“The curse on countries rich in mineral resources is not divinely ordained. Therefore such a situation is avoidable.” – Annan Arkin Cato.

These were the last words from Ghana’s former High Commissioner to the UK in a lecture on the prospects of Ghana’s nascent oil and gas economy at the fifth anniversary celebrations of the
law firm, Oxford & Beaumont, in Accra last month.

It addressed many people’s concerns about the country’s preparedness to avoid pitfalls that have ensnared some other oil producing countries in Africa.

Ghana exported its first 995,000 barrels of oil from its Jubilee field in early March despite the late passage of the country’s petroleum revenue management law. Other important legislations, including one to set up a Petroleum Regulatory Authority and another that will promote local content are yet to be passed.

Ola Nsugbe of Oxford & Beaumont observed that Ghana has the best chance of becoming an African success story: discovering oil at a propitious time, when it is a thriving democracy with a vibrant civil society, and functional state institutions.

“But the traps that could also work against Ghana, as observed in other African oil economies, including Nigeria, Gabon and Angola, are all ever-present,” he told GB&F.

The oil curse refers to the paradox whereby a country richly endowed with natural resources has weak growth or high poverty.

The reasons behind this vary from various factors such as loss of local good competitiveness due to an appreciating exchange rate because of a significant increase in foreign exchange, dwindling of other productive sectors due to an over investment in the extractive industries or extreme exposure to commodity price shocks.

However, in the Ghanaian context, government mismanagement and weak or ineffective institutions may outweigh other variables that could bring about the curse.

“The fact is, at peak production, Ghana is only producing 120,000 barrels daily, barely noticeable compared to Nigeria and Angola’s daily minimum output of two million barrels each. So the heightened expectations among Ghanaians engendered by the hyped conversation, immediately places a tremendous burden on politicians in managing those expectations,” Mr Nsugbe added.

Traditional authorities in Ghana’s Western Region, currently the host community of the oil fields, are demanding 10% of the estimated US$1 billion average annual earnings from the oil sector to facilitate accelerated development of the region.

Although disproportionate redistribution of wealth to the oil exporting region is now deemed best practice, there are dangers involved in providing unprecedented and potentially unaccountable revenue streams to certain stakeholders.

Ola Nsugbe of Oxford & Beaumont observed that Ghana has the best chance of becoming an African success story: discovering oil at a propitious time, when it is
a thriving democracy with a vibrant civil society, and functional state institutions.

“The danger is, such expectations could spawn a culture of patronage, where politicians would attempt to either buy allegiance and support from sympathisers or pay off opponents to prevent them from stirring up trouble,” Mr Nsugbe said.

Politicians are taking sides on the issue. Dr Kwesi Botchway, chairman of the National Gas Task Force and Doe Adjaho, the deputy speaker of Parliament are among a significant number of public who think the demand by the traditional authorities is impetuous.

However, the Western Regional Minister, Paul Evans Aidoo, and a prominent Member of Parliament, Papa Owusu Ankomah, say that it is a reasonable request that should be countenanced, if only to avoid the development of a Niger Delta situation.

Mr Nsugbe noted that such developments could be a daunting challenge for Ghana, which like other African states has a parallel informal system of government, comprising of chiefs, kings and other traditional authorities who compete with the elected political authority for control of the citizenry.

But this demand from traditional rulers and its corresponding brouhaha pales in comparison to the incendiary wars for control within and among state institutions charged with regulating and managing the oil and gas sector.

The Ghana National Petroleum Corporation (GNPC), although a commercial entity, has increasingly acted in ways that suggest it is the de facto regulator.

“The Nigerian National Petroleum Corporation has always had difficulties. Its Managing Director, Daukoru, once complained that there was always something missing between government policy, implementation and public expectation. Policy and implementation are always either too far out or too short,”
Mr Nsugbe said.
He went on to describe that the situation in Nigeria fostered massive corruption, with former military leader General Abacha alleged to have personally stashed away US$4 billion in oil revenue money.

“There must be clearly defined lines which establish the GNPC as a purely commercial entity, with oil upstream regulation vested in an autonomous body, while the Energy Ministry remains responsible for policy,” he said.

“But corruption and battles for control only tell half the story. Complexities from geopolitical realities including increasing volatility and agitation for resource control by traditional high energy consumers in the West and Japan, China and India make up the other half of the story,” Mr Nsugbe said.

Even before Ghana’s first oil spilled from the earth, GNPC and the government were caught in a tango with the US over the sale of Texas-based, Kosmos Energy’s US$4 billion stake in the Jubilee field.

While Kosmos initiated moves to offload its equity to US oil major, ExxonMobil, GNPC wanted to acquire the asset and subsequently offload part of it to another investor.

China was on the sidelines eager to enter Ghana’s offshore oil business, apparently stoking the fires of the conflict by offering GNPC cash for the intended purchase of Kosmos’ asset.

Debate over the collateralisation of oil revenues has also raged for months.

Presently in Ghana’s Parliament, there is intense divide over a draft loan agreement seeking to allow the government to obtain a US$1.8 billion commercial facility from China backed by future oil revenues.

Mr Nsugbe believes that mortgaging future revenue streams for current expenditure, whether on massive infrastructure development or for consumption, is not advisable.

“Ghana will need to make real judgements about the price of oil in the future and the real value of the country’s currency at that time,” Mr Nsugbe said.

“Getting it wrong may mean the country is going to inherit even more debt than currently envisaged,” he added.

In order to get it right, Ghana is soliciting help from those more experienced but even with this collaboration, avoiding the curse is still uncertain.

Mr Nsugbe said: “Ghana is doing right by seeking good advice from successful oil economies, principally Norway and Trinidad & Tobago. But, these countries, incidentally, are also keen in participating in the sector.
Therefore Ghana must know where to draw the line between good counsel and the intrinsic interests of these countries.”

Mr Nsugbe does think that the public sensitisation about the oil sector that Ghana has undertaken since the discovery of the resource was a positive step.

By all accounts, understanding the oil and gas industry is a complex and everchanging process especially in the uncertain African environment. Nonetheless, some relief may be found in Annan Cato’s words: “The evidence so far shows that Ghana will not fail.”