Barbara Andoh, Research Lead, Center for the Study of Energy and Natural Resources at IMANI took part in the Technical Round Discussions on the 3 recently passed laws: Petroleum Exploration and Production Act, Companies Act, Public Financial Management Act 2016. The Discussions took place on 30th November 2016 at Dodowa Forest Hotel. She reports.
By Barbara Andoh
This technical roundtable discussion was convened by the Ghana Extractive Industries Transparency Initiative (GHEITI) in collaboration with the Natural Resource Governance Institute (NRGI) and the Ministry of Finance (MOF) to analyse and discuss the recently passed Petroleum Exploration and Production (E&P) Act, Companies (Amendments) Act and the Public Financial Management (PFM) Act. The purpose of these discussions was to figure out what these new legislations mean for the oil & gas sector and the Ghanaian economy at large and also to address issues related to compliance and implementation of these laws.
Analysis of the Petroleum (Exploration and Production) Act 2016
Mrs. Anita Locco of the Ministry of petroleum (Legal directorate) presented a broad overview of the Act stating that the E&P (Exploration and Production) provides a legal framework for the governance of natural resources right from exploration through development to decommissioning. By so doing, it protects the interests of Ghanaians making sure that Ghana’s petroleum resources are efficiently managed in such a way as to benefit all Ghanaians. The E&P gives life to the Petroleum Commission Act and improves the Upstream Act. She stated that, the ministry was in the process of drafting necessary regulations required for the effective implementation of the E&P Act. There were four main regulations being worked on covering technical and data management issues. So far, one regulation out of the four had been passed.
On the implementation of the E&P, Mr George Addy-Morton of the Petroleum Commission (PC) said that the PC’s mandate was to regulate the activities of the upstream petroleum sector and this function has been reinforced by the new E&P law. rThe new tasks under the PC’s mandate include the setting up and management of a local content fund, petroleum register of contracts as well as the management of geological/seismic data. He mentioned that the PC had set up a committee to develop the modalities for setting up the fund and all others equal, the fund will be ready by the end of the year. The PC, mandated to receive, manage and store petroleum data on the behalf of the state, has established a state of the art data centre to collect geological/seismic and other related data. The commission is currently working on creating a database that will collect and manage all petroleum related data.
Local content fund
The setting up of a local content fund was extensively debated particularly; the sources of revenue for the fund, the effective management of the fund, disbursement and uses of the fund. Barbara Andoh (Research Lead, Center for the Study of Energy and Natural Resources, Imani) pointed out that clarification was needed on the exact purpose of the local content fund especially since petroleum revenues channelled into the “Capacity Building” priority area of the Annual Budget Funding Amount (ABFA) was also supposed to be spent on capacity building including that of the oil and gas sector. According to the Public Interest and Accountability Committee (PIAC) report, in 2015, no part of the ABFA allocation to the capacity building priority area was used to fund any capacity building in the oil and gas sector. Further, there were several other capacity building funds for example, the one provided to the Kwame Nkrumah University of Science and Technology through the World Bank’s Oil and Gas Capacity Building projects among others. The question was, are all these funds achieving the purpose for which they were set up? It was noted that, there was a need to synchronise all these capacity building funds to ensure that they are achieving the purpose for which they were being collected. Such funds also need to be closely monitored to ensure transparency and accountability especially on who gets what from the fund. Formulation of a framework and guidelines for the local content fund was suggested.
Minister Discretion in Awarding of Contracts
The E&P law allows the minister, according to his own discretion, to by-pass or override the competitive bidding process and go for direct negotiation of petroleum contracts. In this case, the minister is mandated to provide detailed explanation as to why the competitive bidding process was set aside and the guiding principles for this process are set in supporting regulations. However, these regulations as at the time of this discussion were not yet ready. It was pointed out that, this delay in providing the regulations could lead to a situation where the provision for the use of discretion in negotiating contracts is abused. It was suggested that all efforts be made to propound the backing regulations for the E&P law as soon as possible. Further, the explanation given by the minister as to why the competitive bidding process was set aside should be made available for public scrutiny.
Minimum Work Obligation (MWO)
The Deputy Executive Director of ACEP, Mr. Benjamin Boakye lamented the failure of several contract holders in fulfilling their minimum work obligation. He said that many licences had been awarded however work was yet to be seen on these blocks. He attributed this mainly to the likelihood that these companies did not have the capacity to develop the blocks awarded. He advised that there was a need to undertake proper due diligence before contracts are awarded. Further, he stated that the fee that International Oil Companies (IOC’s) pay when they do not meet their MWO is not punitive enough. These companies must be compelled to fulfil their MWO’s. Dr. Steve Manteaw of ISODEC also pointed out the need to regulate the use of appropriate equipment by the IOC’s.
Analysis of the Public Financial Management Act 2016
Vitus Azeem, former Executive Director of the Ghana Integrity Initiative, presented comments and concerns on the PFM Act 2016. He suggested that ideally, all financial management legislation, for example the Loans Act, Audit Service Act, Petroleum Revenue Management Act (PRMA) etc. should be brought under one Act; the Public Financial Management Act but he found that the PFM Act is not reflective of this. He stressed the need for a holistic PFM law that covers all sectors of the economy. He suggested several improvements including;
- Mandatory pre and post-election reporting on public finance in order to facilitate smooth transition from government to government
- Specification of fiscal policy principles that a government that assumes power should follow
- A change of the life span of the medium-term fiscal strategy from 5 years to 4 years commensurate with the term of government
- Development of indicators to measure performance
- Appropriate oversight of cabinet decisions concerning the medium-term fiscal strategy and financial minister’s discretion to suspend financial targets
- The Act should address public debt management
- Ensure government compliance to the overall limit for borrowing
Mr. Yamoah of the Ministry of finance said that the ministry would be coming up with regulations that would facilitate the implementation of the PFM Act. He also said that the Fiscal Strategy Document would be submitted by March of 2017 according to the provisions of the law.
Overall, it was noted that the PFM presents a robust legal framework for management of public finance however, there are still weaknesses in the PFM law that need to be addressed. Improvements required include; specific provisions to enforce the section (96) that holds the minister accountable if he does not act in the interest of the state, measures to ensure effective implementation including the preparation of backing regulations, a clear statement concerning parliament’s oversight role among others. It was also suggested that sector specific arrangements need to be made to manage finances within a specific sector. Also, a commodity stabilisation fund arrangement covering all commodities was needed because all commodities face price volatility and some of these commodities contribute more to GDP than oil.
Analysis of Companies Amendment Act 2016
Mr. Samuel Bekoe of the Natural Resource Governance Institute (NRGI) presented an overview of the Companies Amendment Act 2016. The main focus of the amendment was to provide for the inclusion of the names and particulars of beneficial owners of companies in the register of members as well as establishment of a Central Register. Mr. Bekoe mentioned that the Act was amended in relation to Extractive Industries Transparency Initiative (EITI) requirements.
It was general consensus that the Beneficial Ownership provisions in the amended Act were very useful for determining true ownership of companies. Such information could be leveraged to fight corruption, for example, to prevent fronting. The Central Register also provides for the collation of all details/particulars of companies in both manual and digital format. Further, the Act had been amended to include filing of returns of the beneficial owner. Certain weaknesses were however pointed out. For instance, the definition of politically exposed persons was not too clear in that, it left out Ghanaians who are politically exposed. It was noted that, the Register General’s Department (RGD) was to collect information for, keep and maintain the Central Register. Implementation of these provisions had not yet commenced because the Act had not yet been gazetted and made available to the public. It was further noted that, implementation of the amendments will require a good method of extracting information on business owners/beneficial owners, meaning that company registration forms will have to be updated or changed altogether. The online registration system will also need to be reconfigured to enable the capturing of requisite information. A representative from the RGD put forward the cost implications of this process and it was suggested that creative means of raising funds should be sought.