ACEPs analysis of the 2017 budget is presented below, taking into consideration the power and
petroleum sectors. For the purpose of this analysis, the power sector focuses on governments key
interventions in tackling power sector challenges whilst the petroleum sector focuses on petroleum
revenue allocation and investment. We have highlighted key issues of concern and made
recommendations that will improve energy sector governance for sustainable development.
The power sector priorities are directly linked to the growth of the Ghanaian economy. To that extent,
ACEP was eagerly awaiting clear articulation of the urgent matters required to manage the power
sector in a way that positively impacts on the health of the economy. The budget shows in some
detail, how government intends to clean up the ailing power sector to ensure reliable and affordable
power supply in a way that significantly deviates from existing arrangements, which ACEP believes
are weak. Notwithstanding, there are also some visible gaps which the budget should have captured.
Government Interventions
4. MCC Compact II
It was refreshing to note from the budget that the Millennium Challenge Corporation (MCC)
Compact II will be continued. The Compact is recognized by the government to be in force,
requiring urgent steps to resolve outstanding disagreements between stakeholders to allow for its
implementation. Reforming ECG is important for the efficient management of the power sector
and to ensure sustainability of plans to retire the huge energy sector debt. However, this must be
done by building the necessary consensus, mindful of the timelines to comply with the Compact
agreement.
5. Renewable Energy
The 2017 target of 2-3% of renewable energy generation promised in the budget is big on solar
energy. In the short to medium term, we agree that solar can be deployed quicker than other forms
of renewables. However, the mode of deployment should account for the long term implications
on other sectors of the economy. The impact of utility scale solar on agriculture and climate
change, for example, will have to be assessed and properly contextualized. There is a bigger role
of planning and zoning of potential areas where solar can be deployed, but this is currently not
given the priority it deserves. We encourage government to be more aggressive on rooftop
deployment while the Energy Commission completes its consultation on the Renewable Energy
Master Plan (REMP) with all stakeholders, which will set the priorities for all the options
available to Ghana. The rooftop option helps to spread the investment requirement to many
individuals and does not require further displacement of flora and fauna. Biomass and wind power
are other options to explore.
6. Capacity Addition
The budget estimates additional installed capacity of 1,200 MW in 2017. This will result in a total
capacity of 5,332 MW by end of year. Current demand peaks around 1900-2000 MW. By
applying the 10% growth rate used by Energy Commission, demand is expected to grow to about
2,200 MW by end of 2017. The total generation capacity required for 2017, accounting for
reserve margin, will therefore be about 2,500 MW. The occurrence of power outages indicate that
notwithstanding existing capacity of 4,132 MW, supply is unable to meet current demand. A
confluence of factors, including the low availability of TAPCO, the decreasing output from
Akosombo, among others has resulted in current supply deficit. We therefore support the
governments plans to conduct a technical audit of existing power infrastructure. We believe that
this will form the basis to retire old, inefficient and expensive plants, and make way for low-cost
efficient plants. We further support governments intention to implement a comprehensive power
sector master plan for the development of a resilient and reliable power sector that is capable of
meeting our power needs.
Concerns
In spite of the positives in the budget, there are real concerns that need attention.
1. Fuel Supply
Security of the supply of fuel for power generation is a major hurdle for the sector. Sadly, not
much was said about this. With high costs of electricity currently, cheaper sources of fuel are
imperative to ensure some savings that can be passed on to consumers to whip up demand for the
excess capacity in generation. Government needs to consolidate all plans for gas imports and
ensure that all thermal plants run on gas. This is one way electricity tariff can come down.
We expect Jubilee, TEN and Sankofa to provide significant relief for 2018 and beyond. However,
with estimated total volume of about 380mmscf/d from these fields, about additional 100mmscf/d
of gas is required to meet time-of-use demand.
2. Nigeria Gas
Government should have provided information on the plans underway for gas supply from
Nigeria. The historically unreliable gas supply from Nigeria makes planning difficult given that
we have a take or pay agreement with Nigeria Gas. Ghana needs to be able to adequately
anticipate the level of gas supply from Nigeria to prevent glut or undersupply of gas. It is
therefore important to bring to closure what the future scenario of gas supply from Nigeria will
be.
Recommendations
1. The thermal company to be established should become a subsidiary of VRA Hydro with
private sector participation through the stock market.
2. Government should consolidate fuel supply plans to ensure cost reduction. Some of the IPPs
are divesting into providing alternative arrangement for fuel because planning for gas supply
has been disjointed and unreliable. The reality is that all the separate investments by the IPPs
into storage capacity and plant conversion for the use of Light Crude Oil (LCO) will be
passed on to the consumer through the tariff.
3. Without further delays, government needs to review the Nigeria Gas agreement to establish a
clear case for its reliability. This will help to properly plan gas supply sourcing and avoid the
recurrent non-performance. It must also be said that debt owed for the supply of gas needs to
be paid. We therefore urge government to develop a comprehensive plan to do so.
4. Government should fulfil its promise of reviewing all power agreements. This is relevant for
renegotiation of expensive power plants procured in the past.
The Oil and Gas Sector
The budget statement on petroleum was limited to receivables for 2017. ACEPs petroleum sector
analysis was done within the context of compliance with the PRMA of revenue outflows from the
PHF to the various funds, and ABFA allocation to the priority areas. Some areas of concern have been
raised and recommendations proposed to improve upon petroleum revenue management and
investment in the 2017 fiscal year.
2. Distribution of petroleum revenues are consistent with the provisions of the PRMA.
The Finance Minister made it clear that the revenue distribution formulae in the PRMA will
be followed. Section 16(1) of the PRMA (as amended) prioritizes allocation of oil revenues to
the national oil company (NOC), the Annual Budget Funding Amount (ABFA), the Ghana
Petroleum Funds (GPF) which comprises the Ghana Stabilization Fund (GHF) and the Ghana
Heritage Fund (GHF) and for exceptional purposes according to the Act, in that order. This is
precisely what was done in the budget.
We observe that allocation to GNPC in 2017 is below the 55% of net carried and participating
interest ceiling prescribed by the PRMA in subsection 3a of section 16.
In accordance with Section 18(1) of the PRMA, exactly 70% of the BR (total petroleum
receipts less allocation to GNPC), amounting to US$169,458,674.13 has been allocated to the
ABFA for the 2017 financial year. Also, exactly 30% of the BR has been allocated to the
GPF.
Table 1: 2017 Net Revenue Allocation to ABFA and the GPF (GSF and GHF)
2017 (USD)
ABFA 169,458,674.13
GPF 72,625,146.06
o/w GSF 50,837,602.24
o/w GHF 21,787,543.82
Source: 2017 Budget Statement
3. Priority areas to receive support from the ABFA are very focused and clear.
Unlike the historical thin spreading of revenues to many sectors of the economy, the current
budget choice of priority areas for ABFA investment are clear, much focused, and fall within
the prescribed priority areas specified in Section 21(3) of the Petroleum Revenue
Management (PRMA) Act, 2015 (as amended) Act 815. The priority areas reflect ACEPs
persistent advocacy for oil revenue investment in pro-poor sectors of agriculture, education
and health. We take particular notice of the fact that about 53% of ABFA will be spent in the
pro-poor sectors.
It is clear that government has moved away from using ABFA to finance expenditure and
amortization of loans for oil and gas infrastructure. This was one of the priority areas until
2016. In 2016, Ghana Gas financed its loan obligations through the sale of the liquids
(propane, etc) it processed. Overall, it appears that more money will be freed for specific
sustainable development investments.
Concerns
1. Investment Attraction
Amidst price uncertainties in global petroleum market, Ghana can only sustain petroleum
sector contribution to the budget by increasing upstream investments. Therefore, government
should have shown how the new Petroleum Act will be operationalised to attract investment
in the petroleum sector.
1. The government should pay attention to investment attraction in the upstream sector. There
are currently non-performing contracts which should be reviewed as a matter of urgency to
get the contractors to be either active or vacate the blocks so they can be re-awarded to
serious companies.
2. Government should focus investment in the priority areas on fewer projects to facilitate the
achievement of the objectives of the PRMA as stated in Section 21(2).
3. The ministries of Agriculture, Education, Health, Roads and Highways, and Railways
Development should publish the list of projects to benefit from the ABFA to allow civil
society to track the projects. This will improve transparency and efficiency in ABFA
utilization.
4. The government should ensure project continuity. Funds allocated to irrigation infrastructure
should prioritize uncompleted irrigation projects that the previous government began. This
will ensure that projects are completed on time to cut down on cost overruns and to serve our
farming communities. Government must also ensure that monies allocated and disbursed can
easily be tracked by civil society groups to assess impact. We further recommend that the
government reviews existing road contracts and see to the completion of existing road
infrastructure projects initiated by the previous government.
5. The government, in reviewing the GIIF law, should abolish allocation of portions of the
ABFA to the GIIF, and review Section 21(4) of the PRMA to that effect.
Conclusion
ACEP believes that should the government respond positively to the concerns raised and heed
to recommendations made, Ghanas power and petroleum sectors will support the countrys
sustainable development agenda beyond what the country has already experienced.
Signed