In June and September 2007, two oil exploration companies, namely Tullow Oil Ghana Limited, a UK-Irish firm and Cosmos Energy, a US oil firm, respectively, made discoveries of oil and gas in two deepwater blocks at Cape three Points and Tano, 60 kilometres from Efasu and 135 kilometres from Takoradi on Ghana’s western offshore.

 

Appraisals conducted indicate that the two discoveries, referred to as “The Jubilee Oil Field”, covering 1,100m of water and 1,000m deep under the seabed, contain recoverable reserves of about 800 million barrels of light crude oil, with an upside potential of about 3 billion barrels in addition to significant quantities of natural gas.

 

The Jubilee Oil field, valued at more than US$ 4 billion, is jointly owned by Cosmos Energy, Tullow Oil Ghana Limited, Anadarko Petroleum, Sabre oil of Ireland, Ghana National Petroleum Corporation (GNPC) and the E. O. Group, with Tullow as the operator.

 

Indeed, commercial crude oil production began on December 15, 2010 when President John Evans Atta Mills symbolically turned on the wheels of FPSO Kwame Nkrumah.

 

Ghana has, therefore, joined the ranks of oil-producing and exporting countries in the West African sub region, and is expected to lift about 278 million barrels of oil in the first phase of commercial oil production while by the end of phase two, more than 100 oil wells would have been drilled in the Jubilee Fields.

 

The production capacity of the Jubilee Oil Fields is estimated at about 120,000 barrels per day, increasing to about 250,000 barrels and 250,000 million standard cubic feet of gas per day by 2013, and attracting annual revenue of one billion dollars.

 

Fully aware that the fiscal impact of an oil boom is linked to the efficient management of the resource, Government has embarked upon a number of measures to facilitate the proper management of the emerging oil and gas industry, so as to derive maximum economic and social benefits.

 

Among measures mapped out to address the anticipated challenges were the amendment of the Petroleum Exploration and Production Law, to strengthen it to make the process of exploration and production licenses less complicated and, by that, provide an investor-friendly environment for domestic and international investors alike.

 

Indeed, the general legal and regulatory regime for the management of the oil and gas industry cannot be said to be satisfactory. Accordingly, a number of legislations including the Petroleum Revenue Management Bill have been drafted for cabinet approval and their subsequent enactment.

 

To position itself to secure its fair share of profits derived from the oil and gas industry, Government will also have to determine and implement the appropriate level of income tax, resource rent tax, royalties and bonus payments, though tax allowances and re-investment credits will be offered to sustain interest in the industry and to reward industry players for re-investing in the county and its people.

 

The Petroleum Revenue Management Bill, therefore, provides a framework to guide the efficient collection, allocation and management of revenue from the oil resource for the benefit of present and future generations as well as ensure the overall management of petroleum revenue, based on sound and sustainable fiscal policies that transcend political regimes.

 

To avoid the costs associated with the alternative options of leaving the revenue to be collected and accounted for as part of conventional revenue or in the hands of the national oil company, the bill assigns clear responsibilities from collection to final utilization of petroleum revenue within a transparent and accountable framework.

 

The bill has also provided adequately for the collection and management of petroleum revenue in order to reduce waste, the potential loss of control of public expenditure and weaken the purpose of the national budget as the primary instrument to manage all the resources of the country.

 

For petroleum revenue to be transparent, the bill provides for regular revenue management audits as well as the regular publication of receipts and disbursements.

 

In addition, oversight mechanisms, auditing and transparency and reporting obligations have been catered for so as to safeguard the prudent management of petroleum revenue.

 

To safeguard the long-term interest of Ghanaians and to sustain a reasonable level of development even after all the oil and gas resources have been exhausted, and to ensure a stable level of budgetary support from revenue accruing from Petroleum, two Petroleum Funds – The Heritage Fund and the Stabilization Fund – have been established. Indeed, the Stabilisation Fund is expected to help manage the potential short-term adverse effects on the economy due to fluctuations in oil prices.

 

It is also important to note that the bill has provided investment guidelines to invest the funds abroad in qualifying instruments and, except for stabilization purposes, also serve as an endowment for the future.

 

Another laudable aspect of the law is that petroleum revenue is to be directed into a transitory Petroleum Account to be held by the Bank of Ghana for purposes of tracking and transparency. Indeed, the bill, in line with international best practice, sets out clear quantitative rules to guide the transparent movement of petroleum receipts from the Petroleum Account into the national budget and into and out of the Heritage and Stabilization Funds.

 

The bill allocates savings between the two Funds in a way that puts immediate emphasis on the need to ensure a smooth and effective budget implementation.

 

Furthermore, the bill makes provision for withdrawals to support budget implementation in the event of shortfalls with ceilings, however, on the amount that can be withdrawn in order to enhance fiscal discipline.

 

In effect, the bill incorporates checks and balances to ensure the highest level of transparency and accountability in the management of Ghana’s petroleum resource funds.

 

The Bill also anticipates a national development plan to guide medium-term planning and annual budgeting. The annual budget funding amount is to ensure a fair distribution of the national wealth among the people of Ghana as well as equality among the citizens and be in line with a long-term national development plan while broad areas of spending priorities are to be identified through a national survey in the event of the absence of a long-term national development plan.

 

One aspect of the bill which, however, saw Parliament divided was the issue of using revenue from petroleum as collateral for loans as provided for in clause 5(b) of the bill.

 

That parliament as well as the general public was no in agreement on the issue of collateralization of revenue from oil clearly presents a difficulty.

 

While the majority in Parliament supported the view that it was in the national interest for government to borrow against the oil revenue for infrastructure development projects, the minority opposed the move, arguing that in the event of government’s inability to pay, the country’s oil resources will be forfeited.

 

Another major concern is that while the Bill is yet to be signed into law, commercial production for the Jubilee Field has already begun.

 

It is on record that the Ghana National Petroleum Corporation (GNPC) has successfully lifted a total of 995,259 barrels of crude oil from the FPSO Kwame Nkrumah which is expected to fetch a price above US $110.00 translating into US$110.00 million for Government and the GNPC. Thus even though revenue has started coming in, the law that is expected to help manage the revenue is yet to be passed.