Let’s increase carried interest to enhance oil returns

The Chairman of Public Interest Accountability Committee (PIAC), Dr. Steve Manteaw, has underscored the country’s need to re-engineer its oil and gas industry fiscal regime.

This, according him, is to scale-up its carried interest rather than focusing so much on corporate income tax. He has noted that this will help the country to maximise returns from the industry.

He said: “For any country that wants to maximise returns from its natural resources like oil and gas, it should not focus too much attention on corporate income tax – because the biggest you can get is your interest in the operation”. He also mentioned royalty as another assured avenue of generating more revenue into the petroleum holding fund (PHF).  But he pointed out that royalty administration in the country has not been the best, as the state always settles on the 5% base – and this must be improved. The prevailing royalty rate is between 5% -12.5%.

“Whatever we do as a country, whether we focus on royalty or corporate tax, it is critical we follow through the corporate expenditure, especially capital expenditure. These things actually affect how much companies are able to pay in terms of corporate tax. It is therefore important the country sharpens its skills in cost-engineering and cost-profiling in the petroleum sector,” he added.

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In 2017, for instance, total petroleum receipts into the PHF were US$539,832,157.44; Ghana’s free carried interest of 10% in both Jubilee Field and TEN yielded US$259,738,089.02. The amount represented 48 percent of all petroleum receipts. Corporate tax, on the other hand, generated US$36,957,622 – representing just 6.8%. Other sources include royalty, surface rental and additional participating interest.

Dr. Manteaw made this observation during a presentation on the 2017 annual and 2018 semi-annual reports on the management of petroleum revenues.

He was addressing members of the Institute of Financial and Economic Journalists (IFEJ) during a one-day workshop held at Koforidua.

He indicated that in order for the country to increase its carried interest and additional participation in the petroleum sector, there is an urgent need to develop the capacity of Ghana National Petroleum Corporation (GNPC) and manage it professionally, saying: “With the current over-politicisation of GNPC, we may lose the opportunity of attracting partners to work with it. No company worth its salt would want to work with a state commercial entity that is heavily politicised.

“As we look at the prospect of weaning GNPC from the national budget, the corporation may struggle to raise finance on the international market. Currently, there’s a blatant abuse of its funds; GNPC has become a second-tier government – financing projects such as roads that ordinarily should have be financed by national budget. The deviation from its core functions is really worrisome and makes it unattractive.

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“GNPC ordinarily should be able to make enough money and pay dividend to the state, but since we discovered oil in 2007 it has been spoon-fed by the petroleum revenues. The Corporation has up to 15 years to enjoy this kind of dispensation, beyond that it should be weaned off the petroleum revenues and fund itself; but it doesn’t look like it has a clear strategy to be financially independent after the 15 years threshold and sustain its operations,” Dr. Manteaw lamented.

In view of the increase in advances and guarantees by GNPC to government and other SOEs – to the tune of GH¢1,318,393,339 – PIAC has urged the government, in accordance with international best practice, to desist from using the Corporation to finance “quasi fiscal expenditures” he stated.

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