Collateralize oil, dismantle the future?

E. Ablorh-Odjidja

December 02, 2010

The Vice President, Mr. John Mahama, is reported to have decried as ‘baloney’ the effort to resist the intended Petroleum Revenue Management bill that seeks to collateralize the oil revenue. 

Hopefully, in time, Mr. Mahama would come to agree that spending the oil revenue for loans ahead of its curve is rather the "baloney" part.

And we are about to see a really bad bill come to fruition should it pass.  

Borrowing against future petroleum revenue for infrastructure developments now, as opposed to waiting for the oil revenue to grow into the future, is the intention of the bill.

But such is life.  Bad ideas can come as good intentions. 

However, no one would be politically foolish enough to go against the building of the infrastructures such as roads, and railway systems. 

A proposal to build housing for the poor and improving public utility services have always been populist ideas, even though we know we can't afford all of them at once.

The current NDC administration thinks it has found a new approach to solve an old problem.  And it is about finding the money by all means. To oppose the idea  looks risky and politically hazardous. And hence the rush to collateralize the oil revenue now.

So, buy now and pay later is the hat trick.  And the kudos for the NDC party are already been said, mostly from an uninformed public.  Soon the opposition to the bill will melt away, faster in time than it took that opposition to form, resulting in the availability of a large pool of funds that can later even be used for some other harebrained schemes, mostly with corrupt intent.

But this move will put the country in a very perilous position, especially as to how we manage our wealth. We just escaped the stigma of HIPC, a point we got to by living beyond our means.  And this bill can quickly help put us back into the HIPC quagmire.

With the discovery of oil, we are about to lose the budgetary deficit support for our budgets that we have depended on since independence.  We are always over-spending.  And this bill is taking us in the same direction.

The foreign donors may soon no longer tolerate a policy that provides budgetary support to a potentially oil-rich producing country like ours.

Awareness of this possibility must produce a shock.  But it appears our politicians in parliament, both in administration and in opposition, are not worried.

No need to worry because this budgetary support fund has probably been open for abuses over the years.  And also no worry because the extra funds that the support brings can be replaced by a flexible “collateral” asset as already being proposed.

The corruptive intent in the collateral approach has already been embedded in the minds of its proponent.  And soon it will be shared by some members of both parties. That is why the bill has already been named the "national wealth enhancement" scheme.

Africa has never disappointed anyone yet when it comes to funds and resource mismanagement.  Oil discovery in Nigeria has set a perfect example of how it is done. 

The Nigerians got into trouble as soon as they found oil.  The powers that were promptly devised ways to tap into the oil wealth under the excuse for massive infrastructure development projects.  The scheme went on to benefit the few in power and their cronies.

The Shagari’s government (1979-1983), according to Wole Soyinka in his book, “The Open Sore of a Continent “ came up with a nationwide federal housing project for low-income earners… a populist, caring idea.”

Soyinka said to “fulfill such an ambitious project; you need a world of cement.”

The Shagari government knew beforehand that the nation’s factories could not fulfill a minuscule of the cement demanded by the scheme.  But they went ahead “utilizing the infamous import license scheme, which was the shortest cut ever devised for hemorrhaging a nation’s foreign exchange reserves!”

And this is the test that is facing Ghana today with the discovery of oil.

The Nigerians, always too clever by half, got to the oil revenue without collateralizing it!  But Ghana is seeking to collateralize its oil, an approach that is a jump ahead of the Nigerian approach.

For the party in power, to “collateralize” will mean having access to a vast pool of money to mismanage and to use as leverage to purchase massive political support for other things, like attaining power forever. 

Even recalcitrant politicians in our current culture of corruption can eventually be bought off.

Elsewhere, this would be called “pork barrel” funding, as it is in the USA.  For us, it is plain "create and loot."  But after all, who would not want to bring the bacon home to his constituency?

Or, which parliamentarian would want his or her constituents to hear that he or she was the one who blocked a bill that would have brought a bridge and road construction to town?

Thus, the bill will eventually pass.  And the hemorrhaging of the national wealth through corruption will continue. 

There can be a better way to fund our infrastructure projects without collateralization of the oil. Earmarking some percentage of the same oil revenue as they come in, year to year, to fund our desired and agreed-upon projects could be a better approach.

We already know the oil revenue to be realized by the projection presented in the collateral proposal.   

Also Bloomberg projects “Ghana … will produce about 1.3 million barrels this year as oil production alone will add 11.8 percent to the country’s gross domestic product”

The 11.9 percent is a good number to start with.  That's close to six billion a year from oil.  Why not a-set-aside of $600 million a year be enough to start our planned projects?

We built the Bush Highway, a 14-kilometer six-lane roadway, on a US MCA $100 million grant. With $600 million a year and for twenty years we could probably link every major city with a first-class roadway by this approach.

The format for the management of MCA grants can also be useful here.  Its restrictive rules can be applied, as we shift from one project lane to the other, with revenues obtained from the oil sales intact and free from collateralization debt.

The beauty of the above approach is we will own the money to be used outright.  Therefore, there will be no interest payments on loans.

E. Ablorh-Odjidja, Publisher www.ghanadot.com, December 2, 2010

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