Press Release
Accra, Thursday 20thNovember, 2014
The 2015 Budget is Forward Looking but Fails to Address Energy Sector Challenges – ACEP
The Africa Centre for Energy Policy (ACEP) welcomes the 2015 Budget Statement, which contains many progressive and forward-looking policies. ACEP believes that when implemented, such policies would greatly enhance Ghana’s transformation Agenda.
In our view, some of the forward-looking policies particularly in the energy sector are:
a. The management of the Ghana Stabilization Fund – The Government has hinted of its intention to propose amendments to the PRMA and has already through this budget proposed a new regime for cupping the Ghana Stabilization Fund. The proposal to adopt a moving cup, which will ensure that the Fund grows alongside the prescribed uses of excess revenues for debt repayment and building the contingency fund is certainly more appropriate than the current regime. This ensures that debt repayment does not compromise the stabilization objective of the Fund.
b. Consolidating Energy Sector Companies – We express our satisfaction with the decision of the Government to adopt our proposal to make Ghana Gas a subsidiary of GNPC. However, we do not support the proposal to consolidate BOST into TOR. Rather, we propose that TOR should be privatized, whilst BOST is capitalized to provide the strategic reserve protection it was created to do.
But the Budget fails to address energy sector challenges and raises accountability concerns:
i. Power Crisis – We note that whilst the country is in darkness for the most part, the only generation projects expected on stream this year and early 2015 are the Kpone thermal Power Plant and TICO Expansion projects, which together will add 330MW. This is not ambitious enough considering that Ghana has a current shortfall of about 300MW and annual demand growth equivalent to about 200MW, and without a reserve margin, another 250MW. All Ghanaians are expecting government to bring the current load shedding of electricity to an end. But we are disappointed that there is no serious programme in the budget to address the power crises; except the usual unfulfilled promises of new power infrastructure investments by some private companies, who have no financial capacity and who only experiment with our Power Purchase Agreements. We commend government for the completion of the Atuabo Gas Project, but again this will not add to generation capacity as Ghanaians are made to believe.
ii. Petroleum Product Pricing – The objective of the deregulation policy in the downstream petroleum sector was to achieve a socially sustainable fuel pricing. Thus, market based pricing was introduced with social interventions to be financed with savings from the removal of subsidies. The introduction of a 17.5% special tax on petroleum products does not only defeat this objective but also shows that government is over-taxing petroleum products, a lazy way of generating revenues, with consequences for the well-being of the people, especially the poor.
There is no doubt that the proposal to have a Price Mitigation Account from the special tax is forward looking as it will help stabilize prices of petroleum products. However, we think that a small levy of between 2-4% will be appropriate for price stabilization purposes rather than the whopping 17.5% special tax. This is particularly worrying because government has maintained excise duty on petroleum product prices, hence, the temptation to over-tax the product will further neutralize the policy for a socially sustainable product pricing in Ghana.
iii. Accounting for Oil Revenues – We note the increasing contributions the oil and gas sector makes to our economy. With projected oil exports valued at US$2,925.7 million against projected oil imports of US$2,668.4 million, Ghana consolidates its status as a net exporter of oil. Also, oil exports are projected to be higher than cocoa exports by more than US$1 billion. This makes oil in a third year round, the second largest export commodity of Ghana. These developments recognize the potential of the oil industry for growing our economy; and the urgent need to adopt policies that enhance our share of the resources and the prudent management of revenues accruing to the government.
In this respect, it is not in the interest of our country to estimate oil revenues in a way that denies the annual budget sufficient funds to finance much needed development. However, we note with concern the use of revenue estimation techniques to do this. Government has been overly conservative in its estimation of petroleum revenues for 2015, which therefore provides room to collect revenues in excess of the projected Annual Budget Funding Amount (ABFA), and the subsequent use of the excess revenues for debt repayment once the cup on the Ghana Stabilization Fund is exceeded.
We think that the use of Brent dated price in the prescribed formula for computing the benchmark price under-estimates crude oil price for 2015. With the availability of a 3-year historical data on jubilee oil price, the appropriate crude oil price to use in computing benchmark price for the year is Jubilee Oil Price, which has been trading at premium to Brent Crude over the last three years, and averaged US$107 per barrel in 2014. We therefore think that the benchmark price for 2015 should be more than US$93.3760 per barrel. Given the projections in crude oil production, we expect petroleum revenues in 2015 to exceed the US$1.2 billion estimated by government. Thus, the estimate of the ABFA for 2015 is grossly understated.
iv. Public Financial Management – We are satisfied by the decision to put before Parliament a Financial ResponsibilityBill, as we are concerned about the prudent spending of oil and non-oil revenues. This is better late than never. This we believe will inject fiscal discipline in the management of public finances. However, we wish to draw the attention of government to similar promises made in previous budgets without action on them– e.g. The proposed Industrial Competitiveness Bill in the 2012 Budget to facilitate the creation of a competitive manufacturing sector and the promotion of the use of local content; and the Public Investment Management Bill in the 2014 Budget, to provide appropriate legislative framework to guide the delivery and management of public investment. Whilst we call on government to revisit the previous proposals, we wish to encourage it to live by its commitment to put the Financial Responsibility Bill before Parliament.
Signed
Mohammed Amin Adam, PhD.
Executive Director
