VZCZCXRO6619
PP RUEHMA RUEHPA
DE RUEHAR #0353/01 0770928
ZNR UUUUU ZZH
P 170928Z MAR 08
FM AMEMBASSY ACCRA
TO RUEHC/SECSTATE WASHDC PRIORITY 6274
RUEHZK/ECOWAS COLLECTIVE
RHEBAAA/DEPT OF ENERGY WASHDC

UNCLAS SECTION 01 OF 03 ACCRA 000353 
 
SIPDIS 
 
SIPDIS 
SENSITIVE 
 
DEPT FOR AF/FO:TMOSS, AF/W, AF/ EPS 
 
E.O. 12958:  N/A 
TAGS: PGOV ENRG EPET PREL ECON EFIN GH
SUBJECT: GHANA: PLANNING FOR OIL AND GAS REVENUE 
 
REF:  2007 ACCRA 1440 
 
¶1. (SBU) Summary: On February 25 and 26, the Government of Ghana 
(GOG) hosted the National Forum on Oil and Gas Development in Accra, 
followed on February 27, 28 and 29 by the International Summit 
Workshop on Oil Sector Development. The five days of discussion and 
consultation were aimed at launching efforts to draft a 
comprehensive oil and gas policy along with a master plan for 
development of the sector. At present, Ghana's off-shore find has 
been confirmed by two test wells; the full extent of Ghana's 
reserves is not known but could eventually bring significant revenue 
to Ghana's budget.  Ghana's current legal and regulatory structure 
for the hydrocarbon sector is weak and outdated. Oil revenues will 
present significant challenges for Ghana in terms of revenue 
management, expenditure control, and institutional capacity. The 
conference touched on the major financial, fiscal and governance 
challenges and risks associated with oil revenue and provided a good 
basis from which to develop a policy and accompanying master plan. 
The challenge now lies with the GOG to address all the critical 
areas within the six month time frame they have allotted themselves. 
End Summary. 
 
¶2. (SBU) National Forum and Workshop: The first two days comprised a 
national forum to "benefit from the lessons learned by other 
countries and involve local and international experts to share 
experiences."  President John Kufuor opened Forum and Norway's 
Minister of Environment and International Development, Erik Solheim, 
provided opening comments.  There were more than 200 participants, 
including ranking traditional chiefs, representatives of Ghana's 
civil society, and members of Parliament, members of the business 
community, senior government staff, donor representatives, and 
international experts on various oil and gas issues. The objective 
of the two day national forum was to bring together stakeholders to 
chart the way forward in: 1) turning oil and gas wealth into 
sustainable and equitable development; 2) entrenching transparency 
and stakeholder engagement; 3) organizing effective management of 
the oil and gas sector; and 4) safeguarding security and the 
environment. A three day workshop followed the two day forum. The 
workshop was designed to work through critical issues raised in the 
forum, though its focus was slightly different. Participation in the 
workshop was limited to fifty civil servants accompanied by 
international experts.  It was organized around four themes: 1) 
resource management; 2) revenue management; 3) local content and 
infrastructure; and 4) environmental management and security. 
 
¶3. (SBU) Oil discovery/Parties: In June 2007, Dallas-based Kosmos 
Energy LLC announced that a significant find had been made off the 
coast of Ghana. In August 2007, a UK listed firm confirmed the field 
with a second, similar find nearby. The two finds are located about 
30 miles offshore from Cape Three Points, not far from the 
international border demarking Ghana's territorial waters from that 
of Cote d'Ivoire's. The field, now known as the Jubilee field, 
constitutes Ghana's most significant and visible deposit of oil. 
 
¶4. (SBU) Oil discovery/Scope:  Both finds confirm an extensive 
sedimentary hydrocarbon trap located in Cretaceous zone, bearing 
distinct geological similarity to the highly productive zone 
discovered offshore from Equatorial Guinea in the 1990s by Triton 
Energy - a firm later acquired by  Kosmos Energy LLC. Ghana National 
Petroleum Corporation (GNPC) geophysicists who spoke off the record 
with U.S. Mission staff expect the Jubilee field to eventually 
comprise 100 - 200 producing wells and, once developed, anticipate 
the field's production rate to level off at approximately 200,000 
barrels per day. The GNPC geological staff who originally identified 
and began promoting this drilling prospect a decade ago have access 
to 2-D and 3-D seismic data for much of Ghana's offshore territorial 
waters. They estimate that among the dozens of other promising 
off-shore seismic prospects, exploration efforts may well confirm as 
many as five productive offshore fields on the scale of the current 
Jubilee field. 
 
¶5. (SBU) Role of Ghana National Petroleum Corporation:  In 1983 and 
1984 the Provisional National Defence Council, under President Jerry 
Rawlings, adopted laws number 64 and 84 that provide the current 
legal framework for oil operations in Ghana. While taxation and 
other aspects of the laws are forward looking and constructive, the 
current laws contain critical flaws regarding the structure of the 
oil sector.  GNPC, a state-owned company, was given exclusive 
responsibilities for commercial petroleum operations as well as 
regulatory and enforcement responsibilities for the hydrocarbon 
sector. This design results in an ongoing operational conflict of 
interest for GNPC, as GNPC is required to serve as its own 
regulator. This structural flaw compromises GNPC's international 
joint venture partners. GNPC serves as joint venture partner for all 
foreign-owned oil companies operating in Ghana, as well as the 
regulator and enforcement agency overseeing the activities of the 
international operating companies. Modern hydrocarbon legislation 
typically segregates the commercial/operational role of a national 
oil company from the regulatory/enforcement responsibilities 
 
ACCRA 00000353  002 OF 003 
 
 
delegated by the government to a ministry in charge of energy. 
 
¶6. (SBU) Revenue Estimates: Production estimates on the current 
field suggest an output of 200,000 barrels of oil per day. Given the 
low 50% government take negotiated by GNPC and current prices of 
$100 per barrel, this field could yield as much as $3.6 billion of 
additional revenues to the GOG's annual budget once production 
begins. This amount is roughly equivalent to the combination of 
current donor assistance and the government's current account 
deficit. Donor assistance is likely to decline as oil revenue comes 
on line. [Note: The current contract was negotiated prior to the 
find and hence the relatively low government take of 50%. The 
industry average is a government take of 70-80%, but this varies 
greatly due to the risk and cost involved in exploration and 
production. End Note.] 
 
¶7. (SBU) Revenue Management: Despite Ghana's considerable 
accomplishments in establishing macro-economic stability and 
improving budget management, Ghana faces daunting challenges to 
ensure that oil revenue is managed in a manner that will benefit 
current and future generations. Several speakers noted that the 
choices and trade-offs that Ghana will need to make are considerably 
more difficult than for countries such as Norway that began reaping 
oil revenue after institutional capacity was well-entrenched and 
basic needs of the people met. Ghana, on the other hand, remains a 
young democracy with large trade and fiscal deficits and extensive 
infrastructure and development needs. Exercising fiscal discipline 
and striking a balance between current and future spending will be 
difficult, especially if oil prices remain as at record highs. 
 
¶8. (SBU) Monetary Risks:  Speakers at the Forum and workshop 
outlined the risk of currency appreciation that could result from 
large dollar inflows from oil sales.  An overvalued currency could 
undermine the competitiveness of other sectors in Ghana's economy, 
including its agricultural and other non-oil exports, and discourage 
new investment in other sectors critical to economic 
diversification. Typically, natural resource exporting economies 
staunch excessive currency appreciation by harbouring excess 
petro-dollars off-shore in a revenue stabilization fund. These 
petro-dollars are then converted into local currency and brought 
back into the local economy through the central bank only in the 
amounts immediately needed by the Ministry of Finance to meet 
current expenditure needs. Creation of a revenue stabilization fund 
was suggested in the forum by USAID, the IMF, and others and GoG 
officials are receptive to the idea. [Note: A USAID advisor to the 
Ministry of Finance is drafting a revenue stabilization fund 
proposal for approval by the Minister of Finance, at the Minister's 
request. End note.] 
 
¶9. (SBU) Resource Management: The Ministry of Energy was not well 
represented in the Forum or Workshop, and there was little 
substantive discussion regarding resource management during the five 
days, despite significant time allocated to the subject. Serious 
discussion of how to best manage and protect the state's natural 
resource interests as separate from GNPC's operational interests, 
did not arise. This includes the role that a regulator would play in 
protecting the reserve and ensuring it is managed in a way that 
would maximize the GOG's recovery of oil and the sharing of 
information generated from exploration activities with the rest of 
the industry to encourage broader interest and create a more 
competitive environment. Matters concerning vision, objectives or 
plans to assure proper management of the state's resource interests 
were not addressed. 
 
¶10. (SBU) Environment: The environment also received less focus with 
discussions of environmental issues mixed with those on safety and 
security. There was some discussion of broader impact on Ghana's 
marine resources, but this was limited with the focus being on 
environmental impacts during exploration and production and 
requirements for environmental permitting.  Discussions regarding 
the oil industry's potential impact on Ghana's fisheries seem more 
concerned about remuneration for lost fisheries than exploring ways 
to ensure Ghana's fisheries are safeguarded. Some speakers during 
the conference indicated that accidental oil spills and discharges 
were to be expected while others emphasized that all accidents could 
be avoided through sound planning and management. [Note: This is a 
critical difference in outlook that needs to be watched closely, 
especially in light of Ghana's limited ability and willingness to 
enforce its fairly comprehensive environmental code.  The World Bank 
has estimated the cost of poor natural resource management to 
Ghana's economy to be about $850 million annually. End note.] 
 
¶11. (SBU) Local Content: Discussions on local content attracted 
tremendous attention. While presentations emphasized the need to be 
strategic and the importance of ensuring that local participants had 
adequate capacity to participate constructively and effectively, 
local content proponents called for local content across the board. 
There was little response to an IMF Division Chief's comment that 
targeting increased employment in the oil sector cuts against the 
 
ACCRA 00000353  003 OF 003 
 
 
broader need to diversify the economy away from the oil sector, to 
minimize elevated economic vulnerability shocks from the sector, and 
excessive dependency on the oil sector. The discussion tapped into 
wells of nationalism and a desire to avoid following the examples of 
the gold and cocoa sectors in which little value is added in Ghana. 
 
¶12. (SBU) Security:  Senior Ghanaian Navy officials publicly voiced 
concern regarding the Navy's current capacity to protect off-shore 
oil installations. In private conversations with Mission staff, they 
expressed willingness to discuss training and other exercises with 
U.S. military counterparts to enhance the Navy's capacities to 
protect offshore installations. These and other Ghanaian officials 
seemed largely unaware of the extensive use of shaped/formed 
explosives in the modern production of oil and gas. It was not 
apparent that effective controls govern the importation, storage, 
distribution or utilization of these multi-use, tactical explosives, 
once inside Ghana's territorial boundaries. 
 
¶13. (SBU) Next Steps: With a presidential election later this year, 
the GOG has set an aggressive timetable for arriving at a 
hydrocarbon policy that will be presented to the Cabinet and 
Parliament. Norway remains the lead donor supporting GOG in this 
effort with the agreement that DFID will coordinate locally due to 
Norway's current lack of diplomatic or development agency presence 
in Ghana. USAID/Ghana is assessing funding and contractual 
mechanisms under which it might place a resident hydrocarbon revenue 
policy advisor inside the Ministry of Finance and is similarly 
evaluating whether and how to place a resident energy policy advisor 
with the government to participate in broader policy discussions 
regarding the structure and organization of Ghana's oil sector. 
USAID will coordinate any technical assistance/policy efforts with 
the IMF and the World Bank, as well as with other bilateral donors 
active in Ghana's hydrocarbon policy space and may seek additional 
resources to engage in this sector. 
 
¶14. (SBU) Comment: The GoG at the highest levels has acknowledged 
that oil revenue will bring considerable challenges.  However, the 
depth and breadth of those challenges may not be fully recognized. 
The fiscal and financial challenges, while not easy to address, seem 
to attract the most serious attention.  The Ministry of Finance is 
forward leaning with regard to establishing a revenue stabilization 
fund to protect the currency and stabilize spending levels and 
recognizes that the government's capacity to address the revenue 
management responsibilities will require deep political will and 
assistance from development partners. Efforts by the donor community 
and GOG officials prior to significant oil revenues hitting 
government books will largely determine whether Ghana has the 
institutional capacity in place to manage these elevated revenue and 
expenditure management responsibilities. Other matters such as 
environment, security and resource management regulation seem to be 
less fully recognized. Serious attention to efforts to continue to 
diversify the economy and expand non-traditional exports is also at 
risk. This concern was voiced during the conference but gained 
little traction. Ghanaian expectations of significant job creation 
may also need to be tempered given the capital intensive, 
specialized nature of offshore oil and gas production. Ghana must be 
strategic and ensure that they play to their comparative advantages 
and develop industries that can be internationally competitive. 
 
In addition, Ghana does not yet recognize a need to protect its 
hydrocarbon resource management interests through a regulatory 
regime separate from that which GNPC's performs in its dual role as 
a commercial operator/regulator. Long-term versus short-term 
tradeoffs concerning the state's resource management 
responsibilities must be resolved in key policy areas such as: 
geophysical data sharing and information management; resource 
recovery techniques; exploration; and production processes. Finally, 
the relative lack of civil society participation in the Forum and 
Workshop raises concern. While the government promised that the 
forum was the beginning of a process of stakeholder engagement, 
civil society participation in the forum, which was by invitation, 
was limited. Civil society engagement is critical not only to ensure 
appropriate transparency but to bring greater attention to some of 
the relatively neglected issues.  End Comment. 
 
 
 
BRIDGEWATER