Home Opinion Press Releases 2015 Budget Forward Looking but Fails to Address Energy Sector, ACEP .

2015 Budget Forward Looking but Fails to Address Energy Sector, ACEP .

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Seth Terkper, Minister of Finance
Seth Terkper, Minister of Finance

The Africa Centre for Energy Policy (ACEP), while applauding ?the government of Ghana for its 2015 Budget Policies, ? saying it contains many progressive and forward-looking policies? yet draws government?s attention to very serious challenges facing the country?s Energy Sector. These Challenges when addressed, would greatly enhance Ghana?s Transformation Agenda.

Dr. Mohammed Amin, Executive Director, Africa Center for Energy Policy (ACEP)
Dr. Mohammed Amin, Executive Director, Africa Center for Energy Policy (ACEP)

ACEP says some of the forward-looking policies particularly in the energy sector in the budget such as the management of the Ghana Stabilization Fund which Government has hinted of its intention to propose amendments to the Petroleum Revenue Management Act (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. ACEP adds.

Also, ACEP expresses satisfaction with the decesion to make Ghana Gas a subsidiary of Ghana National Petroleum Corporation (GNPC) which is Consolidating Energy Sector Companies, a proposal made by them sometime ago. ?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. ACEP also 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. Nevertheless, ACEP holds government that despite the above the good Policy Initiatives in the 2014 Budget, it woefully failed to address the severe energy sector challenges and accountability concerns left out.

Petroleum Product Tax

The objective of the deregulation policy in the downstream petroleum sector was to achieve a socially sustainable fuel pricing. 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, ACEP thinks 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 neutralizing the policy for a socially sustainable product pricing in Ghana.

Power Crisis and Parliament

Currently most part of Ghana is in darkness and that 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. ACEP is ?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. It is instructive that even Parliament House was thrown into darkness minutes after the presentation of the Budget that night. As I write this article the leadership of Parliament has tasked a six-member committee to find out why just yesterday they experienced three times power outage.

??Accounting for Oil ? Revenues ?? ? ? ? ? ??

Anchored on Transformational Agenda: securing the bright medium term prospects of the economy? ACEP notes the increasing contributions of oil and gas sector makes to our economy, projected oil exports valued at US$2,925.7 million against projected oil imports of US$2,668.4 million and many more developments recognize the potential of the oil industry for growing our economy; and the urgent need to adopt policies that enhance Ghana?s share of the resources and the prudent management of revenues accruing to the state. 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 by 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.?

Oil Revenue understated?

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. ACEP 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.? ? ? ? ? ? ? ? ? ?

Public Financial Management and Empty Promises?

Signed by the Executive Director, Mohammed Amin Adam, ACEP are satisfied by the decision to put before Parliament a Financial Responsibility Bill, as the prudent spending of oil and non-oil revenues is of concern to Ghanaians and this will ? inject fiscal discipline in the management of public finances?. However, this government is noted for empty 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, ?government ?is urged to revisit the previous proposals, and encouraged it to live by its commitment.

 

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