Five Steps Authorities in Ghana Can Take to Prepare for Energy Transition and Better Govern Oil, Gas and Mining
Ghana’s citizens and leaders have long hoped that their country’s natural resources will lead to prosperity. Yet the gold and oil beneath their feet and territorial waters have not wholly transformed the fortunes of everyday Ghanaians. But new research published yesterday shows that Ghana is learning from its past mistakes and improving the country’s extractive sector governance. Progress is gradual, however, and there remain significant gaps that require remedial action.
The 2021 Resource Governance Index (RGI) shows that oil sector governance in Ghana has moved into the “good” performance band. Governance of mining remains one level below, at “satisfactory.” Both ratings resulted from score increases of more than 10 points since the last assessment (in the 2017 edition of the index).
Despite these improvements significant gaps remain. So what can Ghanaian authorities and citizens do? What steps might be required to enhance extractive resource governance in Ghana? Below are some recommendations based both on the new RGI results and a recent national dialogue on extractive governance.
1. Take steps to design a long-term national development plan, to guide extractive resource governance among other sectors of the economy. This has the potential to deepen the contribution of the extractive sector to sustainable economic transformation in Ghana. Ghana lacks a clear strategic vision to drive the country’s overall development and guide government policy on extractive resource development as envisioned in the 1992 constitution. There is a clear mandate, under Article 87, for the National Development Planning Commission (NDPC), among other functions, to advise the president on development planning policy and strategy, and to study and make strategic analyses of macro-economic and structural reform options, including options for extractive sector governance. The importance of long-term national development planning to extractive governance is expressed in Section 21(2)(d) of the Petroleum Revenue Management Act (PRMA). This section makes it clear that any use of the Annual Budget Funding Amount (ABFA) should be guided by a medium-term expenditure framework, which must align with a long-term national development plan approved by parliament.
The aim of this PRMA requirement is to ensure that petroleum revenues contribute to broad and impactful economic development across the country. One of the NDPC’s key roles, therefore, as defined in both the 1992 constitution and the PRMA, is to develop a national development plan to guide the expenditure not only of petroleum revenues but of extractive revenues generally. The Public Interest and Accountability Committee (PIAC) has consistently underlined this, in terms of petroleum revenues, in its reports, including in the latest one. The current practice, which relies on medium-term strategic plans based on the manifestos of political party, limits the potential use of extractive revenues for inclusive growth and sustainable development.
2. Enact a minerals revenue management law akin to the PRMA to streamline the collection, allocation, use and management of all mineral revenues, including at the subnational level. Such a law should establish a sovereign wealth fund for mineral revenue and empower a public oversight body to monitor government accountability to the provisions of the law.
The RGI has never assessed sovereign wealth management in Ghana’s mining sector simply because there is no appreciable framework or fund to assess. Although the Minerals Development Fund (MDF) Act of 2016 and the amended Minerals Income Investment Fund (MIIF) Act of 2018 are modest attempts at managing mineral revenues, they, unlike the PRMA in the oil sector, did not create a mining sector sovereign wealth fund with clearly defined rules governing its management.
Additionally, there are accountability deficits inherent in these laws. Given that minerals are exhaustible resources and considering the positive impact mineral revenues could make if governed by an appropriate legal framework, the lack of a mining revenue management law akin to Ghana’s PRMA is a pressing resource governance issue.
3. Ensure that all resource-backed loan models set clear investment rules, transparent provisions, and accountable arrangements that are enforced by a legislative act, as this could improve parliamentary and public oversight on resource-backed loan for optimal benefits to citizens. Additionally, government should also make terms of resource-backed loans publicly available to promote more transparency, particularly on interest rates, fees, repayment schedules, restricting terms, and parties to the agreements.
4. Conduct energy transition risk assessments for GNPC and the broader extractive sector. Because the government lacks a blueprint for the ongoing energy transition away from fossil fuels, it’s hard to say how GNPC will fit into a future where oil becomes less sought-after. The government should develop a national blueprint on energy transition and take steps to assess the transition’s systematic financial risk on GNPC and use that as a basis to remodel GNPC’s strategic direction, human and financial capacity, and investment decisions. This assessment must take into consideration the advantages and disadvantages of entering new lines of businesses to diversify GNPC’s portfolio.
Crude oil price volatilities since 2013 coupled with the impact of the recent price fluctuations amid the COVID-19 pandemic and the consequential risks on broader extractive sector governance including GNPC related risks appear to have amplified energy transition concerns in Ghana.
Despite being highlighted in the 2017 RGI, GNPC’s expenditure on non-commercial activities remain a concern. PIAC in its 2020 annual report notes that GNPC spent a total amount of US$31,477,699.31 constituting 71.81 percent of the corporation’s administrative and other technical operations expenditure (Level B) receipts on sustainability & stakeholder relations and GNPC Foundation. GNPC has consistently categorized these expenditures as corporate social investments (CSI).
PIAC further notes that GNPC’s expenditure on CSI increased from GH₵41.49 million in 2018 to GH₵49.98 million in 2019, with the corporation’s guarantees (payment guarantees against default by the receiving state-owned enterprises (SOE)) for other SOEs cumulatively amounting to US$645,511,405.40 as of the end of 2019. In addition, as of the end of 2020, the corporation’s cumulative guarantees for other SOEs increased to US$694,824,551. Ultimately, expenditure pattern on CSI and SOE guarantees have consequences on the corporation’s progress toward achieving its core mandate as a commercial strategic vehicle for state participation in upstream exploration and production activities.
5. Revamp the operations of Prestea Sankofa Gold Limited and adopt best practice approaches in SOE governance going forward. An important issue that needs to be highlighted is the concerning state of the country’s mining sector SOE, Prestea Sankofa Gold Limited. The company’s operations have been suspended since 2016, affecting its 2017 RGI performance (41 out of 100 points) and meaning that it couldn’t be assessed as part of the 2021 RGI’s SOE subcomponent. On the other hand, its oil and gas sector peer and parent company, GNPC, achieved a good score in the 2017 RGI (75 out of 100 points) and improved its performance in the 2021 RGI, a reflection of sustained improvements in extractive SOE best practices. Given the significant role Pretsea Sankofa is expected to play in the gold mining sector, similar to GNPC’s in the oil and gas sector, the inability to assess the SOE subcomponent for Ghana’s mining sector in the 2021 RGI due to the stated lack of activities is disheartening. The government should therefore revive Prestea Sankofa’s operations, ensuring improved SOE governance inspired by GNPC, if not of higher standard.
Nasir Alfa Mohammed is an Accra-based policy advocacy officer with the Natural Resource Governance Institute (NRGI).
