Broaden oil money investment instruments to maximize returns-PIAC

Mark Agyemang, Technical Manager, PIAC

The Public Interest Accountability Committee (PIAC) has urged the Bank of Ghana and Ministry of Finance to consider broadening the qualifying investment instruments in order to diversify Ghana Petroleum Funds (GPFs) investments in both low and high risk portfolios to maximise returns.

As it stands now, the Petroleum Revenue Management Act (PRAM) prescribes a list of qualifying instruments in which the GPFs – consisting of the Ghana Stabilisation Fund (GSF) and Ghana Heritage Fund (GHF) – can be invested. The prescribed lists are of low-risk and therefore offer minimal returns.

The range of qualifying instruments is limited to investment grade bonds and convertible currency deposits issued by sovereign states, central banks and multilateral organisations such as the Bank for International Settlements, among others.

According to the 2019 PIAC Annual Report on Management of Petroleum Revenues, the accumulated net profit on investment of the GPFs since November 2011 to the end of 2019 was US$65.92million. During the same period, a total of over US$1.80billion was allocated into the GPFs.

“PIAC recommends the BoG and Finance Ministry to broaden the qualify instruments so that a portion can be invested in high-risk instruments, like mutual bonds, for high returns. That doesn’t mean we are pushing government to invest in Ponzi schemes, but secured and well-regulated mutual bonds that will give us significant returns,” Mark Agyemang, Technical Manager-PIAC, told the B&FT.

He was speaking on the sidelines of the Bono Regional Public Forum on the Management and use of Ghana’s Petroleum Revenues held in Sunyani. The forum was attended by selected persons representing the general spectrum of society.

Mr. Agyemang also advocated diversification of the country’s petroleum pricing mechanism by hedging a portion of crude and selling a portion at prevailing market price. “Since hedging is risky like investing in high-risk instruments, we’re therefore not recommending a full-scale hedging but rather to emulate the proportionate pricing mechanism of IOCs in order to withstand market shocks.”

Commenting on the composition of petroleum revenue receipts, he called for strategic steps to increase the country’s Carried and Participating Interest (CAPI) in the oil and gas fields to obtain more revenues. The PIAC Technical Manager however noted that: “Once we crave bigger or higher stakes in operation, the state should be willing to pay more in running the operation”.

CAPI continues to contribute the highest to total revenues, followed by royalties, corporate income taxes and surface rentals. Carried and Additional Participating Interest are two forms of state participation which effectively capture a good share of economic rent from petroleum projects, regardless of whether there are initial commitments of funds by the State or not.  In 2019, the revenue derived from CAPI constituted about 55 percent (US$505,987,937.41) of total revenues accruing from all three Fields (US$925,035,879.84).

A member of PIAC, Nana Agyenim Boateng who took the participants through the 2019 annual report on petroleum revenues management, said the Committee has recommended an amendment of the PRMA to remove ministerial discretion in allocating excess revenue over the GSF cap between Contingency and Sinking Funds, mandating that a prescribed minimum portion of the excess over the cap goes into the Contingency Fund at all times.

“This is necessary to ensure that there is enough money in the Contingency Fund to address national emergencies.”

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