Do not count your chickens…learn from Ghana’s experience – Ramson warns Govt.

May 27, 2018 News

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By Abena Rockcliffe-Campbell

“Do not count your chickens before they are hatched.” That is a lesson taught to children at a very young age.
Yet, Attorney-at-law, and Oil and Gas consultant, Charles Ramson, strongly feels that the Coalition Government should revisit this lesson lest it ends up having to learn the hard way and the nation suffers as a result.

Ramson recalled what Minister of Natural Resources, Raphael Trotman, told the Parliamentary Sectoral Committee about projected oil revenues.
At least three times during the meeting, Trotman said, “We are going to be rich.” He even said that one can easily multiply the current oil price by 3.2 billion barrels of oil that Guyana has in its proven reserve, “and half of that money will be coming to Guyana.”
Ramson said that from those and other utterances by Government officials, it is becoming more and more obvious that the Government of Guyana (GoG) is already banking on the revenue from oil even before production begins.
Ramson said, “This is unwise and I am sadly foreseeing trouble for Guyana if the government does not take stock and understand that the promised revenue is only a projection.
“We do not know if we will ever get what is promised to be the yearly rate of return from the Liza project.”
Ramson said, for example, there are many factors that can potentially harm production and lead to reduced revenue if oil prices remain stable. “Also, oil prices can dip again.”
With that view, the former People’s Progressive Party/Civic parliamentarian said that it would be prudent for the government to hold back on major borrowing and fancy spending until the promised oil money is in hand.
Ramson said that it is bad enough that Guyana’s contract did not secure what the nation really deserves to get from the exploitation of its natural resource.
“We understand that even though we are not going to be getting what we deserve, the nation’s revenue can increase tremendously; but we are not sure.”
Ramson said that at this stage, the government should be studying and learning everything about the experiences of other countries.
“If we have to, let us make our own mistakes; we should not make mistakes made by other countries. We should be learning from them.”
If the government were doing this, it would have learned about the experience of Ghana.
Ramson said, “The Ghanaian production and revenue volatility is a lesson for Guyana.”
LOW PRODUCTION
Ramson recalled that Ghana discovered around three billion barrels of oil in June 2007. Production started November 2010 with an estimated production of 120,000 barrels of oil a day.
However, the average level of production was 38,000 barrels per day in December 2010.
Ramson said that Tullow Oil then projected that Ghana would produce approximately 120,000 barrels of oil per day by June 2011. However, even by the end of 2011, this production level was not achieved due to “technical production challenges” faced with the wells.
The reported average daily production by the end of 2011 in Ghana was 64,000 barrels.
In 2012, the average daily production for the year was 72,000 barrels.
Ramson indicated that it wasn’t until 2013 that average daily production reached about 100,000 barrels per day.
That average was maintained until 2016 when average production fell to 74,000 barrels of oil per day. http://www.piacghana.org/portal/5/25/piac-reports.

LOWER REVENUE THAN PROJECTED
At the end of 2012, declining productivity led to a decline in revenues for the government, who had budgeted for oil revenue of more than $650M.
Actual revenue ended up being $240M, a shortfall of more than $410M. Ramson recalled that the oil producing firm blamed the decline on “sand contamination of the flow lines that carry the oil from the underwater wells” into the storage facility on the surface.
Further, Ramson noted that in 2015, the revenue from petroleum amounted to $396.1M but declined to $247.18M in 2016 representing 44 percent year-on-year decline and percent lower than revenues that accrued in 2014.
The 2016 decline was also 29 percent lower than the government’s budgeted revenue of $348.42M.
In the 2016 budget statement, the petroleum sector was projected to bring in $502.1M based on the projected benchmark crude oil output of 38.73M and benchmark price of $53.05 per barrel. https://www.ghanaweb.com/GhanaHomePage/business/Ghana-Oil-revenue-drops-by-149m-in-2016-PIAC-report-548828.
LOWER DEVELOPMENT THAN PROJECTED
Despite earning over $3B since production started in 2010, Ghana’s GDP has moved from US$39B in 2011 to just US$42B in 2016. This lower than projected economic growth happened despite the government taking on additional debt where its debt to GDP ratio moved from 36 percent in 2009 to now over 70 percent in 2017. https://tradingeconomics.com/ghana/government-debt-to-gdp.
Participants at a forum on management of petroleum revenue in the Ashanti Region have expressed disappointment over the management of Ghana’s oil revenue for the past six years. According to them, they are yet to feel the impact of the money accrued from oil since 2011 in their communities. http://www.piacghana.org/portal/12/13/98/some-ghanaians-dissatisfied-with-management-of-$34bn-oil-revenue.
Ramson said that the government would be wise to invest in and support the productive sectors, “we cannot bank on oil alone. Mining, agriculture, fishery and retail all need attention and investment now. Let oil complement our traditional sectors.”

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