Petroleum revenues received into the Petroleum Holding Fund (PHF) amounted to US$783.33 million, representing 88.4 per cent of projected revenue (US$885.7 million) in 2021.
Despite the fact that, oil prices skyrocketed during the course of the year, reaching all-time highs (around $80/bbl) and far above the government’s projected benchmark price of $54/bbl, oil revenues still fell short of expectation.
While the dynamics within the global oil and gas landscape favored oil prices, given undersupply concerns and a robust demand for the commodity due to the rebound in economic activity, at home, crude production remained ‘comatose’ as the impact of the COVID-19 pandemic on the sector lingered; coronavirus-related restrictions delayed work programs and other activities.
The 2021 Semi-Annual PIAC report highlighted two overarching reasons for the decline in crude production in H1 2021: First is the reduction in crude oil production volumes from the three (3) producing fields due to aging wells; Secondly, there had been loss of production of over 3,000 barrels of oil from the TEN field due to flow issues encountered in two (2) of the TEN producer wells (En08-P and En10-P) since June 2020, leading to the closure of these wells.
In the first half of the year, total revenue of US$350.32 million was received into the PHF, representing a 39.55 per cent of the projected revenue, while US$433.01 million was received into the PHF in the second half, reflecting a 48.89 per cent of the projected revenue, albeit each of the values fell below half of the projected revenue.
Analysing data from the Bank of Ghana (BoG) and the Public Interest Accountability Committee (PIAC) 2021 semi-annual report, the Ghana National Petroleum Corporation (GNPC) received a total of US$228.33 million (projected- US$283.0 million), Annual Budget Funding Amount (ABFA) received US$352.79 million (US$421.85 million), Ghana Stabilisation Fund (GSF) received US$159.25 million (US$126.57 million) and the Ghana Heritage Fund (GHF) received US$68.25 million (US$54.24 million).
Windfall Gains from Rising Oil prices
Out of the total receipts for the year, those received from upstream operations excluding royalties included an amount of US$203.85 million as Corporate Income Tax (CIT) against (projected-US$158.5 million) and Surface Rentals of US$0.199 million (US$1.30 million). From the above, it is evident that the government made windfall gains from tax returns of oil companies producing in the country’s three fields.
Due to the rise in oil prices over the period, market analysts and pundits proposed the use of windfall gains made from oil export revenues and taxes from oil companies to cushion rising fuel prices on the downstream petroleum market. However, this was not going to suffice, and consequently, the government was not going to make this move, considering the complications in crude production leading to a decline as aforementioned.
Dr. Charles Wereko Brobbey, Chief Policy Analyst at Ghana Institute of Public Policy Options is cited to have said in November 2021 that:
“We’ve been told by the President that we’re a net exporter of oil now. That means that, each time oil prices go above the baseline figure of $54 per barrel [that is used for our budgeting for revenue projections], the Government of Ghana is making a windfall from the price increase and as this goes on, we the consumers are suffering from the price increase because of the application of price reformula.
“So I think if the Government of Ghana wants to be a caring government, it should ensure that all the extra windfall profits which have come from $54 to $85 are applied to moderate the price increase.”
Dr Charles Wereko Brobbey, Policy Analyst
Meanwhile, there are other controversies surrounding GNPC’s purchase of Oxy’s assets in October 2021 which has to do with an amount to be paid directly into the PHF.
Over the past two weeks, the Africa Centre for Energy Policy (ACEP) has raised red flags about the GNPC’s 7% interest in Occidental assets in the Jubilee and TEN fields; Where it argued that a tax credit from the proceeds of Oxy’s sale was not transferred into the PHF, and that the Finance Ministry rather gave that as a loan to GNPC for the acquisition of the 7% interest.
Admitting this allegation as true would mean that the PHF could have increased by the amount of the tax credit which was not disbursed into the Fund as prescribed by law- which debars the GNPC, Ministry of Finance or any other parties involved in a transaction to circumvent revenues for the PHF into other uses, such as in this case, a loan to GNPC.
It is evident that if not for the hike in oil prices during the period, oil revenues would have woefully dwindled, as a result of unexciting volumes of crude oil churned out.
While oil prices are expected to remain elevated this year due to geopolitical tensions, as well as undersupply concerns, without improving the country’s crude output over the year, oil revenues are bound to fall below projections in 2022.
