What is our share of oil revenue?

Business Graphic, 'Your Views' Page, October 25/2008

Article: Charles Benoni Okine

EVEN before the eggs are hatched, Ghana is already counting its chickens. This is as a result of its strong conviction that there is approximately 2 billion barrels of crude oil of the highest grade hidden in the deep seas of Cape Three Points in the Western region.
Kosmos Energy, the renowned Texas based oil exploration company and Tullow of Britain, last year announced the discovery of the 'Black Gold', an announcement which threw the entire country particularly the government into a frenzy. Perhaps, the euphoria that greeted the find is also clear indication of how 'money' hungry the country and its people are. But this is because as President Kufuor once put it; “Our country would not become a beggar in the energy sector anymore” (Myjoyonline June 18, 2007).
According to the two companies, production of the first quantities of the find is expected in the latter part of 2010.
It is amazing that with this announcement, political parties in the country are using the expected revenues in about two years to plan their budgets and the various kinds of projects they intend to undertake with the proceeds. They have already conceded that the find will not be a curse but a blessing and this is obviously a refreshing expectation.
However, in spite if this spectacle, what is Ghana's share in the find? This is a question that many have not asked yet continue to excite themselves about the find and its proceeds and what it will do for the country.
Petroleum operations in the country are governed by the Production and Exploration Law of 1984 which regulates the petroleum sector.
The law provides for only 10 per cent equity share, that is petroleum share for Ghana in the event of the discovery of oil in commercial quantities by an oil exploration company, in this case, Kosmos and Tullow.
The law empowers the Ghana national Petroleum Corporation (GNPC) to open acreages on its own or in association with other foreign partners or operators. Again, the general terms of a fiscal package negotiated and agreed with the parties in the event of a commercial discovery are as follows;
1. Royalties in respect of oil and gas are 12.5 per cent and 7.5 per cent respectively
2. Carried interest of the GNPC is 10 per cent
3. GNPC's additional interest is 10 per cent, but subject to reimbursement of GNPC to contractor for its proportionate share of its participating interest.

The are other advantageous terms of the contracts which include;
1. No front payments such as signature or production bonuses
2. Negotiable royalties
3. Income tax (presently at 35 per cent)
4. Cost recovery concession
5. Low rental payments
6. Generous repatriation of funds and
7. Import duty exemption on exploration and production equipment and materials.
The exploration companies, for instance, Kosmos tells us that it spends more than $700,000 a day in its exploration activities offshore, an amount which the government cannot afford in its present state of affairs as far as the economy is concerned and, therefore, allowing the exploration companies to fund the exploration process is one in the right direction.
The issue is rather about what Ghana's stake is in the entire process which is expected to last for more than 30 years when production finally commences.
At the maiden National Forum on Oil and Gas Development in Accra at GIMPA on February 25-26 2008, the issue of Ghana's share in the entire process came up strongly.
The boss of the GNPC, when he took his turn, enumerated all what Ghana stood to gain from the find t it was the majority including foreigners did not think it was enough, what the country's share was.
Cocoa and gold are the two major sources of foreign income to the country and they are those that have helped sustain the economy for several decades.
For gold for instance, although the resource is mined in the country with its negative effects on the communities in which the mining companies operate, what Ghana gets in terms of its share is nothing to write home about. It is for this reason that the country is not even excited about the recent high rise in the commodity on the international market when oil was eating the world's economies with it record high prices.
This is a lesson that Ghana can draw to ensure that its share in the oil find is something worth feeding on so that in the event of high prices on the international market, it will stand to gain and not lose or have nothing to be joyous about.
The call for a review of the present fiscal regime in the upstream sector in the dawn of this new era of discovery of oil in Ghana is not out of place.
There should be greater attention paid to the regulatory, contractual and fiscal framework of the petroleum industry before it is too late.
In doing that, the nation (government and citizens alike) should work to stem the any possible oil revenue leakages as this will help maximise the oil revenue to the nation.