Social Policy and State

Revenues in Mineral

Rich Countries in Africa

Madonna Afiba Dolphyne

Local Content Conference & Exhibition,

Best Western Atlantic Hotel,Takoradi,

Ghana

20-22nd November, 2019

INTRODUCTION

SOCIAL POLICY AN INTEGRAL PART OF ECONOMIC GROWTH

Mineral endowments especially oil and gas is

a capital that spur growth

Investments in the extractive industries could

contribute to sustainable development if the

benefits from the oil and gas are well-used.

INTRODUCTION……. continued

Mr Koehler, Former President of

Germany observed that Africa had

enormous natural resources that

could provide a great source of

economic prosperity for the

continent, ‘but the crucial task will

be to ensure that this fortune will

benefit all people’

The natural resource argument

The schools of thought are divided

between those who argue that

mineral resources, i.e. oil and gas

are a curse and that, in general,

growth in mineral-rich and

dependent economies has been

worse than in less endowed

countries and scholars who consider

oil and gas resources an endowment

that has the potential to spur growth

and development in developing

countries.

Managing natural resources –

Lessons from Norway

Norway ranks among the richest

countries in the world and Norwegians

have benefited tremendously from the

revenues

Sensible Resource Management: They

have managed to transform oil and gas

resources into real and financial assets

based on a well-functioning democracy

and longstanding and trustworthy

institutions

Government Pension Fund of

Norway Ownership of the natural resources: At an early stage, it was

concluded that such resources belong to the Norwegian people. The Government Pension Fund of Norway comprises two entirely separate sovereign wealth funds owned by the government of Norway.

The Government Pension Fund Global, also known as the Oil Fund, was established in 1990 to invest the surplus revenues of the Norwegian petroleum sector. It has over US$1 trillion in assets, including 1.4% of global stocks and shares, making it the world’s largest sovereign wealth fund.

In May 2018 it was worth about $195,000 per Norwegian citizen. It also holds portfolios of real estate and fixed-income investments. Many companies are excluded by the fund on ethical grounds.

THE GOVERNMENT PENSION

FUND

The Government Pension Fund Norway is

smaller and was established in 1967 as a

type of national insurance fund. It is

managed separately from the Oil Fund

and is limited to domestic and

Scandinavian investments.

The Pension Fund is a key stock holder

in many large Norwegian companies,

predominantly via the Oslo Stock

Exchange.

Governance model Norway's petroleum wealth does not only

belong to those living today. They try to be good stewards, like the farmer who cares for the soil and passes it on to succeeding generations so they too can harvest from it. In the case of Norway, they pass their natural resource wealth on to descendants in the form of financial assets.

Norges Bank has been tasked with managing the fund since its establishment. The legislative basis for the fund is decided by the parliament, while the Ministry lays down the management mandate that is issued to Norges Bank. Moreover, the Ministry has established a practice whereby decisive changes are submitted to the parliament for approval.

Governance model

The role of the Bank and its Executive Board in

formulating and elaborating the management

mandate is to advise the Ministry. This is an

important job.

The Ministry formulates the management of

the mandate, reports and supervises which are

important tools for ensuring that investments

are managed in line with objectives. The fund

enjoys a reputation of being one of the world's

most transparent sovereign wealth funds.

For a fund with the entire population as actual

owners, transparency is vital for ensuring

democratic control and confidence in

investment management.

Potential of the oil & gas

industry in Africa

o Thanks to international oil companies and African

national oil companies alike adapting to a lower

price environment, as well as a partial recovery in

oil prices, means that the situation across Africa

today looks much more positive.

o “Africa’s oil and gas companies have weathered

the downturns and capitalized on the upswings

focusing their efforts on new ways of working,

reducing costs and utilizing new ways of working,

reducing costs and utilizing new technology”

POTENTIAL OF THE OIL &

GAS INDUSTRY IN AFRICA

Africa’s Oil and Gas Industry

holds huge potential. At the

end of 2017, Africa was

estimated to have 487.7 tcf

(Trillion Cubic Feet) of proven

gas reserves (7.1% of global

proven reserves)

Africa will see a wealth of new

refinery upgrades or new builds

set to change

SUCCESS STORIES OF SOME COUNTRIES WITH MINERAL WEALTH 2017 ONWARDS

Some examples are;

oNigeria

oAlgeria

oAngola

oEgypt

oGhana

oMozambique

oSenegal

oSouth Africa

NIGERIA

The oil producing giant of Africa, Nigeria

continues to lead the way as the continent’s

biggest producer. Oil remains the backbone

of Nigeria’s economy with oil and natural

gas export revenues accounting for as much

as 60% of government income in some

years. In 2019, as in previous years, expect

to see oil production and new projects

centered around Nigeria’s southern Niger

Delta area.

MIDSTREAM IN NIGERIA

With oil and gas exports being the backbone of

Nigeria’s economy, the country continues to

explore new projects to facilitate this.

o One major midstream project to watch over

the next few years is the Trans-Saharan Gas

Pipeline which will provide an outlet for

Nigerian gas, allowing it to join export

routes from Algeria to Europe exporting

between 20bcm and 30 bcm per year.

Although in the early stages of development,

the pipeline is expected to start-up in 2022.

South Africa

MIDSTREAM

South Africa has a well-

developed midstream

sector consisting of import

and storage terminals. The

government is proposing to

develop this sector of the

country’s energy industry

further with construction of

a new LPG import and

storage terminal at

Richards Bay. The terminal

will have a storage capacity

of 22,600 tonnes. The

terminal will also be

capable of sea-borne re-

exports to neighbouring

countries.

DOWNSTREAM With South Africa

consuming the second-

largest amount of

petroleum in Africa

(behind Egypt), the

country has a well-

developed downstream

sector. Petroleum

products are largely

derived from South

Africa’s domestic

refineries and its CTL

and GTL plants. One

such expansion is the

Sasol Synfuels Secunda

Upgrade.

Angola

Angola is Sub-Saharan Africa’s second largest oil producer

behind Nigeria and has a well-established oil and gas

industry- particularly its upstream sector which is

underpinned by prolific Deepwater acreage which was first

explored in the 1990s. The national oil company Sonangol

has undergone considerable restructures and reforms since

the oil price crash and is now in a better position to thrive in a

lower price environment. A signal of Angola’s growing

importance as a global oil producing nation was marked in

December 2006 when it was admitted to OPEC.

With oil making up the largest chunk of Angola’s export

commodities, the country continues to pursue new projects to

exploit its substantial reserves which at the time of writing

were the 17th largest oil reserves in the world.

GHANA

Although Ghana has traditionally been

a smaller oil and gas producer,

production is expected to accelerate

over the next five years with the start

of new offshore projects.

Crude exports form an important part

of Ghana’s economy, whilst natural

gas is predominantly used to fuel the

country’s domestic power plants.

GHANA

In order to support the Ghana 1000 Project- a major gas-to-power

project which will provide approximately 1,300 MW of combined cycle

power generation to Ghana’s western regions- Shell and Endeavor Energy

are developing a FSRU, which will have a capacity of 3.5 mtpa. A subsea

pipeline will link the FSRU to onshore facilities which will then supply the

Ghana 1000 project. It’s expected that the FSRU will start-up sometime

in 2020.

Downstream

o Ghana has a relatively small downstream sector with only one

refinery- the Tema Oil Refinery (TOR), which has a design

capacity of 45,000 b/d. In order to boost the country’s

refinery throughput, plans have been made to construct a new

refinery at Takoradi. The Takoradi New Oil Refinery will

process 150,000 barrels of crude oil a day with an annual

capacity of 7.5 mtpa. Although the project is at planning

stage, the Ghanaian government is aiming for a start-up date

in 2022.

MIDSTREAM & DOWNSTREAM

ANGOLA

In late 2018 Sonangol announced its

ambition pursue new refinery projects.

One of which is the Lobito Refinery (also

referred to as ‘Sonaref’). The refinery is

planned to have a capacity of 200,000

b/d and will process heavy crude from

the Kuito and Delta fields. Once

operations commence in 2022 the

refinery will process an array of

products including premium gasoline,

diesel, jet fuel, kerosene and liquefied

petroleum gas (LPG).

Downstream

Egypt’s has the largest refining sector in Africa. The

expansion and modernization of this refining capacity is a

priority for Egypt’s leadership and several new large-scale

projects are planned.

Egypt is the largest non-OPEC oil producer in Africa and the third-largest natural gas producer on the continent. Whilst Egypt has its own national oil company in the form of the Egyptian General Petroleum Corporation

(EGPC) international oil companies such as Shell, BP and Eni play a major role in the country’s upstream sector.

Egypt’s offshore oil fields have attracted international attention, with perhaps the most high-profile projects of late being BP’s West Nile Delta

Development.

Midstream

Like many other African nations energy exports play an important role in Egypt’s economy. As such, Egypt’s Ministry of Petroleum is keen to

sanction and progress midstream projects that will help transport oil and gas. One such project is the Tina to New Capital Gas Pipeline which will

support the export of natural gas produced at the Zohr gas field. The Egyptian Natural Gas Company (GASCO) is currently overseeing the

project which is expected to be completed in mid-2019.

MOZAMBIQUE

Ever since substantial natural gas reserves were

discovered in Mozambique’s Rovuma basin (upwards of

100 trillion cubic feet of proven reserves), the country

has been the darling of the international oil and gas

industry with many analysts suggesting that it could

become a key LNG exporter.

Midstream

With so much natural gas soon to be available, it’s no surprise to see Mozambique exploring a plethora of midstream LNG projects.

The Mozambique LNG Project is one of the biggest and will involve the construction of an LNG plant fed by the offshore Golfinho field and Mamba-Prosperidadecomplex. Facilities to be constructed include two trains, each with a capacity of 6 mtpa for a total of 12.8 mtpa, two LNG storage tanks, each with a capacity of 180,000 cubic metres, condensate storage, a multi-berth marine jetty and associated utilities and infrastructure. Start-up of the project is expected to take place in 2024.

SUCCESSES IN MANAGING REVENUES FROM SUCH FACILITIES SHOULD BE LINKED TO;

Sound Management of the Sector;

Good Governance;

Respect for the Rule of the Law;

Good Infrastructure; And

An Overall Favourable Environment for Business Development.

Options for Africa

Creating a conducive, stable and predictable policy, legal and regulatory framework and a competitive fiscal regime with a view to attracting and retaining the required level of investment in the sector, creating wealth, promoting employment and opening-up opportunities.

Options for Africa………continued

Achieving better mineral resources in

oil and gas revenue allocation and

redistributing the benefits of mineral

wealth through improvements in the

governance and management of

revenue flows deriving from mining,

and through decentralization of

decision-making and resource

allocation.

Options for Africa………continued

Enhancing governance

systems, organizational and

institutional capacity in

sectorial ministries, i.e. the

ministries of finance and

planning, and in local

governments.

Improving public participation in OIL & Gas mineral resources development

Policies, legal and regulatory

frameworks to facilitate equitable

participation by local

businessmen, communities and

other stakeholders in mining

activities should be in place, as

well as tools to improve revenue

(derived from royalties, income

taxes, land taxes, lease rents, etc)

distribution at local level.

Improving public participation in the oil and gas mineral resources development

Preferential employment of

local labour

Contracting of services and

procurement of goods from

indigenous local companies

Infrastructure provision to

local communities

Mainstreaming Mining in PRSPs

Policy-makers should focus on

gathering relevant data to

understand actual and potential

poverty-related impacts, risks, and

opportunities of the mining sector

in their country.

Setting clear objectives and

identifying priorities for

intervention in a consultative

process regarding poverty impacts

and the oil and gas sector.

Mainstreaming Mining in PRSPs……continued

In preparing the PRSPs there is the

need to foster broad consultation and

participation through the involvement

of local community representatives,

local government representatives from

mining regions, industry associations,

trade unions, non-governmental

organizations (NGOs), and other

relevant parties. In most cases, the

Ministry responsible for mining is

better placed to lead the process.

Mainstreaming Mining in PRSPs……continued

Identifying the mechanisms to

achieve the objectives, including

needed changes in policies, laws

and regulations

Establishing the necessary

institutional arrangements,

including authorities,

responsibilities and capabilities

to implement the mechanisms

Improving Management of Mineral Revenue: The Case of Stabilization Funds and Non-renewable Resource Funds (NRFs)TOOLS

Commodity loans

Bonds

Swaps

DERIVATIVE MARKETS

Futures

Forwards

Options

These should be considered as solutions to managing

revenue volatility and hedging against exposure to

commodity price risk for short- and long-term

horizons.

……………..Continued NRFs, including future generation funds,

have been established in several countries as

a tool to insulate economic activities from

fluctuations in mineral resources revenue.

For example, as part of the conditions for

developing the Chad oil fields and funding

the Chad-Cameroon oil pipeline, and in an

effort to prevent waste and corruption and

promote transparency in the use of oil

revenues, the World Bank imposed the

establishment of such a fund in the two

countries.

……………..Continued

This was to ensure that they contribute

to improve fiscal discipline, foster

transparency in the management of

mineral-derived savings as well as

promote equitable share of benefits

between national, regional and local

stakeholders.

There is need to promote good

governance. In establishing them, it is,

therefore, important to ensure that an

independent, accountable and capable

body manages the funds.

Fostering Minerals Cluster Development

The key outcomes would be:

Increasing local upstream support

(supplier/input industries) sectors;

Availability and further development

of a local skills base;

Adequate infrastructure;

Existence of a critical mass of

companies and institutions willing

to cooperate, network and share

knowledge and information formally

(e.g. through industry associations

such as Petroleum Commission,

Pyxera) and informally.

Fostering Minerals Cluster Development

Combination of legal requirements

and incentives that encourage local

outsourcing of goods and services;

Provision of financial support for

the development of small-and

medium-scale oil and gas supply

and services companies;

Existence of hives of research and

development, innovation,

diversification and technology

diffusion.

Improving Sustainability in Communities

Advances integrated rural and

regional social and economic

development;

Functions within an equitable and

effective legal framework;

Utilizes environmental

responsible techniques;

Complies with international

standards related to child labour

and occupational health and

safety.

CONCLUSION African countries to learn from and emulate

successful examples like Norway, where oil and

gas has played a pivotal role in the growth and

development of the country.

Good governance is a fundamental prerequisite

to turn Africa’s oil and gas endowments into a

blessing that can promote growth and poverty

reduction. There is need to shift from resource

extraction to resources management.

Need at country level for an overall

transformation in business and financial

organization, education, research and knowledge

development, human capital accumulation and

infrastructure expansion.

GHANA REVENUE MANAGEMENT ACT

( PRMA ) Ghana’s Petroleum Revenue Management Act (PRMA) has arguably improved the

transparency of petroleum revenue allocation. This is borne out by Public Interest and Accountability Committee (PIAC), Ministry of Finance, Ghana National Petroleum Corporation and Bank of Ghana publications regarding how much petroleum revenues are collected and where they go.

The Public Interest and Accountability Committee (PIAC) is a citizens-led statutory body established under Section 51 of the Petroleum Revenue Management Act 2011 (Act 815) as amended by the Petroleum Revenue Management (Amended) Act, 2015 (Act 893) to provide independent oversight over the collection, allocation and utilization of Ghana’s petroleum revenue. PIAC has three main objectives as outlined in Section 52 of the Petroleum Revenue Management Act (PRMA):

To monitor and evaluate compliance with the Act by government and relevant institutions in the management and use of petroleum revenue and investments..

To provide space and platform for the public to debate on whether spending prospects and management and use of revenues conform to development priorities.

To provide independent assessment on the management and use of petroleum revenues to assist Parliament and the Executive in the oversight and the performance of related functions.

The PRMA provides the framework for the collection, allocation and management of petroleum revenue in

a responsible, accountable, and sustainable manner, for the benefit of the citizens of Ghana, in accordance

with Article 36 of the Constitution.

Maximizing transparency of projects funded by the Annual Budget Funding Amount (ABFA) and linking them to a national development plan

GHANA Going forward, future petroleum revenue allocations in

Ghana should be guided by strategic medium-term plans

that align with national priorities shaped through public

consensus.

Also, detailed information on ABFA-funded projects is

important. This information might include the list of

projects financed by the ABFA and their respective

allocations, the project locations, their stages of

completion and the contractors executing such projects.

This will help make ABFA spending more transparent

and ensure that projects funded by the ABFA are in line

with national priorities developed through national

consensus and enshrined in a detailed medium- to long-

term strategic national development plan.

GHANA In the future, government executives

must provide all information required

for state institutions to conduct due

diligence in approving resource-backed

infrastructure contracts.

One way of building the capacity of

oversight agencies is to provide all

applicable information and equip those

agencies with tools to effectively

scrutinize the information.

FULLY EMPOWERING THE PUBLIC

INTEREST AND ACCOUNTABILITY

COMMITTEE The role of the Public Interest and Accountability Committee (PIAC) in

ensuring transparency in the utilization of petroleum revenues cannot be overemphasized.

The PIAC plays a pivotal role in tracking government spending of petroleum revenues and communicating that spending to citizens of Ghana.

The government must focus on building PIAC’s capacity to deliver on its mandate to the people of Ghana by providing the much-needed financial support to enable the committee to function smoothly.

In addition to providing financial support, the government could also collaborate with PIAC to create more awareness on what plans exist for spending petroleum revenues and how these revenues are expected to impact the lives of Ghanaian citizens, especially those living in remote parts of the country.

A practical way for the government to collaborate with PIAC in improving transparency is through drafting the citizens’ budget

In addition, PIAC could draft up separate manuals on an annual basis that use infographics to provide a breakdown of government spending of petroleum revenues for citizens unable to read and write.

CLEAR DISTINCTION OF MANDATES OF

ALL ENERGY AUTHORITIES

There should be clear

distinction of mandates

for all Ghana’s Energy

Sector Regulators, the

Petroleum Commission

and the Energy

Commission etc.

CONCLUSIONDevelopment outcomes of oil

and gas can be also enhanced if

coalitions of change with

increased, informed and

meaningful participation of

local communities and other

stakeholders in the decision-

making and implementation of

extractive industry projects are

promoted.

THANK YOUKindly contact :

Publisher: United Nations University-INRA Institute for Natural

Resources in Africa, Legon

‘Collaborative Governance in Extractive Industries in Africa, Chapter 3

Writer: Madonna Afiba Dolphyne

Editors: Timothy Afful-Koomson

and

Kwabena Owusu Asubonteng