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Mr Leslie Dwight Mensah, Economist at the Institute for Fiscal Studies (IFS), speaking at the press conference

Regulate activities of GNPC — IFS to Govt

BY PRINCE ESSIN


THE INSTITUTE for Fiscal Studies (IFS) has called on the government of Ghana to regulate the activities of the Ghana National Petroleum Corporation (GNPC) as it causes the state to lose a lot of money invested in the petroleum sector.

According to IFS, GNPC receives close to one-third of the total petroleum revenues of Ghana, placing it at the core of the country’s aspirations towards effective management of its hydrocarbon resources.

Speaking at a press conference in Accra yesterday on the topic ‘Assessing Management of Ghana National Petroleum Corporation Revenue, Mr Leslie Dwight Mensah, an Economist at the institute, said IFS had assessed the GNPC over the past years concerning its revenue mobilisation and expenditure.

Key findings

According to Mr Mensah, the Petroleum Revenue Management Act (PRMA) 2011 (Act 815) has specified a transparent mechanism for revenue allocation to GNPC that has largely been respected and worked well in practice.

“To enhance budgeting and long-term planning and to avoid politicisation of the process, the funding for GNPC has been set up on earmarking basis and is taken from the carried and participating interest revenue earned by the state from petroleum operations.

He said the earmarked transfers to the GNPC are of two types. He mentioned one as an amount meant for equity financing costs, which represent the country’s share of development and production costs in each petroleum agreement.

He said the other is an additional allocation determined by the Minister of Finance and approved by Parliament, from the carried and participating interest after deducting the equity financing costs.

Mr Mensah said from 2011-2017, GNPC was allocated US$1.24 billion, representing 31.1% of total petroleum revenue for the period.

The economist said GNPC spent most of its revenue on direct petroleum activities, but a portion of the revenue was used to cover persistent downstream trading losses, a situation that detracts from efficiency.

“The direct petroleum activities, comprising exploration, development and production activities, accounted for an average of 64% of total costs in 2011-2016. The remaining costs were personnel emoluments (8.8%), general operating expenses (8.7%), and other operating expenses (11%),” he said.

Mr Mensah said the last category of expenses included losses, all amounting to 9.3% of total costs in 2011-2016, incurred persistently by the corporation from trading in refined petroleum products, adding that this situation detracted from efficiency in the management of its revenues.

He said GNPC’s core mandate is to undertake the exploration, development, production and disposal of petroleum but it is also permitted by law to do any other things and perform any other functions necessary or expedient for the purpose of attaining its objects and carrying out its activities.

“This power given to GNPC has led it to indulge in extra, noncore activities that not only overstretch its mandate but also compromise efficient utilisation of its revenue,” he said.

GNPC’s noncore activities

Mr Mensah said GNPC used to hold equity stake in Mole Motel Company Ltd (60%), Airtel (25% in 2016 but reduced to under 1% in 2018) and Prestea Sankofa Gold Ltd. (90%).

“These investments and others that have already been liquidated were made before commercial oil discovery in 2007 in order to generate income to support GNPCs upstream activities but carrying these investments into the post- discovery era has, however not served the corporation’s interest commercially,” he said.

He said, GNPC engages in wide ranging Corporate Social Responsibility (CSR) activities, which in 2018 were reorganised under Education and Training; Economic Empowerment and Social Amenities.

“CSR expenditure should be controlled to avoid diverting too much resource from the company’s primary commercial mandate, which can hinder its performance and efficiency”

Recommendations

The IFS said Parliament should enact a new statue for GNPC as its founding law, PNDC Law 64 of 1983, had become redundant in many parts and also falls short of satisfying the strong and fervent public demand for transparency and accountability from a national oil company in contemporary times.

The Institute said also that the permission given the GNPC to engage in diverse kinds of activities may need to be curbed such that Legislators should specify in the new law the things the corporation cannot do.

IFS also suggested Parliament should impose a limit on the corporation’s CSR budget.

It further recommended that the Ministry of Energy, together with GNPC, should take a policy decision to divest the corporation of what was remaining of its non-petroleum related investment, and GNPC reassessed its downstream business and take steps to make it profitable.

The IFS finally recommended that GNPC should be proactive in reporting information broadly about its operation to the public, except possibly for commercial sensitive information.

 

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