Is Ghana’s Petroleum Wealth Fund to worth only $1.5bn after 25 years of crude oil production?
It is disheartening to know that after ten good years of crude oil production, Ghana’s Petroleum WeaIth Fund [PWF] is worth a meagre $815.29 million representing 7.97 percent of the some $6.5 billion accrued to government from 2011 t0 2021
Before I proceed, let me talk a bit about what the Ghana PetroIeum WeaIth Fund [PWF] is and its purpose
Within a year after petroleum resources are depleted, the amounts held in both the Ghana Stabilisation Fund and Ghana Heritage Fund must be consolidated into a single Fund to be known as the Ghana Petroleum Wealth Fund (GPWF).
After this consolidation is done, the Ghana Stabilization Fund and the Ghana Heritage Fund shall cease to exist and after that, the Ghana Petroleum Wealth Fund is to provide permanent income for the country.
Proceeds from the Fund are to be invested in qualifying instruments which shall be reviewed every 3 years or sooner by the Finance Minister and earnings on the Ghana Petroleum Wealth Fund is what will be used to support the budget through the Consolidated Fund or AnnuaI Budget Funding Amount [ABFA] after petroleum reserves are depleted.
With that said, it is clear that Ghana or should I say government has failed to take a cue from its peers on the Continent to grow its Sovereign Wealth Fund
Ghana on the back of the Petroleum Revenue Management Act, 2011, established its two Sovereign WeaIth Funds which are the Ghana StabiIisation Fund [GSF] and the Ghana Heritage Fund [GHF] – together they from the Petroleum Wealth Fund [PWF] – in 2011, around the same time Nigeria founded the Nigerian Sovereign Wealth Fund with Angola setting up its Sovereign Wealth Fund the following year – 2012.
Both countries SWF are backed by their oil revenues as is Ghana’s.
Today, unlike Ghana, Nigeria’s SWF backed by its oil funds is valued at $3.5 billion, with Angola’s SWF also valued at approximately $3 billion.
Ghana, despite setting up its SWF before Nigeria and Angola, can only boast of an SWF worth $815.29 million with the GSF accounting for $138.84m and the GHF accounting for $676m making up the PWF valued at $815.29m as of Q2 2021.
The low funds accrued into the country’s SWF can only be the result of the low capping and low allocation of oil revenue to the GSF and the GHF.
$1.5bn or $5.3bn funds in PWF in the next 15 years
It is estimated that the Jubilee Oil Field which is the biggest contributor to the country’s oil revenue has a lifespan of 25 years of which 10 years have already been spent.
This then implies that the oil field has a remaining lifespan of 15 years with its oil reserves expected to be depleted by 2035 – reserves of TEN and Sankofa are also expected to be depleted around the same year or Iesser than that.
With the GSF currently capped at $100 million and barring upward reviews of the capping as well as maintaining the same oil revenue allocation made to the GHF over the next 15 years, the total funds to be accrued to the PWF will be $282m.
However, should the capping of the GSF be removed and the GSF allowed to grow on the back of the current oil revenue allocations made to the GSF and GHF per the PRMA Act, estimated funds to be available in the PWF will amount to $1.5bn.
On the other hand, a removal or repeal of the current capping of the GSF coupled with a review in the allocation of oil revenue to the GNPC [from 55% t0 25%] and ABFA [from 70% t0 40%] while maintaining revenue allocations to both the GSF [70%] and GHF [30%] will result in some $5.3bn accrued to the PWF in the next 15 years
How is this possible? let’s find out…
Benchmark crude oil revenue for the year 2022 [per the 2022 budget] has been estimated to be $1,006.1 million by the Minister for Finance, Ken Ofori-Atta.
The projected benchmark oil revenue by the Minister for Finance is based on a crude oil benchmark price and output of $61.23 [up from the projected benchmark price of $54.75 in 2021] and 59.51 million barrels (163,044 barrels of crude oil per day) for the year 2022.
For the year 2023, 2024, and 2025, the projected benchmark oil revenue are; $1,033.2 million; $1,060.7 million; and $1,017.2 million respectively.
Now assuming government’s oil revenue forecast for the medium term holds for the next 15 years [factoring the volatile nature of oil prices on the international market] this implies that per the current revenue allocations as stipulated in the PRMA Act, 2011, a 55% allocation to the GNPC, with a 70% allocation on the remaining amount to the ABFA, anther 70% allocation t0 the GSF and 30% to the GHF will amount to $550m, $315m, $94.5m and $28.5m respectively.
Over a 15 year period, allocations to GNPC, ABFA, GSF and GHF will amount to $8.25 bn, $4.75bn, $1.41bn and $182.25m respectively.
However, with a review in the allocation of oil revenue to the GNPC [from 55% to 25%] and ABFA [from 70% t0 40%] while maintaining revenue allocations to both the GSF [70%] and GHF [30%], revenue allocations over the next 15 years will result in funds totalling $3.75bn, $4.5bn, $4.75bn and $607.5m to GNPC, ABFA, GSF and GHF respectively
Combining the GSF with the GHF at the end of the 15-year period will give the country a PWF of $5.33bn
Incumbent and successive governments should listen to calls to allow the GSF grow
Given that after 10 years of crude oil production, monies accrued to the GSF and GHF amount to $138m and $676m culminating into an SWF of $815m, and given that there is the potential to grow the PWF to $1.5bn with the repeal of the capping of the GSF and to a further $5.33bn with an adjustment in the allocations made to the GNPC, ABFA, GSF and GHF, I am of the conviction that the GSF should be left to grow to feed into the country’s overall PWF for future use just as the Public Interest and Accountability Committee (PIAC) and several CSOs in the country have been demanding for.
Now, as to whether funds of the Ghana Heritage Funds (GHF) should be solely invested in the local economy or abroad in low-risk investment instruments as debated by many, is a topic for discussion for another day.
The writer is the Editor of NorvanReports
For clarifications, questions or submissions the writer can be reached via dodoofuaad84@gmail.com
