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