OIL: Precious bane

27/05/2010 | Sarah Wachter

Ghana and Uganda are the latest African nations to strike oil. Yet both are struggling with how best to use it to their advantage

When oil starts to flow in October from its Jubilee field holding as much as 1.8 billion barrels, Ghana will become Africa’s latest energy producing nation.

A similar blessing is on its way to Uganda: some 2 billion barrels of oil have been found in the Lake Albert Rift Basin, and it’s only a question of time – almost certainly several years – until oil revenues swell government coffers.

In both countries, expectations are sky high. “This is the biggest economic opportunity ever to come Uganda’s way. It’s bigger than all the aid it ever had and ever will get,” says Paul Collier, director of the Centre for the Study of African Economies at Oxford University.

The timing is propitious: both countries are relatively stable and also in a position to learn from the experiences of neighbouring countries.

The size of their windfall will be more modest than that for the petro-economies of Angola or Nigeria. But this poses another degree of difficulty – and urgency – in ensuring oil revenues are managed and spent equitably and wisely.

“It’s tens of dollars, not thousands of dollars per citizen, which makes it more challenging,” says Mark Henstridge, acting executive director for the International Growth Centre. For Ghana, oil revenues could make a huge difference nonetheless: the country imports $1 billion of fuel, which takes a huge chunk out of the government budget.

The most important precursor in warding off the resource curse for both Ghana and Uganda starts with a well functioning political system. “Ghana has had transparent, peaceful presidential elections before drafting new laws on resources,” says Dickens Kagumisha, chief executive of the African Institute on Energy Governance (Afiego). “If leadership is accountable, you have fundamental ways of seeing how the resource can benefit the people.”

While Ugandan officials have visited their counterparts in Ghana at least once to study Ghana’s recent efforts in fashioning a modern framework for managing its hydrocarbons sector, it’s in shoring up political governance where the two countries are working most closely together.

A donor group of politicians and MPs from Ghana, including its former president, John Kufuor, have agreed to sign a memorandum of cooperation with political parties in Uganda that defines how they will discuss and resolve problems. The group is funding a conference to establish party structures in the communities so Ugandan MPs can engage citizens on the ground.

Botswana and Tanzania offer recent evidence of how politics plays out in good resources management, Kagumisha says. “Why are they successful? The way they conduct politics first and foremost, making sure they are accountable to the citizens, who have the right to force you out, and that there are all the institutions for necessary independence and an active civil society. Tanzania also has a very independent judiciary.”

RESOURCE CURSE

Ghana and Uganda are also looking at the experiences of oil-rich countries in Africa and elsewhere. “There has been an attempt by Ghana to take on board the best practices and governance of oil around the world,” says Kojo Asante, head of research at the Ghana Centre for Democratic Development (GDD). “There have been quite exhaustive discussions with Norway, Trinidad & Tobago and Nigeria to make sure we learn the lessons of the resource curse.” Uganda, too, has sought advice from Nigeria and Norway.

But local consultation is perhaps the weakest link in Africa in managing resources, where Ghana and Uganda must make bold efforts. “The challenges these countries are facing are almost the same from Chad to Cabinda [a restive oil-producing province of Angola]. When oil is discovered, how to participate in the making of policies is the biggest challenge. There is no scope to participate,” says Kagumisha.

Ghana is committed to seeking public feedback on its oil policies and laws under development. “There has been a genuine effort to bring civil society and citizens together, to hear views on what should be done to get their participation on oil revenue management and the local content policy,” says GDD’s Asante.

Ghana held town hall meetings in the capital cities of all 10 provinces on its oil revenue management bill, attended by up to 500 people, says Joe Amoako-Tuffour, an academic and adviser to Ghana’s finance ministry.

To establish an arm’s length process, local coordinating councils organized the meetings. Children have even been consulted through a meeting organized by the ministry of women and children’s affairs. The draft revenue

management bill is available on the finance

ministry website with an accompanying

questionnaire – posted after pressure from the Integrated Social Development Centre (Isodec). Previously unfruitful attempts to get a copy from the ministry led Isodec to get the draft through other means and publish it in Public Agenda, a national newspaper.

Transparency seems to be a watchword whose time has come to Africa: “There is a growing consciousness in Africa for better transparency and governance. It has taken a long time to arrive,” says Duncan Clarke, chief executive of Global Pacific and Partners, a strategy consultancy.

Clarke and other observers cite a few recent developments that demonstrate increased political will for greater transparency in Africa: plans to turn the Nigerian National Petroleum Corporation into a strictly commercial entity; field-by-field oil production data posted on the finance ministry website in Angola; and the first African country, resource-rich Liberia, which has fully complied with the Extractive Industries Transparency Initiative.

Transparency in consultative processes in Ghana is still showing some gaps: many local civil society groups say the Ghanaian government has not made available drafts of policies and bills in enough detail for them to give more precise feedback, Asante says.

So far, Ghana’s plans for establishing a modern oil framework contain many of the right elements, including turning state concern Ghana National Petroleum Corporation (GNPC) into a strictly commercial entity, and passing its regulatory responsibility for upstream activities to the National Petroleum Authority.

The problem lies in the timing and sequencing of the Ghanaian government’s plans, civil society groups say. There are draft laws for oil revenue management, regulation and local content, but the timetable from consultation to enactment is unknown. An oil and gas policy that sketches out a vision is absent. “Developing a law without a policy is an anomaly,” says Steve Manteaw, campaigns coordinator for Isodec.

What’s more, civil society experts think it is unlikely that revenue management and regulatory laws will be in place and the wealth of institutional and personnel changes made before the first oil flows – a classic problem in other African countries afflicted by the oil curse, where commercial development outpaces institutional development.

SECRETIVE PRACTICES

Worryingly, Ghana has yet to articulate whether the current licensing process, which now takes place in secret, will become a competitive bidding system, widely seen as the best practice worldwide. “The licensing structure and regulatory framework is relatively weak and is of the utmost importance before oil intensification,” says one observer.

Moreover, a Freedom of Information Act has languished for a decade. Publicly available information on oil contracts is thin, and a pledge to make more detailed information available upon request to the ministry of energy is untested.

Activists say a watchdog role for the oil and gas sector by parliament is critical. But these waters are uncharted in Ghana and Uganda. Moses Asaga, chairman of Ghana’s parliamentary sub-committee on energy, says parliament will be able to invite ministers to hearings, the energy committee will conduct in-depth inspections of company work programmes and debate them in parliament, and debate and report on GNPC’s annual returns.

Uganda has a new policy and laws on resources management and on oil and gas revenues. A new licensing round with new terms is expected mid-year. But questions loom on when the laws will go into force. “I have read the policy, and I’m confident to say it is very good,” Afiego’s Kagumisha says. “The challenge is implementation: for two years, no section has been implemented.”

In the lawmaking process for the oil sector, public access in Uganda has been almost non-existent. “Very few people aside from a few government officials are involved. The rest of the citizens are in the dark,” Kagumisha says.

A standoff between Ugandan civil society and the government is emerging. Last November, local environmental NGO Greenwatch was turned back from canvassing public opinion in the oil development area of Buliisa on orders from the energy ministry. Greenwatch has filed suit. It has also filed a high court suit to get the government to release information on oil contracts, which the government has so far refused to do, citing confidentiality clauses.

Some experts say civil society pressure in Uganda and Ghana is too weighted towards the more glamorous side of issues – publishing oil contracts and learning the government’s take, instead of the more mundane but important issues.

Oxford University’s Collier cites three issues that Ghana and Uganda must get right: first, balancing savings versus consumption of oil revenues. Already there are warning signs: Ghana’s previous government in 2008 went on a spending spree ahead of the first oil revenues – expected in 2011 – racking up a fiscal deficit of 14.5% of GNP in 2008.

Second, Collier cautions against setting up oil funds in Africa along the Norwegian model, which is under consideration in Ghana. Instead, assets should be invested in the broader domestic economy. And third, above all, oil revenues must be used to build up the capacity to invest in the local economy, he says.

The lessons that come out of Ghana and Uganda will have wide repercussions, as developing countries in Africa and worldwide look for a workable model to inoculate themselves against the resource curse. “Resource extraction will be a big bonanza over the next two decades. The first order issue is whether it is managed well or not. If not, it will be one of the greatest missed opportunities of our lifetime,” says Collier.

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