Ghana and the Extractive Industries Transparency Initiative - Matters Arising

"It is disappointing that so few implementing countries have completed their validation work in time," ¬- Karin Lissakers, Director of the Revenue Watch Institute (Source: Revenue Watch Institute).

It is an undeniable fact that Ghana’s oil wealth would not necessarily translate into benefits that would serve to accelerate economic growth and promote poverty reduction. It is the reason why the country cannot sidestep the nagging challenges of the curious phenomenon - the ‘resource curse’. It has been proven that most countries with large endowments of natural resources including oil and gas perform worse with respect to development and good governance.

The Extractive Industries Transparency Initiative (EITI) is an independent, internationally agreed upon, voluntary standard for creating transparency in the extractive industries. The EITI was launched in October, 2002 at the World Summit for Sustainable Development in Johannesburg. The EITI requires transparency in the payments made by companies and revenues received by governments relating to the exploitation of a nation’s extractive resources. The significance of EITI can, therefore, never be disputed. It remains crucial for any economy that wants extractive resources to work for the people. Importantly, Ghana was accepted as an EITI Candidate country on 27 September, 2007. It is an opportunity for the country to harness in her bid to be a vibrant oil-producing economy. But the question that deserves an answer is that how has the EITI in the mining sector operated? What would be fate of the application of the EITI in the oil and gas sector considering the bleak experiences gathered from the mining sector?

Demystifying the Facts

President Mills has said that revenues from the oil find would be used to improve living conditions. It is the fervent hope of every Ghanaian that this becomes a reality. Meanwhile, Ghana is battling to achieve the “complaint” status of the EITI of which Azerbaijan and Liberia have made headway. Though the incumbent government has made an unequivocal statement in the 2010 Budget Statement and Economic Policy confirming the unwavering commitment to the EITI, the dream of reducing poverty using oil revenue would be a mocking mirage if conditions remain unchanged. It was categorically stated in the Budget Speech that the government would “establish a framework for ensuring transparency and accountability in relation to oil and gas revenues and compliance with the Extractive Industries Transparency Initiative (EITI) principles”. Has the framework been established for a comprehensive transparency and accountability in the oil sector?

According to information available on the Extractive Industries Transparency Initiative website, 19 out of the 32 EITI implementing countries had to complete EITI Validation by March 9, 2010. Meanwhile, these countries including Ghana have failed to meet the deadline test. With the same information available, Ghana has requested an extension to their Validation deadline which is expected to be considered by the International EITI Board when it meets on 15 and 16 April this year.

It is worthy of note that the country cannot achieve prudent revenue management when the foundation for implementing the EITI principles remains virtually weak. Unless Ghana moves a step ahead to becoming “EITI Compliant Country”, we should expect nothing than oil exploitation and production stricken by high-profile corruption. The country has no excuse than to follow what Liberia and Azerbaijan have achieved. The concern of the country solidifying her commitment to the application of the principles of the EITI in the oil sector is crucial considering the grim experience in the mining sector. Though, Ghana announced its intention to pilot EITI in the mining sector in June 2003, righty evident is the situation where opacity is overwhelmingly surrounding payments and revenues. Ghana has failed to closely monitor revenues and payments between government and multinational mining companies.

According to a 2008 World Bank Report, Ghana has lacked the capacity to properly collect revenues and audit payments for the gold-mining companies during the past three years as gold prices more than doubled. The burning question is that can the country achieve the best of EITI results in the oil sector? It is prudent for Ghana to achieve a compliant candidacy before production starts in the last quarter of this year for monitoring and auditing by stakeholders to take effect from the scratch.

The most central issue that relates to a typical digression from EITI standards is the corruption canker associated with the management of oil revenues among public and government officials. Corruption has registered its feat in most oil-rich countries. Corruption continues to assume scary dimensions in countries including Gabon, Equatorial Guinea, Nigeria, Venezuela and several other countries where President’s sons and families have selfishly acquired villas and properties worth millions of dollars. Ghana can only nip this canker in the bud if it remains unflinchingly committed to achieving the best of EITI standards. Government cannot claim to be upholding the principles of the EITI when actually she has failed to achieve what is expected of her. If in the mining sector, Ghana lacks the capacity to collect revenues and audit payments, then what would be the state of the oil sector that presents more complex calculations of oil revenues and streams of payments?

The country should in a more realistic manner, push for the extension of the principles of the EITI to the emerging oil and gas sector. There can never be equitable distribution of oil wealth if a standard is not set for direction and controlling. EITI is the only measure that can protect oil revenues that accrue to the economy. Again, the country cannot afford to repeat the same mistakes that are inherent in the mining sector. It is the ultimate value of EITI that can propel the efforts of the country in breaking the resource curse. Better oil revenue management is well informed by revenue monitoring and auditing. EITI still remains the only platform that brings on board key stakeholders including governments, companies, civil society organizations and investors to achieve the best of the use of oil revenues. It is therefore extremely important to uphold this principle and salvage the economy from the threats of “resource curse”.

Conclusion

Even if the deadline is extended, how prepared is the country in meeting all the EITI validation indicators? Ghana has a lot of countries to learn from with regard to the discrepancies and shortfalls that exist in the oil economy as a result of lack of coherent monitoring of revenues. The latest report on oil and gas revenues released by the Nigeria Extractive Industries Transparency Initiative (NEITI) on August, 2009 has shown financial discrepancies and outstanding payments totaling over US$5bn for revenues generated by the sector in 2005. In the same report, over US$800m of unresolved differences between what companies said that they paid in taxes, royalties and signature bonuses, and what the governments said it received were identified. Of this amount, US$560m was identified as shortfalls in taxes and royalties owed to the government and around US$300m in payment discrepancies relating to signature bonuses, payments of dividends, interest and loan repayments.

How can Ghana meet the basic needs of its people with oil revenues if huge sums are expected to go to wrong pockets? And is Ghana so exceptional to elude these limitations in revenues and payments in the oil sector? The fact is that commitment to equitably distribute oil wealth is not achieved on campaign platforms or newspapers. Rather, it is the achievement of the ground working principles of EITI standards that would translate that talk and commitments. “Walking our talking” is ideal for this country.

It is, therefore, a charge on Ghana Extractive Industries Transparency Initiative (GHEITI) to, as a matter of urgency, work to secure a complaint status for the country before commercial production and exportation starts. The Ghana Revenue Authority (GRA) should also be prepared for the challenge ahead in terms of monitoring and auditing oil revenues. Let us prepare the local conditions to extirpate all forms of corrupt practices that could becloud the overwhelming benefits of the emerging oil and gas sector. EITI is the ideal tool to help fight the spell of corruption.

The author, Stephen Yeboah is at the Department of Planning, KNUST and the National Co-ordinator for Osagyefo Network for Rural Development [email: stephenyeboah110@yahoo.com]