Joy Business has learnt that President Mills will this Wednesday officially christen Ghana’s crude oil, Jubilee Oil. Though production has been ongoing for some time now the day has been chosen as the official date for the programme of activities lined up to celebrate the pouring of first oil.
Energy Ministry officials explain that after months of deliberations over the many names that came up, the partners involved in the project for the country’s first oil in commercial quantities settled on Jubilee Oil. But what’s in the name?
Public Affairs Director at the Ministry, Edward Bawa explained that marketing the product is crucial and the name is central to marketing.
“The Jubilee Field being a world class oil field, has a name you can easily identify with and therefore to associate the oil with the field in itself, will make it easy in terms of marketability because at the end of the day we want to be sure that in the oil market, people – when they see a particular crude – can easily say this crude is from Ghana,” he said.
Ghana’s Jubilee Oil compares to Bonny Light from Nigeria, Iran Heavy, Basra Light from Iraq, Kuwait Export or Brent Crude from the North Sea.
Domestically, the government will have to manage expectations carefully. Many Ghanaians perceive the beginning of oil production as an end to the country’s poverty, but the reality is much less exciting, as data suggest that revenues from oil in 2011 will account for less than 6% of the government’s budget. Oil revenues will not, therefore, be an easy solution to the country’s financial challenges.
There are also concerns about the management of oil revenues, and Ghana’s ability to avoid the mistakes of other West African producers–concerns highlighted by the failure of the country’s parliament to agree a final version of the Petroleum Revenue Management Bill. The bill has been a major focus for both national and international observers, and while the failure to pass it prior to the start-up of production will not have a particularly substantial practical impact–provided the bill is passed fairly soon thereafter–the symbolic effect is significant. Despite having years to prepare, wide-ranging consultation processes, technical assistance from donors and a public mandate to do so, the government was unable to pass this very important piece of legislation. This failure will worry international donors and civil society organizations that fear the worst for Ghana’s oil-rich future.
Concerns are unlikely to have been ameliorated by parliament’s decision to approve the collateralization of the country’s oil revenues for use in contracting external loans. The decision–which means that 70% of oil revenues can be used as collateral for borrowing while the remaining 30% will go into an Oil Heritage Fund–necessitated an amendment to the clause in the draft Petroleum Revenue Management Bill that prohibits the use of oil revenues as collateral for loans, and is unlikely to be well received by donors and the IMF. The government has argued that it is necessary to use future oil revenues to secure the loans needed to support its ambitious capital and social development programs. However, while there is little doubt that the move will grant greater access to external borrowing for the country, many are questioning Accra’s rationale for needing to collateralize oil revenues given current investor interest in Ghana’s sovereign bond and expected appetite for another in the future.
Certainly, the history of using oil revenues to secure borrowing does not bode well for Ghana, as oil producers such as Nigeria, Angola, Equatorial Guinea and Congo (Brazzaville) have all failed to utilize the borrowing to support development and use the money to invest in areas that generate sufficient returns, either socially or financially. Given the concern over Ghana’s use of the US$750m raised through its issuing of a Eurobond in 2007, there is reasonable cause for concern that the country risks saddling itself with substantial extra debt with little to show for it when the oil eventually runs out. With power in Ghana often swapping between the National Democratic Congress and the New Patriotic Party, there would also be a worrying incentive for each party to leverage borrowing as much as possible during their limited time in office for schemes–likely to be rushed or poorly planned–designed to win them the ongoing support of the electorate. The possibilities for corruption also increase as there is more money making its way through the system.
Crucially, the approval of collateralizing oil should serves as a warning. The failure to pass the Petroleum Revenue Management Bill and create a regulatory agency separate from the Ghana National Petroleum Corporation underscores the fact that, for the time being at least, all talk of Ghana being “different” from other West African oil producers is just that.
Here is video of the President of Ghana, John Evans Atta Mills launching the delivery of the country’s first oil allowing it to join the ranks of the worlds’ oil producers