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Civil Society Groups Claim Ghana's Amendments to Oil Revenue Bill Could Lead to a 'Spending Spree'

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As Ghana gears up to become the newest African oil producer next week, civil society groups have criticized the government over changes to a key bill that will allow 70 percent of oil revenues to be used as collateral for infrastructural loans, claiming it could lead to mismanagement and reckless spending.

A contentious clause in the Petroleum Revenue Management Bill that prohibited petroleum revenue being used "as collateral for debt, guarantee or other liabilities of any other entity" had been fiercely debated in parliament in recent weeks. But the clause was scrapped yesterday when the majority National Democratic Congress party defeated the minority in parliament by a narrow margin of 10 votes.

The vote to amend the bill comes a week after Ghana's Vice-President John Mahama publicly called for the scrapping of the clause at a press conference. Mahama said it would be unwise to save funds when the nation faced an immediate need for improved infrastructure, according to The Ghanaian Times.

But the Civil Society Platform on Oil and Gas (CSPOG) said the amendment could lead to wasteful spending by current and future governments.

"We think we need to save money for future generations," said Dr. Steven Manteaw, a spokesperson for CSPOG and the convener of the transparency initiative Publish What You Pay (PWYP) Ghana. "As a country we need to avoid overreliance on oil and have mechanisms that prevent the government going on a spending spree just because we have oil," he added.

The CSPOG contributed to the drafting of the original bill and lobbied against the proposed amendment as debate in parliament began to forment. They claim that allowing the government to use oil revenue as collateral for loans could lead to excessive spending on infrastructure and development projects that was characteristic of Nigeria in the 1970s, before oil prices plummeted in the early eighties, sending the country into an economic recession.

But Dr. Kwadwo Tutu, an economist and research fellow at Ghana's Institute of Economic Affairs, said the amendment could encourage further investment and economic growth.

"Ghana will be fine, as long as the money doesn't go into recurrent expenditure (wages and salaries) and goes toward investment," said Tutu. "But as the minority said, we have to ensure that the money is spent properly and accounted for," he added.

Electricity shortages, poor roads and an absence of rail transportation remain key infrastructural problems hindering investment and economic growth in the small developing nation.

Ghana's President John Atta Mills on a visit to China in September signed some $13 billion of loan deals with The Export-Import Bank of China to fund oil and gas infrastructure, as well as road, rail and agricultural development projects. The nation was also granted a $602.6 million loan by the International Monetary Fund (IMF) last July to assist with financial pressures caused by the global economic downturn.

The IMF has predicted that government oil revenues from the Jubilee oil field could reach US $20 billion over the next 20 years. The oil field holds an estimated 1.6 billion barrels in oil reserves and exploration companies continue to search Ghana's waters for additional reserves. But the IMF also told the government in October that it needed to improve its fiscal performance in order to avoid rising levels of unsustainable debt.

The revenue bill that emerged from consultation with civil society groups originally prohibited use of petroleum revenue as collateral for loans, and ordered that 30 percent of oil revenues be allocated to two savings funds. In the draft bill the first fund, the "Heritage Fund" is described as an endowment "intended to safeguard the long-term interest of Ghanaians and to sustain a reasonable level of development even after the oil and gas resources have been exhausted." The second fund, the 'Stabilization Fund' is referred to as a "rainy-day-fund" intended to minimize the impact of fluctuating oil prices on the national economy through setting aside a certain amount of revenue for budgetary support.

Africa expert Alex Vines argues that using oil revenue as collateral for loans will not have a negative impact on the economy if the government is able to negotiate competitive deals and has strong independent institutions to track progress and how the money is spent. But Vines, head of the Africa program at Chatham House in London, stated in a paper he recently wrote that he was concerned Ghana was "muddling through" in developing its policies and that it was not ready to begin petroleum production.

Vines also said the nation did not have an adequate national petroleum policy in place and there were concerns that the decision making surrounding oil production was becoming too politicized. Vines added that Ghana needed to establish an independent regulatory body to govern the industry.

As Ghana prepares for production to begin on Wednesday December 15, three key bills are yet to be passed into law, the Revenue Management Bill, the Petroleum Exploration and Production and Exploration Bill and the local content bill. The current legislation governing the oil industry is the 1984 Petroleum Exploration and production law that was developed long before the deepwater oil find in 2007.

While many are concerned that Ghana is rushing in to oil production, Nigerian international relations scholar Dr. Charles Ukeje said that despite the fact Ghana was yet to develop a regulatory framework the nation would rise above the oil curse that has affected other African nations.

"The Ghanaians are very much alerted to the experiences of countries like Nigeria, Gabon, and Cameroon, that have squandered their oil wealth and Ghana has the opportunity and the government structures that will help it to avoid going down that path," said Ukeje. "Even if they have not passed key legislation, they will not go down the same path as other oil producing African countries, they will be much more level-headed."