, that of
overall development, which is specifically challenging to attain in lots of countries of which
Ghana is no exception.

If these reports are therefore anything to go by, it calls for the implementation of sound revenue
management practices which offer the nation the best chance of maximizing the returns from its
oil revenues.

2.1 REVENUE MANAGEMENT IN THE EXTRACTIVE INDUSTRY

Government is tasked with the management and distribution of the revenues generated from the
extractive industry once those revenues are collected. Poor management of the wealth produced
from this industry can lead to social and economic imbalance, funding of unscrupulous business
deals and inter or intrastate disputes. Governments are commonly faced with a choice between
spending and saving when it comes to managing the wealth from the extractive industry.

Research reveals that Africa has 12% of the world’s crude oil reserves, 40% of the global gold,
80 – 90% of the world’s chromium and platinum ores as well as 85% of its phosphate reserves
(Dag Hammarskjöld Foundation & UNDP, 2014). Despite these major contributions to the world
economy, very little of the profits earned remain on the continent, thus causing many African
countries not to have benefited thereof from these extractions (African Progress Panel, 2013).

Mismanagement of extractive industry revenues have often been associated with political
instability, weak institutions, authoritarianism and underinvestment in other non-extractive
sectors. The consequences of these actions have been associated with unstable economic growth,

11
limited job creation, resource-related conflicts, environmental degradation, gender violence, and
governance challenges such as corruption and rent seeking.

This phenomenon is commonly termed as the “paradox of plenty” or “the resource curse.” Some
studies suggest the phenomenon is unavoidable. Others however, suggest that sound
management of the revenues obtained from these resources (oil, gas and minerals) can be used to
attain sustainable development (UNDP, 2015). This can be done by investing in the people,
infrastructure, creation of jobs etc. This calls for the need for resource-rich African countries to
adopt an approach characterized by sound fiscal and natural resource management that could
yield fairness, reliability and viability as opposed to the status quo. Revenue management is thus
considered a key component of such a model since it goes to promote sustainability, poverty
alleviation and good governance.

In addition to conventional crude oil regulations, like those passed by Nigeria, Angola, Gabon
etc. the need has arisen for specific legislation aimed at addressing challenges peculiar to the
revenues generated from the extractive sector. Hence revenue management laws are required to
control and regulate crude oil accounts and associated sovereign funds by clearly spelling out
how to structure and manage to promote the assurance of high levels of accountability (Bell et
al., 2007). Revenue management as depicted in Fig.2.1 below, is a process heavily entwined with
a country’s annual budget allocation, national development plans and fiscal regulation.

Fig. 2.1: Legal & Administrative framework in the extractives value chain: Source; Dietsche et
al. (2013).
12
2.1.1 CHALLENGES OF REVENUE MANAGEMENT IN THE EXTRACTIVE
INDUSTRY
Many countries fail to realize the expected gains of socio-economic development when they find
natural resources. This failure is often blamed on the abysmal handling of natural resource
incomes and also the monies received by government from the sale of these resources (NRGI,
2015). Hence, the significance of properly handling these funds cannot be overemphasized.
Revenues generated from the extractive industry are to a large extent spent on the public sector.
The proper spending and disbursement of these funds across generations is essential for any form
of economic development.

According to Calder (2014), tax authorities tend to lack the know-how required in handling
extractive resource revenues and general tax administration experts may feel not up to the task of
counselling them. This peculiar situation has been found to be influenced by four main factors.

1. Volatility and Uncertainty

Commodity prices (prices of natural resources) waver as per the market forces. As a result, when
a government’s revenues are dependent heavily or solely on natural resources, their revenues will
be subject to fluctuations (NRGI, 2015).

According to a study by the World Bank (2002), volatility constitutes the biggest challenge for
the resource-rich economies. They explained further that volatility poses complications to
revenue management rules developed for resource receipts, and consequently impacts their
resource wealth projections as well as government cash flows.

According to studies by the NRGI (2015), the famed resource curse that often characterize the
extractive industry finds much or all of the negative effect stemming from increased volatility
which have been shown to cost an arm and a leg. The situation is also exacerbated by the poor
records of price projections and inadequate information about future prices. The challenge of
volatility is also augmented by extraction production cycles and unplanned shutdowns. This
tends to make expansion planning a strenuous goal to achieve, and hence becomes a stimulus to
spend extravagantly on huge legacy projects when charges go up and revenue falls are recorded
in order to keep up standards of living as the same before the fall. The final outcome is one of

13
bad investment choices and a bigger chance of a debt crisis (NRGI, 2015). Fig. 2.2 below depicts
the unstable nature of natural resource revenues.

Fig 2.2: Volatile Revenues, Source: Bauer, 2012

2. Exhaustibility or Finite:

According to the NRGI (2015), the extraction project life cycle is finite, usually between 20 – 50
years. Despite the fact that advanced technologies for exploration yield new discoveries,
eventually extractive resources have a limited time span. Theoretically it is anticipated that the
finite nature of extractive resources poses the challenge of inter-generational issues and calls for
a good balance between government’s spending today as against savings for tomorrow (World
Bank, 2002). Research cites countries which have witnessed sizeable economic success at their
summit and later sunk into penury not long after the resources were completely exploited. It is
recorded that apart from the Island of Nauru, there is no record of any other country that has
actually run out of minerals or hydrocarbon resources. Fig. 2.3 below depicts the revenue flow of
a model petroleum project.

14
Fig. 2.3: Project Timeline of a Typical Oil and Gas Project, Source: (Bauer, 2013)

3. Damage to Other Industries (Dutch Disease)

The discovery of natural resources has the potential of constituting the largest proportion of a
nation’s GDP and government earnings. Hence, in a scenario where a nation’s economy lacks the
absorptive capacity to efficiently utilize these revenues, it can translate into inflation or an
appreciation of the exchange rate values. This phenomenon escalates the price of domestic goods
production in the foreign market (particularly manufactured goods), thus negatively affecting
exporters.

Fig. 2.4: Dutch Disease and Drain Effect, Source: NRGI 2013

Another concern is that, huge returns in the private sector tend to lure most of the competent
personnel to the extractive sector. Hence, in the case where a country has a small number of
skilled workers, other sectors are likely to be starved of the requisite expertise as most of them
are likely to be concentrated in the extractive industry. Collectively, the above described scenario
can lead to other industries experiencing difficulty in operating successfully, thereby making the
15
country more reliant on natural resources. It is the collective effect of this that is referred to as
the “Dutch Disease” as shown in Fig.2.4 above.

4. They Can be Large and Geographically Concentrated

The size of the revenues obtained from the extractive sector can be huge in comparison to how
big a country’s economy is. However, the industry is one that is characterized by capital-
intensiveness as opposed to being labour-intensive, hence it is inclined to engage the services of
a relatively small section of the populace. This is often in contradiction with the hopes of the
surrounding localities at the extraction point. There is also the propensity of the gains being
enjoyed by only a privileged minority of the population or being exported to foreign investors. In
consequence, there will be unmet expectations among locals and can result in conflicts in these
areas where extraction occurs. There is also the potential of government’s mismanagement of
large amounts of profits, except oversight and accountability measures are implemented to curb
the situation (NRGI, 2015).

2.2 EXTRACTIVE RESOURCE MANAGEMENT MODELS

2.2.1 AMERICA’s APPROACH
The success of America’s extractive industry can be attributed to a deliberate effort towards
forging a strong relationship between natural resource extraction and production, which was
considered a vital economic venture. America’s approach leveraged on an integrated economic
model which demanded total development with a positive outcome on the effective operation of
important areas of the economy (David and Wright, 1997).

The exploitation of natural resources coupled with strategic value addition, constitutes a strategic
tool for national development which positively impacts job creation opportunities. The model
adopted by the United States of America works best by identifying a vital economic component
with an immense ability to accelerate long-term economic growth.

The holistic economic development model accounted for America’s evolution into becoming the
most multi-faceted and technologically sophisticated economy the world over. Despite
constituting 17% of America’s output in 2012, the compelling impact of these important areas
(mining, manufacturing and construction) positively affected the services division like the
16
finance, insurance, real estate, health care etc., all of which amounted to more than 40% of the
GDP (United States GDP Annual Growth Rate, 2013). The natural resource extraction model
adopted by the United States of America enjoyed success which was evidenced by the realization
of the best GDP success rate of 17.20% at the peak of the mining boom of 1950 (United States
GDP Annual Growth Rate, 2013).

According to David and Wright (1997), the success of the American model was also an
attestation to the importance of direction in translating natural resource wealth into long-term
growth. Their studies indicated that the leadership deliberately developed policies namely, the
advancement of empirical studies into novel technologies, and legal and institutional capacity
building towards the realization of a speedy transformation of the economy.

Their report also indicates that the Federal Mining Laws of 1866, 1870 and 1872, allowed for
unrestricted access for mineral extraction. It also granted complete authority to mine particular
areas upon evidence of detection. Limits were placed on the size of personal claims and
explorers were required to work on their concessions only for an agreed number of times or risk
losing the concession (David and Wright, 1997).

The development of effective linkages saw to it that increased extraction activities were not
conducted in isolation but rather in partnership with other sectors (education, manufacturing,
employment etc.) that offered the required concerted backing to the extractive sector.

Private and public sections of the economy alike were encouraged to leverage upon the high
levels of operations in the extractive sector and its related sectors to enhance their fortunes. The
construction of educational establishments who offered tuition in mining and metallurgy was
also encouraged by leadership. Case in point was the establishment of the American Institute of
Mining Engineers which got founded in 1871 to produce post-graduate level manpower for the
minerals extraction sector. This led to the reinforcement of relationships between technical
education and industrial production which fostered the cost-effective exploitation of natural
resources for growth (ECDPM, 2013).

America also employed inducement packages to lure and sustain the interest and involvement of
private investors. America’s mining law also made provision for incentives and property rights
that ensured there were benefits for investments in natural resource extraction. The American
17
government is credited for its ingenuity in refusing to assert absolute legal right to the country’s
minerals. This approach had the inherent advantage of a lease of life, whilst serving as a major
inducement to individual investors who sought to exploit the increased profits and wealth
formation. America has been creative in maintaining the policy of open access for prospecting in
comparison with other significant extractive regimes particularly in Africa. The Land Ordinance
of 1785 catered for the settlement of about 30% of the metal ores extracted to the nation in
exchange for unrestrained exploitation access by the citizens (David and Wright, 1997).

According to the American Petroleum Institute (2009), the extensive economic benefits enjoyed
by all facets of the economy across all the states is attributable to a blend of relevant education
related to the minerals sector operation and the successful cooperation and collaboration with
industry, in addition to property rights being awarded to deserving nationals. The mainstreaming
of mining activities into key areas of the economy can therefore be said to have undoubtedly
given rise to the expedited growth of the United States economy via surging mineral resource
exploitation and refinement.

In reference to its monetary regime, the United States has put in place a successful means of
tracking income creation and financial gains. Arrangements made in section 482 of the Internal
Revenue Service Transfer Pricing Regulations of 1917, which was revised in 1994 and 1995 to
cater for the increased transnational interactions of multinational corporations, inflict very stiff
penalties for abuse of inter-firm pricing (Miesel, Higinbotham and Yi, 2002).

Their research further indicates that to complement the stiff penalties imposed, national tax
authorities are skilled in the complex use of transnational transfer charges and the disbursement
of dividends which are mandated by law to be carried out in an objective, transparent and on an
arms-length basis.

2.2.2 NORWAY’s APPROACH

The natural resource management model of Norway was hinged on the State owning and taking
a lead role in exploitation activities (Economy Watch, 2010).

Right from the word go, the Norwegian government demonstrated strategic focus by taking
control of and determining the extent and schedule for petroleum development. Government’s
participation offered a great sense of leadership and patriotism that encouraged the employment
18
of Norwegian local establishments in the exploration of their crude oil fields. The oil and gas
sector of Norway accounts for at least 50% of the nation’s exports and 30% of its national
revenue (Economy Watch, 2010).

The exploitation and processing of oil led to a modification in construct of the Norwegian
economy. Transportation and manufacturing activities also complemented exploration operations
thereby advancing socio-economic advancement of the welfare State. At present, foreign income
which is mostly accounted for by crude oil and natural gas makes up for an average of 40% of
Norway’s GDP (Worldmark Encyclopedia of Nations, 2007).

Norway hinged its exploration policy on a well thought out plan that laid a great significance on
progressive growth backed by the build-up of local content which is required for productive
exploration and other associated operations. Hence, it was less enthused about employing
financial regimes that drew-in foreign investment, as was the case with the United Kingdom,
which heavily relied on technical expertise from the United States of America in exploiting oil
findings in its North Sea (American Petroleum Institute, 2009).

Norway’s decision to develop their local content before venturing into exploration, eliminated
the potential challenges associated with employing non-native expertise. Historically, the
inducement package deals, which entailed tax concession plus stability pacts have been
identified to be the downfall of majority of natural resource endowed third world States that are
excessively reliant on non-native skilled personnel. Norway chose to go with the option of self-
dependence at a time when it lacked the needed expertise in oil and gas exploration and as such
deliberately delayed the timing of the commencement of its oil exploitation activities. This
approach afforded the nation the time to develop a world-class oil service industry capable of
optimizing the returns from its exploration activities. The Norwegian government understood
that it required more time in enhancing and tailoring its shipbuilding technology to crude oil
exploration infrastructure and competence. The strategy proved fruitful as it enabled them to
develop an efficient petroleum service industry equipped with the appropriate synergies that
spurred Norway on to sustainable development. The recognition enjoyed by Norway
internationally for their success in effectively exploiting its natural resources demonstrates the
potency of the self-reliance model (American Petroleum Institute, 2009).

19
With respect to financial administration, the laws governing Norway’s transfer pricing are strict
and stipulate that all intercompany dealings shall be conducted in a sternly arm’s length manner
with accompanying paper work for all transactions (Deloitte, 2011).

Tax authorities need to be content that the inter-company charges are commensurate with the
goods and services rendered. Failure to do so, shall lead to the imposition of strict sanctions.
Areas of potential abuse such as interest payments and management fees are critically examined
by tax institutions. As a measure to ensure honest reporting by parties involved, tax authorities
are backed legally to increase declared incomes upon suspicion of under-reporting. The crux of
its transfer pricing documentation rules, is transparency, which demands the keeping of a
different tax return form in reporting all counter-party undertakings. Norway’s Taxation and
Investment law of 2011, requires companies to record their transfer pricing documentation upon
request within at most a 45 day duration or face steep financial penalties (Deloitte, 2011).

It also demonstrated novelty in its revenue management approach by strategically aligning

petroleum income with the rest of the economy in a manner that discouraged the ineffectiveness
of the funds. Hence, incomes which exceed the present developmental requirements are kept for
the unborn generations’ development. This accounts for why the Petroleum management fund
was set up in 1990 to absorb revenue excesses from natural resources (American Petroleum
Institute, 2009).

2.2.3 BOTSWANA’s APPROACH

Botswana’s mining wealth makes up for over 30% of its GDP, 80% of its gross export earnings
and 50% of the nation’s total government earnings (Miesel, Higinbotham and Yi, 2002). The
enormity of the contribution from mining proceeds is a clear reflection of the favourable nature
of the re-negotiated pact between the country of Botswana and the major foreign players
involved in its extractive industry. Government holds uniform ownership rights in Debswana, the
Joint Venture (JV) partnership with De Beers of South Africa, the global diamond giants. The
Joint Venture assumes complete jurisdiction over all operations in the diamond export business
and is focused on two key sectors. First of which addresses the Joint Venture partnership referred
to as Debswana and the second deals with the sorting, cutting, polishing, aggregating and
marketing of diamonds (American Petroleum Institute, 2009).

20
The diamond business in Botswana is clearly defined to ensure greater transparency as well as
add immense benefits to the sector via the provision of required jobs for the nationals.
Technology transfer is also incorporated in the Sales Pact with De Beers, which requires the
continuous movement of the London-based sales operations to Gaborone to be finished at the
end of 2013. This will ensure immense manifold benefits for the nation’s economy through
employment and tax revenues (De Beers Group, 2011).

Besides holding major ownership rights in the whole value chain of prospecting, exploration and
processing, it has also been mindful of the negative impacts of double-dealings that has be-
devilled most of the African countries overflowing in natural resources. Hence, the Mines and
Minerals Law of 1999 was designed to ensure openness in consultations with indigenous land-
owners, who are well reimbursed for surrendering their lands towards the benefit of the State.
The Mining Act of 1999 also allows De Beers and other large corporate mineral extraction
companies to broker with the State different taxation programmes that cater for the unique
activities of mineral extracting companies (Worldmark Encyclopedia of Nations, 2007). This tax
regime is considered favourable as it encourages business operations that have a positive impact
on the economy.

According to Grynberg (2013), rough diamonds undergo further treatment in-country as opposed
to the common practice of exporting natural resources in raw form as done by most resource rich
developing countries. The government’s demand for beneficiation, resulted in the ultimate re-
settling of the De Beers diamond Centre from London to Gaborone back in 2009. This decision
by government has given Botswana a lease of life due to the creation of over 3000 jobs in
diamond processing and also the provision of training opportunities for the youth in acquiring the
appropriate skillset for processing diamonds (Ibeawuchi, Nwachukwu and Nworuh, 2010).

The challenge of conflict between government and land owners is removed by the establishment
of a cordial relationship between both parties. This cordiality is achieved by ensuring that
concessioners responsible for putting together equity stakes of the government in Joint Venture
deals, do so in the common interest of both the corporate bodies and the nationals involved first
hand in the exploitation procedure. Land owners also enjoy dividends presented as royalties and
taxes which aid in the supply of important infrastructure and the growth of the local economy via
beneficiation.
21
The Pula fund, which was set up in 1994 as a distant future investment portfolio, is credited with
excess foreign exchange reserves beyond the monies needed for the mid-term. The Central Bank
which is tasked with the responsibility of managing the fund, is required to strategically invest in
instruments that provide in the least, the safekeeping of the worth of the investments in both
local and foreign currency terms. The Pula Fund is subject to price volatility on the foreign trade
market for diamonds. High returns on investment are therefore required to eliminate likely losses
that may come about due to harsh market conditions. Case in point was the global financial crisis
in late 2008, which led to some amount of erosion of the Pula fund (Bank of Botswana, 2013).

2.3 REVIEW OF OIL AND GAS REVENUE MANAGEMENT BILLS

2.3.1 THE PETROLEUM REVENUE MANAGEMENT BILL (PRMB), 2012 OF SOUTH
SUDAN
2.3.1.1 INTRODUCTION
The Bill was passed to manage the oil and gas income of South Sudan. It is responsible for the
formation and maintenance of the Petroleum Revenue Account and Reserve Funds, and for all
financial transactions related to these accounts.

The Bill was outlined in conformity with a number of articles (52, 177 and 178) of the interim
constitution. The Bill authorizes the Government of South Sudan to oversee all the national oil
revenue as well as setup and perpetuate the Oil Revenue Stabilization Account and the Future
Generation Fund.

The Bill also applies to all State income that is earned from any crude oil operations that takes
place in the area of South Sudan, which includes every operation in, under and upon its land. The
Bill also takes precedence in any conflict that arises between it and every other law or the
stipulations of any pact authorizing crude oil operations (PRMB, 2012).

2.3.1.2 THE PETROLEUM REVENUE ACCOUNT

According to the PRMB (2012), a petroleum revenue account shall be established at the Bank of
Sudan by the Ministry. This account shall hold all petroleum revenue which is due the
Government for any subsequent transfers as provided for by the Bill. The petroleum revenues
shall include:

 Monies received for selling Government’s crude oil entitlements;

22
  Surface rental charges, signature bonuses and other cost related emoluments received by
the country in conformity with the Petroleum Act, 2012, licenses permitting petroleum
operations or any oil and gas pacts;
 Monies earned as interest on the petroleum revenue account;
 Any monies owed as tax on earnings from oil and gas operations;
 Amounts owed by the National Petroleum and Gas Corporation (NPGC) as tax, royalty,
profits or all other monies owed the State with respect to the Bill;
 Any payments obtained from the direct involvement of the Government, such as
participating interests held by the NPGC on the government’s behalf, in petroleum
activities and;
 Any other petroleum related activities not covered above.

The only transfers allowed out of the petroleum revenue account shall be those transferred to the
Consolidated Fund and the Reserve Fund. However, in the event of any overpayment to the
petroleum revenue account, the ministry reserves the right to order the Bank of South Sudan to
carry out a transfer from the petroleum revenue account to repay the overpayment (PRMB,
2012).

2.3.1.3 TRANSFERS TO THE CONSOLIDATED FUND

Government shall propose the amount of petroleum revenue that should be transferred to the
Consolidated Fund annually in aid of the national budget. This amount undergoes approval by
the National Legislative Assembly. The amount proposed by Government shall factor in the:

 Outlined goals of the national development plan;

 Short to long term financial viability of the country;
 Macroeconomic outlook and the economy’s absorptive capacity;
 Ability to carry out public expenditures in a stable and profitable way; and
 Establishment of buffers to guard against volatility in future crude oil revenues.

The Bank of Sudan shall only move funds from the petroleum revenue account to the
consolidated fund following a typed-out demand by the Ministry and the signatures of two
authorized officials.

23
 The total monies moved from the petroleum revenue account and the reserve funds, to the
consolidated fund for a fiscal year shall not surpass the total amount of crude oil funds
needed to finance Government spending as authorized by the National Legislative Assembly
for the financial year (PRMB, 2012).

2.3.1.4 THE RESERVE FUNDS

The Reserve Funds shall be representative of the only savings of the government and shall
comprise the Oil Revenue Stabilization Account and the Future Generation Fund to be
established at the Bank of South Sudan (PRMB, 2012).

The Oil Revenue Stabilization Account shall serve as the financial buffer of the government to
cushion them against petroleum revenue volatility. It shall also serve to fund any unforeseen falls
in crude oil earnings during the fiscal year.

The Future Generation Fund on the other hand shall be used to offer funding for the long term
and to bolster the well-being of unborn generations.

Any monies paid into the reserve funds shall be assigned to the oil revenue stabilization account
till that time when the account balance is equivalent to 50% of government’s yearly expenditure.
Any additional transfers to the stabilization account after having realized the desired balance
shall be paid into the Future Generation Fund.

2.3.1.5 PROHIBITED USE OF THE RESERVE FUNDS (ENCUMBERANCES)

The PRMB (2012), stipulates that the monies in the Future Generation Fund and the Oil Revenue
Stabilization account cannot serve as guarantee for government loans or reimbursement of debts,
securities or any other arrears not linked to the handling of these funds.

2.3.1.6 SUPERVISION
1. Records Keeping and Reporting

The Bill mandates the Bank of South Sudan to maintain proper records of the Petroleum
Revenue Account and the Reserve Funds in compliance with International Financial Reporting
Standards.

24
It further authorizes the director general of accounts to send quarterly management reports to the
Minister in addition to assessment reports on the Petroleum Revenue Account and Reserve
Funds not exceeding forty days post the end of each Quarter (PRMB, 2012).

2. Internal Audit

Any documentation associated with the Petroleum Revenue Account and the Reserve Funds shall
be subject to scrutiny by the internal audit department of the Bank of South Sudan. The
Investment Board, Auditor General, independent auditor and any person authorized legally shall
be furnished with a quarterly report prepared by the Governor (PRMB, 2012).

3. External Audit

According to the PRMB (2012), the Audit Chamber is authorized to select a private auditor to
carry out audits of the Petroleum Revenue Account and the Reserve Funds in consonance with
International Auditing Standards. The private auditor shall be one of international repute chosen
in a free, fair, non-discriminatory and competitive public tender process backed by law regarding
public procurement (PRMB, 2012).

The private auditor chosen per this Act shall serve over the entire duration of the contract, except
abrogated due to severe breach of contract, or if the actions of the private auditor is considered as
harmful to the handling of the crude oil funds.

The PRMB (2012), grants the Audit Chamber as well as the private auditor unrestricted access to
any account, books, minutes, records and any other document, information and data related to the
handling of the Petroleum Revenue Account and the Reserve Funds.

4. Annual Audit

In no more than four months after the closure of the fiscal year, the Bank of South Sudan is
expected to share a copy of the financial statements of the Petroleum Revenue Account and
Reserve Funds with the Ministry. This report shall be subject to approval by the Audit Chamber
(PRMB, 2012).

5. Special Audits

25
According to the Bill, the Audit Chamber is licensed to perform special audits of the Petroleum
Revenue Account and Reserve Funds, or ask the private auditor to do so on its behalf. The Bill
further stipulates that the special audit reports shall be distributed among the Ministry, the Bank
of South Sudan and the National Legislative Assembly (PRMB, 2012).

2.3.2 REVIEW OF GHANA’S OIL & GAS REVENUE MANAGEMENT

2.3.2.1 INTRODUCTION
The Petroleum Revenue Management Act (PRMA), 2011 (Act 815) is the law that oversees the
handling of Ghana’s crude oil earnings. It controls the accrual, administration and management
of Ghana’s crude oil earnings obtained from its upstream and midstream petroleum activities.
Hence, Act 815 shall prevail in the occurrence of any dispute between the provisions of the Act
and any other law with respect to the accrual, allotment and handling of crude oil funds.

The Act also calls for the establishment of a number of funds at the Bank of Ghana. These funds
include the Petroleum Holding Funds (PHF), the Ghana Petroleum Funds (GPFs) and the Ghana
Petroleum Wealth Fund (GPWF).

The Act also demands extensive and detailed accountability and transparency initiatives (ATIs)
which include openness and answerability of the petroleum receipts, various degrees of audits,
yearly reports by the Finance Minister about the GPFs, establishment of the Public Interest and
Accountability Committee (PIAC) and sanctions for mismanaging, defrauding or breach of the
relevant provisions of the Act.

2.3.2.2 PURPOSE OF THE PRMA

The PRMA was passed to serve as a guide for the upstream crude oil division with respect to the
collection, allotment and management of all monies related to all commercial activities related to
crude oil produced inland for the benefit of its citizens (PIAC, 2017).

The Act also makes provision for such revenues to be used responsibly and also provides the
structure to be relied on by relevant public agencies for collaboration. The Act provides
assurance for the sustainable use of petroleum revenues for national growth as well as the
periodic dissemination of information related to all petroleum receipts for the public’s
knowledge and consumption.

26
2.3.2.3 SOURCES OF REVENUE AND COLLECTION MODES
Table 2.1 below summarizes the major sources of petroleum revenue collected by government.

Revenue Revenue Basis Percentage of Revenue

Generating
Source
Royalty Refers to the monies that the oil companies pay to the In the Ghanaian context, royalties have
country because of its ownership rights of the minerals. ranged between 5 – 12.5% of the total
As owner of the natural resource it enjoys a portion of gross production.
the total production prior to all other deductions being
made. The nation reserves the right to receive the
royalties as cash or kind (oil). The norm has been to
receive it in kind. In this instance, the price of the crude
oil in US dollars on the day of receipt is announced and
documented by the Ghana Revenue Authority as
payment to the State.
Carried Interest GNPC or the State is absolved of all charges incurred in Prior to the passing of the Petroleum Bill
the exploration and development process. The State is of 2016, petroleum pacts earned the
however responsible for covering the charges associated State at least 10% carried interest.
with its share when production commences. Following the passing of the law the
base minimum has been reviewed to
15%.
Additional Interest When a new commercial discovery is declared, Ghana The crude oil agreements presently in
reserves the right to extend its shares in the field within force stipulates an additional interest not
a certain time frame after declaration. Should the State exceeding 25%.
opt to exercise this right, an agreement over the
maximum percentage is made by the parties involved.
GNPC will however bear all costs there is to include
those for development and production.
Corporate Income This refers to the tax charged on the profits earned by The effective CIT being charged at
Tax petroleum establishments. The law i.e., The Petroleum present is 35%.
Income Tax Act currently in place allows for a variable
percentage with a 50% tax rate ceiling.
Additional Oil Ghana is set to enjoy an extra percentage of the IOC’s The current percentage in use is set to a
Entitlement share of the crude oil per unique field so long as the 30% ceiling for government.
profitability exceeds a specified profitability threshold.
Surface Rentals This describes the yearly rent charged to the IOC by the
State for renting the surface of the sea or land being
exploited for crude oil. The state receives this payment
in US dollars per square kilometer of acreage operated
by the licenses of the area.
Other Receipts 1. Capital Gains Tax: This is the tax component
that is effected when an IOC sells off its crude
oil assets and makes a profit.
2. Dividends: This is the money GNPC pays the
State periodically (most often yearly) from its
profits.
Table 2.1: Major Sources of Petroleum Revenue Collected by Government
27
2.3.2.4 THE PETROLEUM HOLDING FUND (PHF)
The PHF is a designated public account situated at the Bank of Ghana. It was set up to function
as an initial repository for all crude oil monies which is due the State, before being disbursed
(PRMA, 2011 [Act 815]). The Act authorizes the Ghana Revenue Authority (GRA) to assess,
collect and account for the petroleum revenues by depositing directly into the PHF, all the
petroleum revenues received.

The Act stipulates that all petroleum revenues due the State should be paid in latest by the 15 th of
every month. A breach of this provision shall attract a 5% penalty of the original amount owed
for each day payment is defaulted (PRMA, 2011).

According to the PRMA (2011), oil and gas income shall be handled differently from normal tax
revenue. It shall not serve as credit to the government, public enterprises, private sector entities
or any other person or entity, or as guarantee for loans, securities, commitments or other arrears
of any other entity. This provision has been made in the Act to guard against excessive
borrowing of petroleum revenue by the government.

2.3.2.5 DISBURSEMENT OF PETROLEUM REVENUES

As stipulated in the PRMA, the monies in the PHF shall be disbursed as follows: It is first
allocated to the National Oil Company (NOC) to fund its activities and next to the Consolidated
Fund (Annual Budget Funding Amount) in aid of the national budget. Next in line is the Ghana
Petroleum Funds (GPF) which comprises the Ghana Heritage Funds (GHF) and the Ghana
Stabilization Funds (GSF) for purposes of savings and investments and last but not least for
exceptional cases such as tax refunds (PRMA, 2011). Fig. 2.5 and 2.6 provide a brief guide to the
disbursements under the PRMA and the more detailed outline of spending allocations
respectively.

28
Fig. 2.5: Outward Flows from the PHF, Source; PIAC, 2017

29
Fig. 2.6: Spending Allocation of Oil Revenues under the PRMA, Source; PIAC, 2017

Seventy percent (70%) of the PHF is paid into the ABFA and 30% is transferred into the GPFs.
Seventy percent (70%) of the funds allocated to the GPF is assigned to the GHF and the
remaining 30% is paid to the GSF. The Finance Minister is also required to prioritize a
maximum of four sectors identified in the law for use of crude oil funds. This is subject to review
every 3years.

30
2.3.2.6 NATIONAL OIL COMPANY (NOC) FUNDING
According to Act 815, the Ghana National Petroleum Corporation (GNPC) represents Ghana as
the NOC. In essence thus, the interest of GNPC represents Ghana’s interest. The funds allocated
to GNPC from the PHF are meant to finance GNPC’s operations with reference to the dividends
it owns in the petroleum agreements (PIAC, 2017).

The transfer to GNPC shall not surpass 55% of the revenue accumulated from the carried and
participating interests of the State, following the removal of equity financing costs. The cash or
its equivalent in barrels of oil that is ceded to GNPC is subject to review every 3 years by
Parliament. Parliament is also responsible for approving GNPC’s programme of activities each
year (PIAC, 2017).

2.3.2.7 ANNUAL BUDGET FUNDING AMOUNT (ABFA)

ABFA provides the avenue for using crude oil earnings in funding the national budget.
Allocations to ABFA should be done with reference to the medium-term growth approach in
consonance with a long-term national development plan. ABFA is mandated to prioritize
activities related to the 12 sectors of the economy (PRMA, 2011).

The Act further instructs government to not prioritize more than four sectors of the chosen 12
when developing a programme of activities for the disbursement of crude oil funds. The rationale
behind that is to eliminate the case of government attempting to address all these sectors
simultaneously, leading to a thin spread of the revenue with the consequent effect of a minimal
transformational impact (PIAC, 2017). The 12 priority areas include; Agriculture, Education,
Potable Water, Infrastructure development, public security, social welfare, strengthening
institutions, healthcare delivery, rural development, housing delivery, alternative energy and
environmental protection.

The funds allocated to the ABFA are subject to parliamentary approval as part of the national
budget and the spending allocations are subject to review every 3 years (PRMA, 2011).
Petroleum revenue to be allocated to the ABFA shall not exceed 70%. Out of this amount, 70%
shall be used for public investment expenditure which is in tune with a development plan. Of the
amount allotted for public investment, a maximum of 25% must be given to the Ghana
Infrastructure Investment Fund (GIIF). The law also makes provision for the ABFA to serve as

31
security for servicing loans and taking care of extra government arrears. This however, shall not
exceed a period of 10 years following the enactment of the PRMA, that is, by the end of 2021.

2.3.2.8 GHANA PETROLEUM FUNDS: STABILIZATION FUND AND HERITAGE

FUND
The GPF comprises the Ghana Stabilization Fund (GSF) and the Ghana Heritage Fund (GHF)
which were set up to receive petroleum funds from the PHF which are surplus from the ABFA. It
is mandated by law to pay not less than 30% of the actual annual crude oil earnings into the GPF.
At least 30% of the accrued earnings in the GPF is paid into the GHF and the remainder is to be
paid into the GSF (PRMA, 2011).

2.3.2.9 GHANA HERITAGE FUND (GHF)

The GHF was setup to operate as a funding account for unborn generations when the country’s
crude oil reserves would have been completely exhausted (PRMA, 2011). The monies are put in
secure, low-risk investments overseas. The qualifying instruments allowed by the law is
restricted to investment grade bonds and convertible currency deposits issued by sovereign
states, central banks and multilateral organizations such as the Bank for International Settlements
etc. Parliament is also expected to review the restrictions on the transfers every 15 years as well
as to transfer portions of the interest accrued into any other fund (PIAC, 2017).

2.3.2.10 GHANA STABILIZATION FUND (GSF)

This fund is established to cushion government in times of economic shocks or unforeseen
shortages in crude earnings which requires that money be raised in aid of the budget. Case in
point was in 2015 and 2016 when drops in oil prices accounted for unplanned shortages in crude
earnings (PIAC, 2017).

Act 815 mandates the Finance Minister, following approval by Parliament, to put a cap on the
amount that can be accrued to the GSF as called for by the prevailing macroeconomic conditions.
Once the set limit is attained, excesses are moved to a backup account (sinking fund) or for
payment of debts subject to parliamentary approval.

2.3.2.11 EXCEPTIONAL TRANSFERS

According to the PRMA, exceptional transfers from the PHF are allowed under three conditions,
which are:
32
  Repayment of tax overpayment as well as pay for administrative costs
 Catering for royalties to local societies in respect of onshore activities, and
 Offering suitable remuneration to areas that are negatively impacted by petroleum
operations.

2.3.2.12 GHANA PETROLEUM WEALTH FUND (GPWF)

The GPWF represents the account to be established to consolidate the monies held in both the
GSF and GHF one year after the depletion of petroleum resources. Hence, the establishment of
this fund is an indication of the closure of the GSF and GHF (PRMA, 2011).

The GPWF is aimed at providing fixed returns. The monies are expected to be in qualifying
instruments which are subject to review on a 3-year basis or earlier by the Minister upon counsel
of the Investment Advisory Committee (IAC). The accumulated dividends from the GNPC and
the interest earned on the GPWF shall be used in support of the national budget via ABFA when
the crude oil reserves are exhausted.

2.3.2.13 REPORTING REQUIREMENTS AND AUDITING OF GHANA’s PETROLEUM

FUNDS
The PRMA stipulates that the Finance Minister publishes a gazette quarterly, detailing all
records regarding the receipt of payments into the PHF. The Act also requires the minister to
present the same information to parliament. All this is in order to keep the public abreast and
informed (PRMA, 2015).

1. Reports

The Central bank is mandated to provide the minister of finance and the IAC, reports detailing
the inflows and outflows of monies to and from the GSF and GHF on a quarterly basis and the
overall performance of these accounts. These reports should be distributed within 30 days after
each quarter comes to a close. The PRMA also requires the Bank of Ghana to issue mid-year
reports regarding the GSF and GHF, present these reports to Parliament and to publicize them
via two of the state owned national newspapers and on the Bank of Ghana official website
(PRMA, 2011).

33
It is also required of the finance minister to publicize a yearly report regarding crude oil revenue
when delivering the yearly budget statement and economic policies to Parliament. This report
shall entail the audited financial statements on receipts from the previous year. It should also
detail activities (deposits and withdrawals) carried out on the GPF, as well as those on ABFA
funded projects.

2. Books of the Petroleum Funds

The PRMA mandates the central bank to maintain accurate documentation with respect to the
PHF and the GPF.

3. Auditing of Petroleum Funds

The internal audit department of the Bank of Ghana and the Auditor-General are required to
conduct regular audits of the accounts, records, systems and procedures on the petroleum funds.

4. Accountability, Transparency and Public Oversight

The PRMA demands the handling of all crude oil earnings to be done in compliance with the
highest globally recognized best practices of lucidity and fine leadership.

5. Non-Compliance

The PRMA stipulates that any individual who does not adhere to the direction to publicize
information catered for in the Bill, or is responsible for another individual’s non-conformance
with the Act, or in any way causes another individual to be a hindrance in adherence to the
stipulations therein, perpetrates a crime and is liable to summary conviction or to a fine.

6. Prohibitions on the Petroleum Funds

 PHF
1. No establishment or individual, be they private or otherwise, is permitted to use the PHF
as credit;
2. The PHF cannot serve as guarantee for loans, or any other debts, for any institution or
individual, whether private or otherwise; and
3. The PHF is not to be borrowed against by any establishment, be they public or otherwise.
 GHF

34
 Collateralizing the GHF against borrowing is prohibited, even though Parliament can
authorize the transfer of part of the accumulated dividends into another account setup under
the PRMA at a 15 year interval following the inception of the PRMA.

 ABFA

The ABFA on the other hand can be used as guarantee to clear debts and other government
loans for a limited duration not exceeding 10 years following the inception of the PRMA.

Fig. 2.7: Petroleum Revenue Reporting Schedule, Source: MoFEP

2.3.2.14 INSTITUTIONS INVOLVED IN PETROLEUM REVENUE MANAGEMENT

The PRMA makes provision for eight key institutions to be actively involved in the management
of petroleum revenue. The institutions are Parliament, Energy Ministry, Ministry of Finance,
Bank of Ghana, The Auditor General, Ghana Revenue Authority, Investment Advisory
35
Committee and the Public Interest and Accountability Committee. Fig. 2.8 captures the hierarchy
and relationship among these bodies. The detailed responsibilities of the various bodies are also
discussed below.

1. PARLIAMENT

Parliament is tasked with the responsibility of ratifying petroleum agreements as stipulated in

Article 268 of the constitution of Ghana. Parliament is mandated to determine the annual
petroleum revenue spending through the approval of ABFA as part of the national budgetary
process (PIAC, 2017).

2. ENERGY MINISTRY

It is the responsibility of the ministry to develop and implement energy sector policies for the
State. It also has oversight over the activities of a couple of government establishments such as
the GNPC and the Ghana National Gas Company (GNGC).

3. MINISTRY OF FINANCE

The PRMA mandates the Finance Minister to develop an investment policy for investing the
Ghana Petroleum Funds. The minister is also authorized to have oversight of the overall
management of the Fund. It is also within the Minister’s purview to decide on investment
strategy following discussions with the IAC and the Governor of the central bank (PRMA,
2011).

The minister shall be required to have an operations management agreement with the central
bank in respect of the administration of the Funds. The minister shall also nominate the IAC
members following talks with the central bank Governor. The minister is backed by legislative
instrument to enact laws under the Act.

4. BANK OF GHANA

According to the PRMA (2011), the central bank is responsible for the day-to-day operational
management of the PHF, GPS and in due time the GPWF in accordance with the operations pact
consented to by the finance minister. The central bank is also required to prudently handle the

36
funds in accordance with the developed operational and management framework provided by the
Minister.

5. THE AUDITOR-GENERAL

It is the responsibility of the auditor-general to carry out annual independent scrutiny of the
crude oil earnings. The auditor-general is also allowed to delegate this duty to an external auditor
for a duration lasting at most 3 years and is not extendable. The auditor-general is also mandated
by law to submit a yearly audit report to Parliament.

6. GHANA REVENUE AUTHORITY (GRA)

Established by law, under the Ghana Revenue Authority Act, 2009 (Act 791), the GRA is
responsible for assessing, collecting and accounting for all petroleum revenues which are due the
State.

7. INVESTMENT ADVISORY COMMITTEE (IAC)

The IAC is tasked by the PRMA to advise the finance minister with regards to the general
performance monitoring of the GPF. It is also required to prepare and suggest to the finance
minister the investment policy and handling of the income. It is also mandated to offer counsel
on general investment principles and overall management schemes.

The committee is tasked with reporting on the performance of the GSF and GHF to the finance
minister on a quarterly or yearly basis to inform the annual budget and financial statements of the
State.

The IAC is a seven-member committee whose members are chosen by the finance minister in
consultation with the governor for appointment by the president. It is mandatory that at least 2 of
these nominees be women with proven competence in finance, investments, economics, business
management or law or other related disciplines (PIAC, 2017).

8. PUBLIC INTEREST AND ACCOUNTABILITY COMMITTEE (PIAC)

The responsibility of PIAC according to the PRMA (2011), is to track and assess adherence by
government and other authorized bodies in handling the disbursement of crude oil funds and
37
investments. PIAC is also required to make available, an avenue for public discussion regarding
the extent to which spending options and the management and use of petroleum revenues are in
conformity with development priorities. It is also mandated to provide independent evaluations
of the management and use of the petroleum funds.

PIAC is a 13-member committee whose members are selected by their respective bodies.
Members are nominated from the following institutions; an independent policy research think-
tank, civil society organizations, trade union congress, national house of chiefs, association of
queen mothers, association of Ghana industries and chamber of commerce, Ghana journalists
association, institute of chartered accountants, Ghana extractive industries transparency
initiative, Christian groups namely the national catholic secretariat, the Christian council and the
Pentecostal council on a rotational basis, the federation of Muslim councils and Ahmadiyya
mission on a rotational basis; and the Ghana academy of arts and sciences.

Fig. 2.8: Institutions Involved in Petroleum Revenue Management, Source; PIAC, 2017

2.4 SUMMARY AND RESEARCH GAP

Ghana’s enactment of the PRMA was an attempt to escape the governance predicament
experienced by the resource rich African nations such as Nigeria, Equatorial Guinea, Gabon and
Angola (Asafu-Adjaye, 2013).

38
However, recent disturbing revelations brought to the fore by PIAC, accredited think tanks and
non-governmental organizations (NGOs) suggest that the country may be headed in the direction
of the resource curse if proper care is not exercised in the management of its petroleum
resources.

Similar concerns were shared by the Africa Centre for Energy Policy (ACEP) in its most recent
public interest report on oil and gas revenue management in Ghana for the period 2011-2013
when it quoted PIAC as follows; “there is demonstrated evidence of inefficiency in the use of
petroleum revenue. Furthermore, the Government of Ghana has exploited weakness in the
Petroleum Revenue Management Act to increase its spending of petroleum revenues meant for
savings in the Stabilization Fund. The provision that allows the Minister of Finance the
discretion to cap the Stabilization Fund and to use any excess revenue for debt repayment or
contingency fund has been exercised capriciously.”

According to ACEP (2013), a good law such as the PRMA may not suffice in preventing oil
revenues from going waste. Following a study of the application of the PRMA on a number of
projects and the resultant effect of oil wealth on the economy, they arrived at the conclusion that:

“…oil revenues have not been managed efficiently so far as the projects evaluated are concerned.
This is due to multiple factors including, but not limited to, poor project selection, project delays,
operational lapses, and low absorptive capacity as a result of the high social and economic cost
of investments. Thus the spending of the ABFA has not yet met the standard of efficiency.”

Studies indicate that best practices in resource revenue management continues to gain
recognition. Nonetheless, the experience of most resource-rich countries in this regard has been
nothing to write home about. This can be said to be an indication of challenges with the
implementation of resource revenue management best practices. Following the reports by ACEP,
it can be inferred that despite the enactment of the PRMA, Ghana still risks suffering the
miseries that have be-devilled many resource rich developing nations. This calls for the need to
understand the lessons for avoiding the common dangers of resource revenue management in the
Ghanaian context so that they can be properly tailored to suit the circumstances of the State. It is
also a wakeup call for a critical assessment of the PRMA and how it is being implemented. It
also calls for an evaluation of how oil revenues have been spent in recent years to determine if it

39
is in adherence with the PRMA and possibly the economic impact of these spending and whether
they are in the nation’s best interest.

CHAPTER THREE: RESEARCH METHODOLOGY

3.0 INTRODUCTION
This chapter aims to throw more light on the research methodology adopted in realizing the
objectives of the study. In this chapter, the research approach, design and the pros and cons of
the chosen research tools are discussed. The sampling strategy is discussed alongside with the
data analysis methods employed in the research. The chapter ends with a brief description of the
ethical considerations taken into account whilst conducting the research.

3.1 RESEARCH APPROACH

In this study, a combination of the quantitative and qualitative research strategy commonly
termed as the mixed methods research, was employed. According to Johnson and Onwuegbuzie
(2004), the mixed methods approach entails gathering and analysing both qualitative and
quantitative data and merging both results at some point in the study and making deductions
from both data types. Creswell and Clark (2011), further suggest that, the integration of the
results of both data types helps to enhance the understanding of the research topic, thereby better
answering the research questions and possibly suggesting changes in subsequent research
designs.

This approach also addresses the inherent disadvantages associated with the use of purely
quantitative or qualitative methods (Creswell et al., 2003; Teddlie and Tashakkori, 2009).

The mixed methods approach offers a unique avenue for researchers to use quantitative data in
confirming and testing the results of qualitative data whilst using qualitative data to add more

40
meaning to quantitative data. It is therefore believed that this approach presents the best solution
to successfully realizing the research objectives since the interviews complement and bring more
understanding to the findings from the analysis of the reports.

Due to the corona virus pandemic and the need to practice social distancing to curb the spread of
the virus, most of the interviews were conducted via electronic means including telephone, Zoom
and Skype. This approach was confronted with the common challenge of unstable internet
connectivity and limited familiarity in operating these technologies. It however presented the
best chance of still enjoying that natural human interaction that characterizes interviews in these
perilous times as opposed to mailing the interview questions. They also offered a relatively more
cost effective means of engaging respondents since transportation costs to various interviewee
locations were eliminated. Internet based meetings also tend to be far cheaper than normal circuit
switched phone calls. The approach also produced a better response rate from interviewees as
opposed to mailing the interview questions electronically to the selected respondents.

3.2 DATA COLLECTION METHOD

To ensure the successful attainment of the research objectives, a series of annual petroleum funds
reports (from 2014 – 2019) from the relevant institutions (PIAC, Ministry of Finance etc.) were
obtained and analysed. These selected institutions are by law mandated to have direct insight and
oversight (probity and accountability) over the disbursement of petroleum revenue of the State
and other petroleum related activities. Hence it is believed that these bodies represent the interest
of the Ghanaian people and hence report honestly and objectively on the management of
petroleum revenue. A critical analysis of the annual reports of these selected bodies therefore
provided the most trusted source of information for the research study.

To complement the analyses of the annual reports, major players (high level personnel) with
specialized knowledge of Ghana’s upstream oil industry were engaged via in depth interviews to
get their perspectives on how oil and gas earnings have been handled so far over the period under
review. Studies have shown that interviews are relied upon as to gather complementary data in
social sciences since they offer an avenue for a deeper, more open and informal discussion
between the interviewer and the interviewee (Potter, 2002; Winchester, 1999; Sarantakos, 2013).
Though the subjective nature of interviews is often looked upon as a disadvantage, this did not
pose a problem to the research study.
41
3.3 SAMPLE SELECTION
The purposive or judgmental sampling technique was adopted for this study in selecting the
respondents. Purposive sampling is a type of non-probability sampling where by particular
persons are deliberately chosen to provide specialized knowledge which cannot be readily
obtained from other sources (Maxwell, 1996). Freedman et al. (2007) also indicate that with
respect to this sampling approach, respondents are chosen because of their in-depth knowledge,
experience and expertise with regards to the research subject. The technique also has the added
advantage of being low-cost, convenient, not time consuming and best suited for an exploratory
research study such as the one being embarked upon in this dissertation. Purposive sampling is
often characterized by the disadvantage that its findings are considered not generalizable
(Malhotra and Birks, 2006).

The respondents chosen for this study were selected based on their specialized knowledge and
sufficient relevant experience in the upstream oil industry of Ghana. Their active participation in
several petroleum related initiatives and partnerships were key factors contributing to their
selection. The participants selected to be interviewed were individuals (names withheld) from the
GNPC, Petroleum Commission and the Ministry of Finance.

3.4 DATA ANALYSIS

The Data Analysis Tool pack of the Microsoft Office Suite was employed in analysing the
annual petroleum fund management reports of the selected bodies for the study. The reports from
these selected institutions were cleaned up and organized to enhance the interpretation of the data
as well as for inferential purposes.

The interview results were also manually analysed to identify patterns in responses and how best
they offer more clarity and deeper understanding of the issues of relevance to the theme of the
research.

3.5 ETHICAL CONSIDERATION

A number of ethical issues were also taken into account in the conduct of this research study.
Top most on the list was obtaining the consent of the participants (institutions and interviewees)
in this study. Prior notice regarding the purpose of the project was served to all of them in order
to obtain their consent in writing.

42
The interviewees were asked to sign a withdrawal letter which assured them of the voluntary
nature of their participation and therefore they were free to pull out of the exercise at any time
for any reason.

Participants were informed that their identities would be treated as private and consent to the
contrary would be sought and provided in writing by the researcher. It was also made clear to all
participants in writing that their inputs would be used purely for academic purposes and nothing
else.

CHAPTER 4: DATA ANALYSIS AND DISCUSSION

4.1 INTRODUCTION
Chapter 4 is aimed at examining and discussing the data obtained from the field with respect to
the objectives of the study.

The primary data obtained from interviews with a number of seasoned experts in Ghana’s
upstream oil industry was analysed. The results are presented in two parts. The first part briefly
discussed the background of the interviewees in an effort to lend credibility to their submissions.
The second part delved deeper into their perspectives on matters tailored to answering the
research objectives.

The secondary data was obtained from the annual reports issued by PIAC on the management of
Ghana’s petroleum revenues and analysed. The analyses focused on the disbursements of the
petroleum revenues received by the State annually and these facilitated the assessment of
whether or not these disbursements were executed in adherence to the stipulations of the PRMA.

4.2 DEMOGRAPHIC DATA OF RESPONDENTS/INTERVIEWEES

The demographics of the respondents are analysed in this section to lend credibility to their
responses. The respondents’ demographics covered gender, age, job position occupied, area of
expertise and years of relevant experience in the upstream petroleum sector.

43
4.2.1 GENDER AND AGE OF RESPONDENTS
Out of the total of five people who were available to be interviewed, two of them were females
and the remaining three were males. Fig. 4.1 depicts the gender distribution of respondents in a
pie chart.

Fig 4.1, Source; Field Data, 2020

Three of the respondents were above 45 years of age while one was aged between 25-35 years
and the last was aged between 36 and 45 years old. Fig 4.2 below briefly captures the age of the
respondents.

44
 Respondents' Age Distribution Chart
20%

Below 25 years
25 - 35 years
36 - 45 years
Above 45 years
60% 20%

Fig 4.2, Source; Field Data, 2020

4.2.2 JOB POSITION OF RESPONDENTS

Table 4.1 shows the distribution of the interviewees in relation to their job positions. The results
of the survey indicated that the respondents were high ranking officers in their organisations so
they have a greater depth of knowledge of the subject matter, i.e. disbursement of upstream oil
revenue.

Table 4.1: Job Position of Respondents

Job Position Frequency Percentage Response

Officer 1 20%
Senior Officer 2 40%
Principal Officer 0 0
Manager 1 20%
Director 1 20%
Total 5 100%
Source; (Field Data, 2020)

4.2.3 YEARS OF EXPERIENCE

The respondents also indicated their years of relevant experience in the sector. As indicated in
table 4.2 below 80% of the respondents had a minimum of 6 years and up to 15 years of work

45
experience. This suggests that they had in-depth knowledge of the sector and so they could
provide credible information.

Table 4.2: Years of Experience of Respondents

Years of Experience Frequency Percentage Response

1 – 5 years 1 20%
6 – 10 years 2 40%
11 – 15 years 1 20%
Above 15 years 1 20%
Source; (Field Data, 2020)

4.2.4 AREA OF EXPERTISE

The respondents were also asked to state their areas of expertise in the petroleum sector. The
roles provided by respondents were cost audits, petroleum engineering etc. From the
aforementioned fields of expertise it could be deduce that the respondents had the relevant know
how to provide credible responses to the questions asked.

4.3 GOVERNMENT’S COMPLIANCE WITH THE PRMA WITH RESPECT TO

THE DISBURSEMENT OF PETROLEUM REVENUE IN THE PHF.
The first research objective sought to review petroleum revenue disbursements from 2014 – 2019
and to ascertain if they were carried out in compliance with the stipulations of the PRMA. Table
4.3 below captures the disbursement of funds from the PHF to the GNPC, ABFA, GSF and GHF
over the period.

46
 Table 4.3: Disbursement of PHF from 2014-2019

S/N Types of Funds 2014 (US$) 2015 (US$) 2016 (US$) 2017 (US$) 2018 (US$) 2019 (US$)
1 Petroleum Holding Fund 978,017,789.03 387,827,070.00 247,183,400.25 555,332,410.54 977,124,929.97 925,035,879.81
2 National Oil Company (GNPC) 180,712,503.87 126,858,754.00 88,497,092.01 182,039,565.25 305,273,896.32 260,558,525.83
3 Net Receipts to GoG 797,305,285.16 260,968,316.00 140,536,308.24 373,292,845.29 671,851,033.65 664,477,353.98
4 ABFA 409,072,777.80 239,295,371.00 98,375,415.77 169,458,674.13 235,103,316.20 395,471,682.00
5 Ghana Petroleum Funds 388,232,507.43 21,672,946.00 42,160,892.47 203,834,171.16 436,747,717.45 269,005,671.98
6 Ghana Stabilization Fund 271,762,755.16 15,171,062.00 29,512,624.73 142,683,919.82 305,723,402.02 188,303,970.38
7 Ghana Heritage Fund 116,469,752.21 6,501,884.00 12,648,267.74 61,150,251.34 131,024,315.15 80,701,701.60
8 Unutilized Amount 0.00 0.00 18,150,000.00 0.00 0.00 0.00
Source; (Field Data, 2020)

47
4.3.1 KEY OBSERVATIONS - 2014
In 2014, the Government of Ghana (GoG) realized a net amount of US$797.31 million in
petroleum receipts. Of this amount, 51.3% (US$409.07 million) was allotted to the ABFA, which
was less than the statutory 70% parliament had approved in November, 2013. The reason being
that petroleum receipts were higher than projected and hence a lower percentage of the net
amount was required to satisfy the projections made. It can also be inferred from the above
distribution that government tried to strike a balance between the percentages approved as
against the initial projections made. Hence for the year under review, government was able to
push more funds to the GPFs for future and unforeseen uses which is considered the right
approach.

The balance of US$ 388.23 million (which represented 48.7% of the net amount received by
GoG) was transferred to the Ghana Petroleum Funds (GPF). The Ghana Stabilization Fund
(GSF) received 70% (US271.76 million) and the remaining 30% (US$116.47 million) was paid
into the Ghana Heritage Fund (GHF). These allocations were in compliance with stipulations of
the PRMA.

4.3.2 KEY OBSERVATIONS - 2015

In 2015, Ghana’s total petroleum receipts was US$395.74 million, out of which US$387.83
million was disbursed for the year under review. A total of US$126.86 million (equivalent to
32.71% of the disbursed amount) was allocated to GNPC for CAPI. This amount was however in
excess of 2.71% of the 30% that had been approved by parliament in 2013 for the period of
2014-2016.

Out of the remaining US$260.97 million (61.7%) that was issued to the GoG as net receipts,
US$239.30 million of this amount, representing 92% was paid into the ABFA fund. This amount
was in clear violation of the 70% indicated in the PRMA. Hence, starving the GPFs by 22% of
the amount. An additional US$53.69 million was also taken out of the GSF to support the ABFA
that year. Thus, totalling US$292.98 million being allocated to the ABFA. This was to make up
for the shortfall in the ABFA.

The remaining US$21.67 million (representing only 9%) of the net GoG receipts was however
disbursed in accordance with the PRMA, that is 70% to the GSF and the remainder 30% to the
GHF.
48
The distribution however suggests a heavy reliance on the petroleum receipts in funding the
ABFA account, which is not really the best. As other sectors needed to be improved to minimize
over-reliance on the petroleum receipts.

4.3.3 KEY OBSERVATIONS IN 2016

For the year 2016, 92.66% of the total petroleum receipts (US$247.18 million) was disbursed
among the GNPC, ABFA and the GPFs. The remaining US$18.15 million was left undistributed
in the Petroleum Holding Fund (PHF).

For the year in review, government also exceeded the approved 30% to be allocated to GNPC by
8.6%, thus totalling US$88.48million being issued to GNPC.

The net amount given to GoG was US$140.54 million. A total of US$98.38 million (70%) was
used to aid the ABFA and the remaining 30% was disbursed between the GPF as follows,
US$29.51 million (70%) went to the GSF and the remaining US$12.65 million (30%) was
transferred to the GHF. Apart from the excess in GNPC payment, all other payments were in
compliance with the PRMA.

4.3.4 KEY OBSERVATIONS IN 2017

The 2017 financial year, recorded a sum total of US$555.33 million in petroleum receipts.
Approximately 33% (US$182.04 million) of the total revenue received was allocated to GNPC.
The balance of US$373.29 million dollars constituted the net GoG receipts.

The net GoG receipts was split between the ABFA and GPF and the percentage share was 45.4%
(US$169.46 million) for ABFA and 54.6% (US$203.83 million) to GPF. The GPF share was
further divided into 70% (US$ 142.68 million) for GSF and 30% (US$61.15 million) for GHF.
These allocations were in compliance with the provisions of the PRMA.

4.3.5 KEY OBSERVATIONS FOR 2018

The total moneys disbursed for the year 2018, totaled US$977.12 million, from which
US$305.27 million was paid to GNPC. This amount represented 31% of the sum total. Hence a
net petroleum receipts of US$671.85 million was received by the GoG.

A total of US$235.1 million (equivalent to 35%) was paid into the ABFA account and the
balance of US$436.75 million was allocated to the GPF. The US$436.75 million was split in

49
70/30 ratio respectively between the GSF and GHF as required in the PRMA. Hence, the GSF
received US$305.72 million and the GHF received US$131.02 million.

4.3.6 KEY OBSERVATIONS IN 2019

In 2019, the total pay out from the Petroleum Holding Fund (PHF) amounted to US$925.04
million. The GNPC received a total of US$260.56 million representing 28% of the sum total
disbursed.

The net GoG receipts was US$664.48million which was disbursed between the ABFA and the
GPF. The ABFA account received 59.5% (US$395.47 million) of the net GoG receipts and the
remaining 40.5% (US$269.01 million) was paid to the GPF. The GPF was distributed as follows;
70% (US$188.3 million) was allocated to the GSF and the 30% (US$80.7 million) was received
by the GHF.

4.4 THE PRMA AS COMPARED TO INTERNATIONAL BEST PRACTICES.

The second objective of this research study sought to examine how Ghana’s PRMA could be
compared with international best practices in the industry.

Ghana can be described as a new player in the oil industry in comparison with the likes of
Nigeria, Angola, Equatorial Guinea etc. The lesson these older industry players offered was that
of how poor resource governance practices resulted in their inability to realize in full, the
economic benefits of having this natural resource. There were also lessons to be learnt from the
unfavorable fiscal and legal regimes governing the nation’s mining sector which failed to make
provision for the deliberate use of these mineral resources as basis for economic growth. For
example, Ghana accepted the short end of the 3-6% royalty range, over-generous tax incentives
with a poor local content strategy.

There were calls (African Mining Vision) across the continent for better resource governance.
Similarly, on the global front, there were also calls under the direction of multi-stakeholder
initiatives, like the International Council on Mining and Metals, the Extractive Industries
Transparency Initiatives among others for better resource governance practices across the
continent. Hence, there were pressing demands to avoid the ill fate suffered by many others in
order to maximize the anticipated returns and economic benefits.

50
Hence in order to avoid the ill fate suffered by many others in the industry, a broad series of
consultations were carried out to ensure government was properly informed in developing the
revenue management bill. These consultations included critical review of international best
practices and national consultations (institutional and town hall meetings). These actions
informed government’s decision in:

 Assembling a comprehensive petroleum policy framework to direct the growth of the oil
sector; and
 Conducting further public engagements regarding other subject matters such as
regulatory frameworks, institutional structures, the management of revenue flows and
expectations, human capacity development and the expansion of local content and
infrastructure development.

The best practices of the international community such as Alberta, Alaska, Norway, Trinidad and
Tobago, Azerbaijan were extensively reviewed. Ghana was also fortunate to review the practices
of new industry players like Sao Tome and Principe who passed a petroleum revenue
management law in 2004.

To handle the public consultations, a team of diverse expertise led by MoFEP was formed and
tasked with the responsibility of developing the financial regime and also documenting the
structure that ultimately led to the preparation of the law to guide the handling of the petroleum
revenue. The team comprised representatives from MoF, BoG, GNPC, MoE with each body
offering a different perspective on the matter.

MoE and GNPC provided direction on the status of the country’s oil and gas exploration efforts,
local content policies and capacity building. BoG on the other hand was responsible for bringing
to the fore the macroeconomic implications of the oil windfall and its possible effect on the
country’s foreign exchange management.

Institutional consultations carried out included the World Bank Development Dialogue Series
(November, 2009), Civil Society Platform (July, 2010), Christian Council of Churches
(September, 2010), Institute of Economic Affairs (October 2010) and the United Nations
International Development Organization (UNIDO) (April, 2010).

51
The respondents considered the administrative and operational hurdles to be overcome in the
assessment of revenue due the state, the challenge of inter-generational resource benefits sharing
and finally the social contract of probity and transparency. They ensured that the final guidelines
to be relied upon for petroleum revenue management satisfied the aspirations of the Ghanaian
people as much as possible and also that a general consensus was arrived at with respect to the
basic components of what would eventually be passed into law.

All these international best practices review and the public consultations culminated in the
enactment of the PRMA in 2011. The scope of which entailed taxation, public expenditure,
royalties, beneficiation, local content, job creation, probity, accountability and public oversight.
As a living bill, and to ensure continual relevance, the PRMA underwent its first amendment in
2015.

The resource governance index report for 2017, issued by the NRGI scored Ghana 65 out of 89,
reflecting the satisfactory nature of revenue management in the oil sector.

4.5 ASCERTAINING GOVERNMENT’S ADHERENCE TO THE PRMA WITH

RESPECT TO THE DISBURSEMENT OF THE ABFA FUNDS.
The third objective was to assess government’s disbursement of the ABFA funds in order to
determine whether the allocations were conducted in compliance with the PRMA. This objective
was achieved primarily, by analyzing secondary data for the years in review, i.e. 2014-2019.
Primary data from the respondents was used to complement the secondary data.

The Finance Minister is required by law to rank four out of 12 selected (prioritized) sectors of
the economy on which the ABFA funds were to be expended. The 12 priority areas included
Agriculture, Education, Potable Water, Infrastructure Development, Public Security, Social
Welfare, Strengthening Institutions, Healthcare Delivery, Rural Development, Housing Delivery,
Alternative Energy and Environmental Protection.

Section 21(6) of the PRMA further instructs government to fund the four prioritized sectors
approved by Parliament for a minimum 3 year period before any change could be made based on
a review.

52
In November 2013, Parliament approved the extension of funding to the four prioritized areas
chosen for the 2011 – 2013 period. Table 4.4 captured the four prioritized sectors that received
funding from ABFA for the 6 year period (2014 – 2019) under review in this research.

Parliament passed Act 877 to see to the establishment of the Ghana Infrastructure Investment
Fund (GIIF). The GIIF was set up to see to the mobilization, management, coordination and the
provision of financial resources in aid of government’s investment in a wide variety of
infrastructure projects across the nation for purposes of national development (GIIF, 2014). The
same Act requires a minimum of 70% of the ABFA to be expended on public investment
expenditure and with a maximum 25% of that amount going towards the funding of GIIF
projects.

Table 4.4 Prioritized Areas of the Economy Qualifying for ABFA Funding,

2014 – 2016 (Prioritized Sectors) 2017 – 2019 (Prioritized Sectors)

1 Agriculture Modernisation Agriculture
2 Road and Other Infrastructure Road, Rail and other critical
Infrastructure Development
3 Expenditure & Amortisation of Loans for Oil Physical Infrastructure and Service
and Gas Infrastructure Delivery in Health
4 Capacity Building (Including Oil and Gas) Physical Infrastructure and Service
Delivery in Education
Source; (PIAC,2018).

4.5.1 DISBURSEMENT OF THE ABFA FUNDS FROM 2014 - 2019

Tables 4.5 and 4.6 below, indicate the disbursement of the ABFA funds for the periods 2014 –
2016 and 2017 – 2019 respectively.

Table 4.5 : Summary Breakdown of ABFA Account Expenditure from 2014 – 2016,

Sector 2014 (GHS) 2015 (GHS) 2016 (GHS)

Agriculture Modernisation 170,624,180.00 59,544,174.03 27,671,280.88
Road and Other Infrastructure 483,347,384.00 199,447,492.13
Expenditure & Amortisation of 163,084,572.00 439,234,363.92 0.00
Loans for Oil and Gas Infrastructure
Capacity Building (Including Oil 0.00 142,074,292.19 83,037,283.91
and Gas)
53
 Total Spending in Priority Areas 549,400,109.00 1,124,200,214.14 310,156,056.92
Transfers to the Public Interest and Not Applicable Not Applicable 967,000.00
Accountability Committee
Transfers to the Ghana Not Applicable 189,030,000.00 68,050,000.00
Infrastructure Investment Fund
Total ABFA Spending 549,400,109.00 1,313,220,214.14 311,123,056.92
Unutilized Amount 666,058,058.00 0.00 77,730,000.00
Source; (Field Data, 2020)

4.5.1.1 KEY OBSERVATIONS, 2014 – 2016

The 2014 financial year recorded 1,215 million cedis being transferred to the ABFA. The funds
were disbursed across the four priority areas approved by Parliament in November, 2013 as
detailed in table 4.5 The table reveals that 55% (666.06million cedis) of the funds received was
not used as at close of the 2014 financial year. This was because the issuance of the CDB loan
for existing projects failed to take place and also because the CDB facility was capped at the end
of 2014.

In 2015, 1,086.28 million cedis was paid into the ABFA from the PHF. The ABFA was invested
in all four priority areas approved by Parliament as detailed in table 4.2 above. Government also
paid 189.03 million cedis to the GIIF for infrastructure development as was mandated by Act
877 in 2014.

The ABFA received a transfer amount of 388.85 million cedis from the PHF in 2016. The
disbursement of the received funds is detailed in table 4.2 above. It can be seen from table 4.5
that th ABFA was expended on three of the four priority areas. Hence, only 80% (311.12 million
cedis) of the received amount was spent, leaving a balance of 77.73 million cedis in the ABFA
for the 2016 financial year.

4.5.1.2 COMPLIANCE / NON-COMPLIANCE OF ABFA DISBURSEMENTS WITH

PRMA (2014 – 2016)
As shown in table 4.5, it can be observed that government failed to spend any amount on the area
of capacity building, as required by law and hence was not fully in compliance with the PRMA
for the 2014 financial year. Government however explained that the budgeted amount
(59.57million cedis) for this area was tied to the setting up of the CDB-related SME Projects
Incubation Facility. Further checks show no records of the unutilized amount being invested.
54
With reference to the PRMA, government can be said to have been in compliance with the Act
regarding the ABFA disbursements for the 2015 financial year.

In the 2016 financial year government did not expend any part of the ABFA on the priority areas,
Expenditure and Amortization of Loans. This can be described as an infraction on the PRMA.
Government however attributed its inactions to the fact that the Ghana National Gas Company
(GNGC) had been totally operationalized and was therefore expected to be responsible for the
amortization of the CDB loan.

4.5.1.3 KEY HIGHLIGHTS / FINDINGS FOR 2017 – 2019

In 2017, a total of 736.03 million cedis was transferred to the ABFA account from the PHF. The
funds were disbursed as captured in table 4.6. Only 332.30 million cedis out of the total was
disbursed across the four priority areas. An unutilized amount of 403.74 million cedis of the
ABFA was recorded as balance at the end of 2017.

Table 4.6 Summary Breakdown of ABFA Account Expenditure from 2017 – 2019,

Expenditure 2017(GHS) 2018(GHS) 2019(GHS)

Agriculture 49,070,181.20 126,185,356.2 71,574,886.14
1
Road, Rail and other critical 41,617,767.70 255,365,118.6 579,268,115.44
Infrastructure Development 9
Physical Infrastructure and Service 8,660,362.73 22,702,127.91 46,335,420.70
Delivery in Health
Physical Infrastructure and Service 202,379,893.20 419,871,012.4 570,865,917.58
Delivery in Education 4
Total Spending in Priority Areas 301,728,204.83 824,114,615.2 1,268,044,339.86
5
Transfers to the Public Interest and 1,345,078.00 3,529.951.00 2,900,000.00
Accountability Committee (PIAC)
Transfers to the Ghana Infrastructure 29,220,365.22 0.00 0.00
Investment Fund (GIIF)
Total ABFA Spending 332,293,648.05 827,644,566.2 1,270,944,339.86
5
Unutilized Amount 403,736,836.69 0.00 0.00
Source, Field Data, 2020

55
The ABFA account received a transfer amount of 827.65 million cedis from the PHF for the year
2018. The funds were disbursed among the four priority areas approved by Parliament as
captured in Table 4.6. PIAC received 3.53 million cedis to finance its operations whereas for the
first time since being passed into law in 2014, the GIIF account received no funds from the
ABFA account.

In compliance with the PRMA, funds from the ABFA account were expended on the four
priority areas approved by government for the 2017 – 2019 period. The 2019 disbursements are
captured in table 4.6. PIAC also received 2.9 million cedis for its operations whereas for the
second year running the GIIF received no funds from the ABFA for infrastructure development.

4.5.1.4 COMPLIANCE / NON-COMPLIANCE OF ABFA DISBURSEMENTS WITH

PRMA (2017 – 2019)
In 2017, only 36.73% of the total ABFA was expended on capital expenditure. This was in clear
violation of Act 813(4) which stipulates that at least 70% should be spent on capital expenditure.

In 2018, government violated Section 8(4)(b) of the Amended PRMA, 2015 (Act 893) and
Section 5(1) (b) of the GIIF Act, 2014 (Act 877). These sections demand that a maximum 25%
of the ABFA funds be issued for public investment expenditure be awarded to GIIF for
infrastructure development. Hence, failure by government to transfer any funds to GIIF from the
ABFA fund was a failure to honour the stipulations of the Act.

For the second year in succession (2019), government failed to honour Section 8(4)(b) of the
Amended PRMA, 2015 (Act 893) and Section 5(1)(b) of the GIIF Act, 2014(Act 877) by not
funding the GIIF with proceeds of the ABFA account.

56
 CHAPTER 5: SUMMARY OF MAIN FINDINGS, CONCLUSIONS AND
RECOMMENDATIONS
5.1 INTRODUCTION
Chapter 5 draws the curtain on the entire research study by summing up the findings made with
respect to the objectives of the study. It also presents a host of recommendations following the
conclusions arrived at. The limitations encountered whilst conducting the study are also
discussed and recommendations for future studies are also made.

5.2 SUMMARY OF MAIN FINDINGS AND CONCLUSION

Upon thorough analysis of the data, the following findings were made and presented under each
research objective.

5.2.1 ASCERTAIN GOVERNMENT’S COMPLIANCE WITH THE PRMA WITH

RESPECT TO THE DISBURSEMENT OF PETROLEUM REVENUE IN THE PHF.
The first objective was aimed at ascertaning whether government had been compliant with the
stipulations of the PRMA with reference to the disbursements from the PHF to the GNPC,
ABFA, GPF, GSF and GHF over the six year duration under review.

The study revealed that Parliament approved a 30% ceiling on allocations to the GNPC in 2013.
These funds were to cater for the Carrying and Participating Interests (explained in Table 2.1
above) and the Equity Financing Costs. The research findings however indicated a non-
compliance from 2015 – 2018. The study indicated annual excesses by 2.71%, 8.64%, 2.78% and
1.24% during this period . These details are captured in Figure 5.1 below.

57
Figure 5.1: GNPC Petroleum Revenue Receipts from 2014 -2019 as against approved proportion
of 30%. Source, Field Data, 2020

The Act also mandated government to allocate nothing beyond 70% of the net petroleum revenue
receipts (after the transfers to GNPC are completed) to the ABFA. According to the research
government was in compliance with this requirement for all the years under review except in
2015 where 91.7% of the net receipts were issued to the ABFA. It was also discovered that an
extra US$ 53.9 million was transferred out of the GSF to the ABFA to make up for the shortfall
in ABFA funds that year. This is summarized in Figure 5.2.

58
Figure 5.2: ABFA Petroleum Revenue Receipts from 2014 -2019 in Compliance with PRMA in
Percentages, Source; (Field Data, 2020)

The Act requires government to transfer the balance of the net receipts after the transfer to the
ABFA is done to the Ghana Petroleum Funds (GPF). The GPF comprises the Ghana
Stabilization Fund (GSF) and the Ghana Heritage Fund (GHF). The law requires a 70% transfer
of the GPF to be made to the GSF and the remaining 30% paid into the GHF. This law is binding
regardless of the amounts transferred to the GPF. The results of this study suggest a strict
adherence to this section of the law for all the years under review. The results are presented in
Figures 5.3 and 5.4.

Figure 5.3: GSF Petroleum Revenue Receipts from 2014 -2019 in Compliance with PRMA in
Percentages, Source; (Field Data, 2020)

59
Figure 5.4: GHF Petroleum Revenue Receipts from 2014 -2019 in Compliance with PRMA in
Percentages, Source; (Field Data, 2020)

5.2.2 HOW DOES GHANA PRMA COMPARE WITH INTERNATIONAL BEST

PRACTICES?
The focus of objective 2 was on assessing how Ghana’s revenue management practices (guided
by the PRMA) compared with international best practices. The study indicates that Ghana was
and is still working relentlessly to ensure that its revenue management law remains relevant at all
times.

It was identified in the inquisitions that Ghana’s efforts aimed at ensuring there is probity,
accountability and good governance and long-term benefits from its oil sector was largely
informed by its own pitfalls in managing its own minerals sector and those of its neighbouring
countries. It was also informed by calls from the global community like the EITI and the
International Council on Mining and Metals.

In order to achieve satisfactory governance in the sector, government embarked on wider

consultations through town hall meetings with the general public and with institutions and
reviewed the best practices of other countries with sterling performance in the sector like
Norway, Alberta, Trinidad and Tobago etc. It also put together a technical team with diverse
range of expertise from the MoE, MoFEP, BoG and the GNPC. This was essential in
approaching the issue of resource governance holistically, and leaving no stone unturned.

All these efforts have been very instrumental in the formulation of an internationally recognized
resource governance bill which provides direction on taxation, beneficiation, public expenditure,
royalties, local content, job creation, accountability, transparency and public oversight.

Following the outcome (65 out of 89) of the resource governance index for 2017, it is obvious
that the PRMA is satisfactory by all standards and is very much in tune with international best
practices.

5.2.3 COMPLIANCE WITH THE PRMA WITH REGARD TO THE DISBURSEMENT

OF THE ABFA FUNDS.
The third objective was aimed at establishing if government had complied with the PRMA with
respect to the disbursement of the funds assigned to the ABFA. Government was mandated to
60
approve spending in four out of 12 priority sectors of the economy on which the ABFA will be
spent. These sectors were earmarked to receive funding for a minimum of three years before
undergoing review. Government also mandated transfers to be made to PIAC (from 2016) and
GIIF (from 2015) from the ABFA. The priority areas approved by Parliament for the years under
review are captured in Table 4.1.

Only 45% of the ABFA was spent on the priority areas. The research also revealed that
government was in violation of sections of the PRMA by not spending on one of the approved
priority areas (Capacity Building) in 2014. Government’s explanation for this infraction was that
the budgeted amount (59.57million cedis) for this area was linked to the setting up of the CDB-
related SME Projects Incubation Facility. The research however found no records indicating the
unutilized ABFA funds (666.06 million cedis) for 2014 being invested.

The studies also revealed that government fully complied with the stipulations of the Act
regarding the disbursements of the ABFA funds. The GIIF also enjoyed transfers from the
ABFA as was mandated by law for the first time. The GIIF received 189.03 million cedis in
2015 to embark upon infrastructure development projects.

Similar to what was witnessed in 2014, government failed to spend in one of the four priority
areas. In this instance however, government did not spend on Expenditure & Amortization of
Loans for Oil and Gas Infrastructure. Government however explained that the Ghana National
Gas Company had become completely functional and hence was responsible for the amortization
of the CDB loan. Only 80% of the received funds were disbursed leaving a 20% balance of 77.73
million cedis. PIAC and GIIF also received transfers of 967,000 cedis and 68.05 million cedis
respectively to finance their operations as required by law.

Even though government ensured the disbursement of funds to all priority areas approved for the
year in review as well as to PIAC and GIIF they failed to comply with the 70% minimum
spending requirement on capital expenditure. In 2017, 736.03 million cedis was transferred to the
ABFA. The study discovered that only 332.03 million cedis of this amount was spent out of
which only 36.73% was used for capital expenditure. An unutilized amount of 403.73 million
cedis was recorded at the end of 2017.

61
In 2018 and 2019 the ABFA fund was credited with 827.65 million cedis and 1,270 million cedis
respectively. The research discovered that government in both years failed to finance the GIIF
account with proceeds from the ABFA as mandated by law and was in clear violation in both
instances.

5.3 RECOMMENDATIONS
Following the outcomes of this study, the following recommendations are being proposed;

PIAC in partnership with the relevant State bodies must be empowered to demand an explanation
from the Ministry of Finance for the seeming discrepancies in the disbursement of funds in the
years under review and should have the power to impose upon the Ministry hefty penalties per
the PRMA if the Ministry is found culpable of any deliberate violations of the Act or abuse of
power regarding the petroleum revenue disbursements.

Judging from the manner in which the ABFA was disbursed across the selected priority areas, it
is clear that there is no clear direction as to how much funds should be allocated to each of the
approved sectors. This is likely to defeat the desired effectiveness and the impact the ABFA is
expected to have on the country’s socio-economic growth. There is therefore an urgent need for
PIAC to partner with the relevant stakeholders to dialogue on what should inform the selection
process and how the disbursement should be executed. This will go a long way to enhance the
nation’s chances of deriving the most from its hydrocarbon resources.

Taking a look at the number of years where funds are not fully disbursed and hence remain
unutilized all year there is a need for the PIAC together with all other relevant state institutions
to provide direction on how best to invest these funds appropriately to avoid making this a
recurrent practice. The State risks a depreciation in value of these monies if they are not properly
invested and remain in the consolidated fund. Case in point was in 2014 and 2017 when 666.06
million cedis and 403.74 million cedis respectively remained unutilized in the consolidated fund
for the entirety of each of those years.

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5.4 LIMITATIONS OF STUDY
The principal limitations encountered in the course of this research included;

1. The lockdown restrictions by government to control the spread of the novel corona virus
created a challenge in engaging a lot more industry professionals identified for interviews for the
successful completion of the research.

2. Stemming from the fact that Ghana is still a relatively new player in the crude oil industry,
there is not much literature or studies conducted in the area locally to make reference to. Hence
access to relevant information was difficult to come by.

5.5 RECOMMENDATIONS FOR FURTHER RESEARCH

Further studies can be carried out in the following areas.

1. As an advanced study, further research could be conducted to inform government’s

choice of the four priority areas out of the 12. This would ensure that government’s
decision is purely based on serving the common interest as opposed to political
expediency.
2. Research can also be conducted into why despite the violations of the Act identified there
has not been any sanctions or penalties meted out. This study can focus on what the
challenges in holding the responsible agencies are and what can be done to improve the
situation.

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REFERENCES
Ablo, A.D. (2015). ‘Local Content and Participation in Ghana’s Oil and Gas Industry: Can
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 APPENDIX I

KWAME NKRUMAH UNIVERSITY OF SCIENCE AND TECHNOLOGY,

KUMASI, IDL

COLLEGE OF ART AND BUILT ENVIRONMENT

DEPARTMENT OF PLANNING

(MSc Planning, Monitoring and Evaluation)

INTERVIEW QUESTIONS

This interview has been designed to aid in collecting relevant information necessary for this
research for the completion of Master of Science degree in Planning, Monitoring and Evaluation
in KNUST, Institute of Distance Learning (IDL) Department of Planning. This interview is
seeking for information to evaluate Ghana’s upstream revenue management by delving into what
the Petroleum Revenue Management Act (PRMA) mandates or requires in the utilization of
proceeds from the upstream activities and to compare with best practices around the world. I will
be very grateful to you if you could give us part of your valuable time in responding to the
following questions. Your opinions will be kept confidential and used only for this study.

Research Topic:

A CRITICAL EVALUATION OF GHANA’S UPSTREAM REVENUE MANAGEMENT

FROM 2014 - 2019

SECTION A. DEMOGRAPHIC BACKGROUND

Please tick [√] where appropriate and provide brief answers where necessary.

1. Gender

[ ] Male [ ] Female

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2. Age

[ ] Below 25 years [ ] 25 - 35 years

[ ] 36 - 45 years [ ] Above 45 years

3. State your position at your workplace.

[ ] Assistant Officer [ ] Officer [ ] Senior Officer

[ ] Principal Officer [ ] Manager [ ] Director

4. How many years of working experience do you have?

[ ] 1-5 years [ ] 6 - 10 years

[ ] 10-15 years [ ] 15 years and above

5. Kindly state your area of Specialization.

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SECTION B INTERVIEW QUESTIONS

1. What is your overall assessment of adherence to the PRMA from 2014-2019?

2. What informs your assessment of the PRMA?

3. What are the challenges/loopholes/short falls of the current PRMA system?

4. Is Political influence a hindrance for the implementation of the PRMA?.

5. How can these challenges be resolved?

6. Are the CSO effective in ensuring transparency and accountability in the oil and gas
upstream industry?

7. How does Ghana’s PRMA compare with international best practices around the world?

8. Do you feel government has been justified in its spending or appropriation based on the
Annual Budget Funding Amount (ABFA) as prescribed or enshrined in the Act?
9. Is Government justified in spending revenue accrued on the prioritized lists from 2014-2019?
10. Do you believe government spending is strict adherence to the law?

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 APPENDIX II
QUESTIONS ASKED IN PUBLIC CONSULTATIONS CULMINATING INTO THE
PRMA

1. ASSESSMENT, COLLECTION AND ACCOUNTING

a) Who should assess and collect the revenues due government?

b) Should petroleum revenues be counted as part of general revenues or as special revenues?

2. SPENDING-SAVING CHALLENGE

c) How much of revenues should be spent in the national budget and how much to save for the
benefit of future spending and for future generations?

3. BUDGET ALLOCATION CHALLENGE

d) For what is to be spent, what should be the priority allocation in the budget and should there
be restricted budget uses?

4. SAVINGS CHALLENGE

e) Should we establish savings fund(s)?

f) Who should manage the fund(s), and how?

g) Who may authorize withdrawals from the fund(s)? How, by how much, and how often?

5. ACCOUNTABILITY, TRANSPARENCY CHALLENGE

h) How do we ensure transparency and accountability?

i) What measures are needed to ensure public oversight?

j) What other safeguards may be needed if any to protect the revenues from abuses?

72