13 December 2010
Alex Vines

Dr Alex Vines OBE

Research Director, Area Studies and International Law; Head, Africa Programme


Ghana will be celebrating first oil on 15 December, marking the beginning of a billion-dollar industry. But is it prepared? To avoid the 'resource curse' that has afflicted many oil producers, Ghana's government needs to create new laws, regulations and institutions to handle the billions of dollars in new investment.

At an expert meeting on oil management in Accra some months ago, I was worried that time was running short to get proper systems in place before oil production started. There was a sense of muddling through and the politicisation of upstream decision-making - two clear lessons from Nigeria to avoid.

Ghana is not ready for the impact of first oil for two key reasons:

  • There is no National Petroleum Policy in place. There needs to be a clear policy statement regarding oil and gas which would include discussion of environmental standards, gas legacy, local content etc. To be done properly it should be negotiated on a bi-partisan basis but this appears difficult to achieve due to the way Ghanaian politics functions;
  • Following on, there should be a Petroleum Bill that derives from this.

A new Petroleum Bill has been drafted, but it lacks robust policy grounding. The previous administration had drafted a Bill, but this was shelved following the change of government. The new draft Bill is not better, and it is good that Ghana's parliamentarians have asked for improvements.

A flaw in both draft Bills is the omission of an independent regulator: instead, a regulatory agency is proposed rather than an autonomous authority, which could see the Ghana National Petroleum Corporation (GNPC) or the Energy Minister in this role in the short-term. So in some situations the regulator could also become the operator, which is not a good long-term prospect once national technical capacity has been enhanced.

An independent regulator would help to de-politicise upstream decision-making. This would allow decisions to be based on technical merit and the political focus to be on how the taxes and royalties could be best spent on poverty reduction in Ghana.

Another key lesson from other oil producers is to use oil revenues for public investment, for example in schools, roads, and hospitals, rather than consumption. The International Monetary Fund has predicted that government revenues from oil and gas could reach a cumulative US$20 billion over the production period of 2012-30 for the Jubilee field alone. This should not replace cocoa production but be used to build up a skilled labour force and new competitive industries.

Currently, oil production starting Ghana is in a situation where it still has no new law (it relies on the 1984 Petroleum Exploration and Production law), no regulations and no regulator. Its not too late to deal with these shortcomings, but muddling through is inefficient and could be very costly.

An additional concern is the collapse of the gas utilization project. It appears that gas flaring will occur for up to 18 months and this may hold back production volumes from the Jubilee field, as the gas will need to be managed. Again clear policy could have helped, rather than a muddled, overly ambitious and complex arrangement for gas utilization.

Transparency of oil decision-making is important. Disclosure of all revenue contracts with oil companies is helpful as it allows for accountability for decision-making and ensures that parliamentarians and the public can hold decision makers to account. This would be assisted by the passing of an oil revenue management law that puts an emphasis on transparency.

Ghana's Government will need to sequence law-making, regulations and institutions for the sector over time. As Oxfam America has highlighted not all negotiations need to be made at once. But regulations do need to be in place before the impact is felt. Constructive engagement with civic participation, faith groups, NGOs and chiefs is also important. Consulting takes time, but ignoring it can be counterproductive.

How can Ghana stand out in Africa and avoid the resource curse? The best way would be to make upstream decision-making technocratic, and draw up a bi-partisan National Petroleum Policy for guidance, including for a new oil Bill. The politics should be focused on finding the best use of oil windfall revenues, such as through the Petroleum Revenue Management Bill, so that Ghana avoids the consumption trap and builds up its competiveness for future generations who will not enjoy the hydrocarbon endowment.