Highlights of PIAC Report on Management of Petroleum Revenues for Year 2016

Since its establishment in September 2011, the Public Interest and Accountability Committee (PIAC), has been mandated with the oversight responsibility of monitoring and evaluating the management of Ghana’s petroleum revenue by the Government and relevant state institutions.

The Committee issues reports as part of keeping Ghanaians and other interested stakeholders constantly informed on how the country’s petroleum revenues are being managed, as well as providing platforms for the citizens’ feedback to be collated and shared with policymakers.

The Committee since its inception has published a total of 11 reports – 6 Annual and 5 Semi-Annual Reports – covering the period 2011 to 2016.

Its latest report – the 2016 Annual Report – is already generating interesting reactions with the Ghana National Gas Company (GNGC) and the Ghana National Petroleum Corporation (GNPC) disputing some aspects of the report.

Business Day Ghana, therefore, shares with readers highlights of the report.

The 2016 Annual Report covers the period January to December 2016 and encompasses a broad range of issues associated with the management of petroleum revenue such as information on production; liftings; total revenues accrued; allocation and utilisation of these revenues by government and the management of the funds set aside in the Ghana Petroleum Funds (Ghana Stabilisation Fund and the Ghana Heritage Fund).

The report also contains an examination of other issues and findings pertinent to the performance of various institutions charged with responsibilities in the Petroleum Revenue Management Act, 2011 (Act 815) as amended by the Petroleum Revenue Management (Amendment) Act, 2015 (Act 893).

Summary of Key Findings

Crude Oil Production

1.There was a 13.7% year-on-year decline in crude oil production in Ghana during the period under review with annual production dropping from 37.41 mmbbls (102,498 bbls) in 2015 to 32.30 mmbbls (73,995 bopd);

2. The decline in production occurred in spite of the fact that Ghana’s 2nd major production field – the TEN Fields – came on stream in August, 2016 and actually contributed 16% (5.32 mmbbls) to annual production. The production shortfall would have been approximately 28% but for the addition of the TEN Fields; 3. Along with the decline in crude oil production, the production of indigenous natural gas also declined by a similar magnitude of 27% (from 52.455.91 MMScf in 2015 to 38,420 MMScf in 2016) compared only with Jubilee gas production and by 14% when compared to the combined production from Jubilee and TEN Fields of 44,780 MMScf;
3. The decline in petroleum production in 2016 was caused by a 34-day shutdown of the Jubilee Field for maintenance from March 31 to May 3, 2016;
4. Seventy-one percent (71%) of the gas produced on the TEN Fields had to be discarded or flared as a results of the absence of subsea gas export line between the TEN and Jubilee development;

Crude Oil Liftings and Marketing

6. The Ghana Group lifted 4.86 mmbbls from the Jubilee Field in 2016, representing 18.06% which is consistent with the Ghana’s shareholding in the Field;

The sole lifting undertaken by the Ghana Group from the TEN Field in 2016 also represented 18.60% of total lifting made by the TEN partners;

8. Ghana’s crude oil from the Jubilee Field were sold at an average achieved price of US$46.13 per barrel which compares favourably with the average dated Brent price of US$44.01 as well as the average achieved price of all the Jubilee Partners (Tullow – US$41.7; Anadarko – US$43.93; and Kosmos – US$45.94);
9. The Jubilee Partners however were able to sell their liftings at a higher price as a results of their respective hedging policies with Kosmos and Tullow realising unit prices of US$73.76/barrel and US$61.7/barrel respectively;

Petroleum Receipts

10. Actual petroleum receipt in 2016 of US$247.18 was 29% lower than the budgeted amount (US$348.42 million) and translates to 44% year-on-year reduction in annual petroleum revenues when compared to the 2015 receipts of US$396.17 million;
11. With the exception of CIT which exceeded its targets, none of the others sources of petroleum revenues achieved its set targets;
12. Only five (5) out of the 18 licence holders paid surface rental during the period under review;
13. Ninety-two percent (US$27.31 million) of total CIT received in 2016 was in respect tax liabilities that Tullow ought to have paid over the period 2011-2014;
14. Only US$9.35 (16.45%) out of total receivables of US$56.79 million from the sale of raw gas was paid by the off-taker – GNGC – in 2016;
15. Payment of the outstanding receivables for 2016 would have reduced the revenue shortfall of US$101.24 million by 46% while the shortfall would not have arisen had the total outstanding indebtedness of GNGC of US$135.49 million been honoured during the period under review;

Allocation and Utilisation of Petroleum Receipts

16. A total of US$229.03 million (representing approximately 92% of total petroleum receipts) was allocated during the reporting period;
17. An amount of US$98.38 million (GH¢388.85 million) (representing 70% of the net amount of US$140.54 million transferred to the GoG for further distribution and 42.95% of actual disbursement) was transferred to the ABFA account in 2016;
18. The remaining 30% (US$42.16 million) of the amount received by GoG to be distributed to the ABFA and GPFs in 2016 was transferred to the GPFs with the GSF receiving US$29.51 million (70%) and GHF receiving US$12.65 million;

Utilisation of Allocation to GNPC

19. The GNPC received US$88.50 million (representing 38.64% of total petroleum receipt) in 2016 compared to the US$126.86 million it received in 2015, translating to a year-on-year drop of 30%;
20. The allocation to GNPC during the review period is the lowest it has received since distribution of petroleum revenues begun in 2011;
21. For the first time since 2011, the disbursement to GNPC was insufficient to cover (only covered up to 95% of the amount needed to cover both) the NOC’s equity financing requirement and expenditure on other exploration and development projects embarked upon in the course of the reporting period. This means that GNPC had to rely on its cash reserves, which had been earmarked for milestone projects, to fund equally important expenditures such as staff cost, general operational and administrative expense and the cost of the maritime boundary dispute with the Ivory Coast;
22. An amount of US$12.64 million (classified as ‘capital projects’) was spent refurbishing GNPC’s landed properties in Accra, Tema and Sekondi-Takoradi;
23. There was a 38% year-on-year increase in the staff cost of GNPC from US$10.23 million in 2016 to US%16.4 million in 2016;

There was a 36% increase in the amount of money spent contesting the Maritime Boundary Dispute with Ivory Coast at the ITLOS with expenditure rising from US$1.81 million in 2015 to US$2.82 million in 2016;

25. An amount of US$7.58 million was again spent on the Western Corridor Road Project;

Performance of Ghana Petroleum Funds

26. GPFs made a net  investment  income  of  US$5.77  million  during the period under review,  compared  to US$4.5  million in 2015. Of this amount, the GHF brought in US$4.93 million (85.44%) up from the US$3.97 million earned in 2015 while the GSF brought in US$0.84 million (14.56%) up from US$0.53 million in 2015; and,
27. The balance on the GHF at the end of 2016 stood at US$276.96 million compared to US$259.38 million in 2015 while that on the GSF stood at US$207.75 million as against US$177.40 million in 2015 bringing total combined balance in the GPFs as at the end of the reporting period to US$484.71.

To be continued…

Source: PIAC