OIL and GAS—
REVENUE MANAGEMENT
AND COORDINATION
A Strategic Cross-Cutting Issue Discussion
Presented at the 2011 Annual MDBS Workshop
Accra
May 16 -18, 2011
Introduction
• Oil and gas discoveries could lead to important
economic transformation.
• First oil revenue landed in GOG accounts in April 2011
• Resource-rich countries have had varied experiences
with economic growth.
• Ghana’s unique opportunity as late entrant. Lessons
from other countries can help Ghana in mitigating the
negative effects and ensuring that petroleum revenue
can fuel economic development and contribute to
prosperity for both current and future generations.
Introduction contd.
• Act has been passed by Parliament,
representing the people of Ghana
• Result of broad consultation
• One of the most extensively discussed
revenue Act
• Not every recommendation taken on board
• Need for compromises
• Extensive discussions have taken place
Introduction (contd.)
• Ghana has received significant support for the sector from
development partners, notably: Norway, the World Bank,
GIZ, USAID, SECO and DFID. Support so far has included
capacity building programmes and technical assistance
covering such areas as revenue forecasting, revenue
management, resource management, oil and gas tax
administration, local content, EITI, and environmental
governance.
• Presentation highlights the main provisions of the Act and
considers the readiness of key institutions and is intended
to stimulate discussion on coordination and revenue
management.
The Petroleum Revenue Management
Act—Act 815
• The Petroleum Revenue Management Act (PRMA) was passed by
Parliament and assented to by the President of the Republic of
Ghana in April 2011.
• It provides the legal basis for how the future petroleum revenue of
the country shall be managed.
• Provides a framework for the collection, allocation and
management of petroleum revenue in a responsible, transparent,
accountable and sustainable manner for the benefit of all citizens of
Ghana.
• The Act comprises provisions in line with best international practice
and provides a good basis for compliance with the internationally
agreed principles for Sovereign Wealth Funds; the General
Accepted Principles and Practices (GAPP), otherwise known as the
Santiago Principles.
Key Principles in Act 815
• The petroleum revenue shall be coherently
integrated into the budget process.
• The assets of Ghana Petroleum Funds shall be
prudently managed and invested offshore.
• The management of petroleum revenue and
savings shall always be carried out with the
highest internationally accepted standards of
transparency and good governance.
Key Features
• The Act establishes a Petroleum Holding Fund (PHF) at
the Bank of Ghana to receive and disburse petroleum
revenue due the Republic of Ghana
• Annual Budget Funding Amount (Clauses 19-23)Up to
70% of the annual revenue receipts may be transferred
to the Consolidated Fund and spent through the State
Budget.
• Benchmark Revenues (Clause 18, First Schedule).Prior
to determining the Annual Budget Funding Amount the
Government is required to estimate the petroleum
receipts, defined as Benchmark Revenue in the Act.
Key Features (contd.)
• The Ghana Petroleum Funds (Clauses 10-15, 21, 26-27, 43, Second
Schedule). The petroleum receipts not included in the Annual
Budget Funding Amount shall be transferred to Ghana Petroleum
Funds, which consists of a Stabilization Fund and a Heritage Fund.
• Investment Strategy (Clauses 28-29).The Ghana Petroleum Funds
shall be invested in qualifying instruments as defined in the Act. The
range of qualifying instruments is limited to bonds issued by
sovereign states, the IMF, the World Bank and cash deposits and
bonds issued by Central Banks, Bank for International Settlements
and the European Central Bank, provided that the instruments are
denominated in foreign currencies and that both the instruments
and the issuers have an investment grade rating.
Key Features (contd.)
•
Investment Advisory Committee (Clauses 31-42) An Investment Advisory Committee,
comprising of seven members, shall advise the Minister on the investment policy and
monitor the performance of the Funds. The Minister shall not make any decisions in relation
to the investment strategy or management of the Funds without first seeking advice from the
Investment Advisory Committee and the Governor of the Bank of Ghana.
•
Transparency (Clauses 8, 16, 30, 44-52, 60-61). According to the Act, the management of
petroleum revenues and savings shall always be carried out with the highest internationally
accepted standards of transparency and good governance and extensive and detailed
transparency requirements are embedded in the Act.
•
Public Interest and Accountability Committee (Clauses 53-59). A Public Interest and
Accountability Committee shall be established in order to monitor and evaluate the
Government’s management of the Ghana Petroleum Funds, facilitate public debate and
provide an independent assessment about the use and management of the petroleum
revenues, in particular to ensure that the petroleum revenues are used for the benefit of
both current and future generations.
•
Collaterisation. The Act permits the use of the ABFA as collateral for debts and other
liabilities of Government for a period of not more than 10 years after the commencement of
the Act. On the other hand, the Act prohibits every form of borrowing against the amount in
the PHF earmarked for transfer into the Ghana Petroleum Funds
Institutions Involved in Oil Revenue
Management
• Parliament. The Parliament has adopted the Petroleum Revenue
Management Act, which sets the overall framework for petroleum
revenue management in Ghana. Parliament decides each year how
much of the petroleum revenues to be spent through approving the
ABFA as part of the national budgetary process.
• The Ministry of Finance and Economic Planning. The Ministry
overall responsibility for the petroleum revenue management . shall
estimate the Benchmark Revenue. shall propose to Parliament how
much of these revenues that shall be transferred to the
Consolidated Account for budgetary purposes, also called the
Annual Budget Funding Amount, and how much that shall be saved
in the Ghana Petroleum Funds. Ministry shall develop the
investment policy of the Ghana Petroleum Funds, upon advice from
the Investment Advisory Committee, and be responsible for the
overall management of the Ghana Petroleum Funds.
Institutions Involved in Oil Revenue
Management (contd.)
• Ghana Revenue Authority Petroleum revenue shall be assessed,
collected and accounted for by the Ghana Revenue Authority.
Petroleum revenue shall be deposited in the Petroleum Account
before it is transferred to the budget and the Ghana Petroleum
Funds.
• The Bank of Ghana. The Petroleum Account shall be held and
managed by the Bank of Ghana and transfers to the budget and the
Ghana Petroleum Funds shall be made upon request by the MoFEP.
The Bank of Ghana is responsible for the operational management
of the Ghana Petroleum Funds and shall implement the investment
policy that the Minister determines.
Institutions Involved in Oil Revenue
Management (contd.)
• Ghana National Petroleum Company (GNPC). GNPC shall pay any
amount payable as corporate income tax, royalty, dividends or
other amounts due in accordance with the Petroleum Revenue Act.
In case a payment is made with petroleum instead of cash, GNPC
shall be reimbursed for the marketing costs.
• The Auditor-General. The Auditor-General is responsible for the
external audits of the Petroleum Account and Ghana Petroleum
Funds. In case the audit is delegated to another entity, the AuditorGeneral is responsible for the procurement process. The AuditorGeneral shall submit an annual audit report to Parliament.
•
The President of the Republic. The President of the Republic shall
appoint the members of the Public Interest and Accountability
Committee.
PETROLEUM REVENUE REPORTING SCHEDULE
PETROLEUM
RECEIPTS
GRA
Assessment
Paid into PHF
GRA
Verification &
Reconciliation
Disbursed into
ABFA, SF &
HF
MoFEP reports
on receipts in
gazette, dailies,
website
MoFEP reports
on ABFA &
receipts in
gazette, dailies
PETROLEUM
FUNDS
BoG quarterly
reports on SF
& HF to
Minister
Minister
submits report
on account &
funds to
Parliament
IAC submits
analysis on
BoG report to
Minister
BoG publishes
semi-annual
report on
funds
AUDITING
BoG submits
internal audit
report on
funds to
Minister & AG
ABFA
AG
BOG
GRA
HF
IAC
Minister
MoFEP
PHF
SF
-
Annual Budget Funding Amount
Auditor-General
Bank of Ghana
Ghana Revenue Authority
Heritage Fund
Investment Advisory Council
Minister of Finance & Economic Planning
Ministry of Finance & Economic Planning
Petroleum Holding Fund
Stabilization Fund
BoG submits
annual
statements,
relevant docs
to AG for audit
AG receives
statements,
audits &
submits report
to Parliament
AG publishes
30 days after
submission to
Parliament
Preparedness of Key Institutions to
Implement the Provisions of the Act
• Establishing the Benchmark Revenue - The Ministry of
Finance and Economic Planning (MOFEP)
– According to Clause 18 of the Petroleum Revenue
Management Act the Minister shall estimate and
certify the Benchmark Revenue no later than
September 1st using the formula set out in the
First Schedule. The expected revenue from crude
oil is the product of the oil price and production
quantity.
– To carry out this mandate, MOFEP has pursued several
activities:
Determination of Crude Oil Price
•
The price of a specific crude oil depends on its quality. The most important quality
measures are API gravity and sulphur content. Light crude oils (i.e., those with
higher API gravity) command higher prices because they yield a greater fraction of
high value products (gasoline, diesel, etc.) when refined. “Sweet” crude oils, those
containing less than 0.5% sulphur, generally command higher prices because they
can be processed easily without expensive treatment facilities.
•
As shown in Table 1, Jubilee is slightly heavier than Brent, the relevant benchmark
for West Africa, but considerably sweeter. Pricing for Jubilee should be similar to
Brent, although some light sweet West African crudes such as Nigerian Bonny Light
trade at a premium to Brent. MOFEP has developed a data set to track the
historical prices of relevant crude oils and this data set will be useful in forecasting
future differentials to Brent.
•
In preparing the 2011 Budget, MOFEP assumed a conservative price of US$70 per
barrel, which at the time was lower than the prices in the IMF’s World Economic
Outlook. Since then, however, prices peaked to US$120 per barrel before falling
but still remains in the neighbourhood of US$100 per barrel.
Quality of Oil Benchmarks and Jubilee Oil
Oil
WTI
Brent
Dubai
Jubilee
Sulphur Content
0.24%
0.37%
2%
0.25%
API Gravity
39.60
38.060
310
37.60
Determination of the Quantity of
Crude Oil
• GNPC has provided MOFEP with projections of oil
production for the next several years. For the 2011 Budget,
Jubilee production was estimated at 29.2 million barrels, an
average daily production rate of roughly 79,900 barrels per
day.
• Going forward GNPC will be required to provide historical
production data as well as different production forecasts
for the current and subsequent years to the MoFEP. These
production forecasts would include Low Production,
Expected/Base Production, and High Production Scenarios
which are common in the oil business.
Determination of Expected Revenues
• MOFEP has developed long-term and short-term forecasting models to
translate assumptions about prices and volumes into estimates of
government revenues.
• The short-term model used for 2011 calculated the various elements of
government revenue as follows:
– Royalties – 5% of gross crude oil produced;
– Carried and Additional Interests – 13.75% of Revenues net of royalties and
current operating costs; and
– Income Tax – 35% of revenues net of royalties, carried and additional interest,
operating costs, capital allowances and losses carried forward from prior
years.
• The 2011 budget implicitly assumed that 30 percent of total oil revenue would
be saved in the Stabilization and Heritage Funds, and 70 percent would be
used to fund the annual budget and activities of GNPC.
GHANA REVENUE AUTHORITY ROLE IN
PETROLEUM REVENUE MANAGEMENT
•
The functions will be carried out by the Petroleum Units in two Divisions:
– The Customs Division
– The Domestic Tax Revenue Division
CUSTOMS DIVISION
•
FUNCTIONS
–
–
–
•
Monitoring of imports
Monitoring of Production
Monitoring of Exports
PROCESSES
–
–
–
Electronic Seals have been placed on the export pipelines to
ensure that no export is made without Customs authorisation
Flow meters have been installed to measure the quantum of
production and exports
An officer has been stationed on the FPSO for physical
monitoring
DOMESTIC TAX REVENUE DIVISION
•
FUNCTIONS
–
–
–
•
Assessment of petroleum revenues
Collection of petroleum revenues
Accounting for petroleum revenues
PROCESSES
–
–
–
–
Monitoring of production and exports to determine volumes and
values for determination of revenues due to the State
Receipt and analysis of returns for the determination of liabilities of
the companies
Monitoring and collection of payments due to the State
Preparation of reports and reconciliation of revenues due to the
State
COMPUTATION OF PETROLEUM
INCOME TAX
Petroleum income tax is computed at 35% of the taxable income derived as follows:
Gross Income
Less:
Allowable expenses
Capital allowances
Losses carried forward
NOTES
1.
Capitalised Pre-production costs and annual capital costs are spread over a five
year period
2.
Allowable expenses include:
Petroleum royalties
Contributions to a decommissioning fund
Rentals
Interests fees and charges on sums borrowed for petroleum operations
Establishment and Management of
Funds: Bank of Ghana (BOG)
• The Bank of Ghana is responsible for the day-today management of the Petroleum Holding Fund
and the Ghana Petroleum Funds under the
Operations Management Agreement.
• The accounts for these designated funds have
since been opened at the Bank of Ghana.
– The Treasury Department is responsible for the
offshore accounts while Banking Department is
responsible the onshore accounts.
– The entire process is handled by 4 key departments:
Banking, Treasury, Finance, and Audit.
Bank of Ghana (contd.)
The BOG has the following in place:
• A committee to examine all matters relating to BOG’s
responsibilities under the Act 815 on receiving the
petroleum revenues into the Petroleum Holding Funds and
subsequent transfers into the Petroleum Funds after the
Budgetary allocation has been disbursed;
• Operational management guidelines in terms of Investing
the Petroleum Funds among others and advise
Management accordingly.
• A desk at the Treasury Department to handle the day-today offshore aspects as well as management of the
Petroleum Funds within the context of the PRM Act.
Audit of Petroleum Funds: The Ghana
Audit Service (GAS)
The PRMA mandates the Audit Service to conduct annual and special audits
of the Petroleum Funds, including the Heritage and Stabilisation Funds.
• The Audit Service has established a Committee to advise the AuditorGeneral on all issues pertaining to its role in the Petroleum Sector.
• The Auditor-General has existing structures by which he audits and
reports on the Bank of Ghana’s Foreign Exchange Receipts every six
months to Parliament.
• The Auditor-General has also put in place, a plan to establish a unit to be
responsible for auditing oil and gas operations.
• The ongoing capacity building interventions are therefore aimed at
strengthening the service’s position to conduct regular and special audits,
and hence deliver on its mandate in accordance with the Constitution, The
Audit Service Act 2000, (Act 584), the Petroleum Revenue Management
Act and any other relevant legislation.
Ghana Extractive Industry Transparency
Initiative (GHEITI) Secretariat
• Although the Ghana EITI Secretariat does not
have a role prescribed in the Act, the
Government of Ghana's decision to extend the
Extractive Industry Transparency Initiative (EITI)
to the oil and gas sector means there will be EITI
reporting on petroleum receipts.
• As a requirement for the EITI implementation,
EITI implementing countries must report on
revenues from the extractive sector to ensure
transparency and accountability.
Ghana Extractive Industry
Transparency Initiative (GHEITI)
Secretariat (contd.)
• GHEITI Secretariat and the National Steering Committee
have developed a draft reporting framework for capturing
all payments made by the Oil and Gas companies and
receipts by Government.
• The reports which reconcile actual company payments with
actual government receipts and are based on the audited
accounts will be published annually.
• The GHEITI Auditor/Aggregator checks the appropriateness
or otherwise of the payments and receipts. Where
discrepancies are identified, some recommendations are
made to the appropriate agencies and institutions affected
to explain those discrepancies.
Impact of Oil and Gas Revenue on
Debt Sustainability
• Provision for collateralization of oil revenues is spirited
to offer security of development financing.
Collateralization may provide more quality security and
therefore relatively better pricing for borrowing.
• A recent Debt Sustainability Analysis (DSA) shows
significant improvement in export and revenue
(expected revenue and export from oil and gas) giving
rise to remarkable improvement in the principal debt
indicators
• External debt indicators would remain well within their
respective vulnerability thresholds, while the overall
public sector debt outlook is sustainable.
Debt Sustainability (contd.)
• Improved ratios creates more fiscal space or borrowing space,
indicating that more could be borrowed to accelerate infrastructure
development.
• Investors develop much appetite for the sovereign papers due to
the improved financial outlook as a result of improved
macroeconomic stance. GoG envisages that enhanced public
revenue and sovereign credit profile will improve risk premium and
thus gives better credit quality and pricing for borrowing thereby
reducing the cost of borrowing.
• While these developments provide a strong incentive for GoG to
borrow in the near term, it is important for government to ensure
borrowing is maintained at sustainable levels.
Issues and Challenges
• Establishing Benchmark Revenue
– The actual spot price is normally not a good estimate of the future oil
price. In order to forecast petroleum revenues in the future, options
could be explored while the capacity for forecasting is greatly
enhanced.
• Revenue Collection and reporting
– The flow meters installed by the operator are not
functioning properly
– There is the need to place more than one officer on the
FPSO for effective monitoring
– The GRA needs to communicate with its officer on FPSO
independently,
– Real-time transmission of data from the electronic seals on
the FPSO to GRA on-shore centres is not yet fully achieved.
Issues and Challenges (contd.)
• Need for frequent meetings and sharing of data and
other information
• The calibration of the measuring instruments on the
FPSO needs to be confirmed by the Ghana Standards
Board.
• There is the need to speedily build up the capacity of
officers of all the agencies involved—GRA, MOFEP,
BOG, Standards Board, to enable them carry out their
functions efficiently and effectively
• Logistical support in terms of office accommodation
and equipment also need to be enhanced.
Conclusions
• The Petroleum Revenue Management Act has benefitted greatly from
inputs of the Civil Society Organizations, Development Partners, and the
general public.
• The passage of the Act gives Ghana a strong legal basis to regulate the
receipt and expenditure of its petroleum revenues.
• It should be mentioned however that now that the Act has been passed,
several activities have to take place.
• Some regulations as well as committees and procedures need to be put in
place quickly.
– The Investment Advisory Committee which will advise the Minister of Finance.
– The Public Interest Committee which will inter alia, monitor compliance with
the Act by Government and other relevant stakeholders.
– Establishing an Operations Management Agreement between MOFEP and
BOG
– Procedures for providing forecasts of cash requirements quarterly and a
schedule of timing and amount of withdrawals from the Stabilization Fund
Conclusions (contd.)
• Unique opportunity to learn from the experiences of
other oil producing countries as reflected in the PRMA
• Effective coordination between the various
government institutions
• A strong political will on the part of government
• Continued support of development partners
• Vigilance of civil society
• The above, backed by sound macroeconomic
management, improved public financial management,
good governance, Ghana can have a good chance of
mitigating the excesses and maximizing its oil and gas
for development.
Thank you !!