An Evaluation of Ghana's Petroleum Fiscal Regime
With Ghana's emerging oil and gas industry, this country is poised to be one of the fastest growing economies in Sub-Saharan Africa. Yet, questions have arisen as to whether Ghana is getting its fair share of the revenues from exploiting its hydrocarbon potential. We review Ghana’s petroleum fiscal regime as of the year 2010, compare its key features with that of a peer group of oil and gas producing countries, and assess the regime against five key concepts: progressivity, stability, flexibility, neutrality and risk-sharing. Some of the key findings are that Ghana’s fiscal regime based on “work-program bidding”, has minimum front-loading charges, guarantees minimum State take, rates favourably on flexibility and neutrality, and is progressive in its basic structure. On the surface, when compared with a peer group of countries in Sub-Saharan Africa, Ghana’s regime appears reasonably competitive. But the risk of revenue delay is high and the degree of progressivity is weakened somewhat by the absence of cost recovery limits, the weak thin capitalization provisions, and the weak capacity for verification and monitoring of contractors’ costs and investments. The objectives of this paper are threefold: first, to review Ghana’s current upstream fiscal regime; second, to provide a comparative examination of Ghana’s fiscal regime against a peer group of petroleum producing countries in Sub-Sahara Africa (SSA); and third, to determine how Ghana’s fiscal regime holds up against five key features of importance to government and prospective investors: the degree of progressivity, stability, flexibility, neutrality and how the regime distributes the burden of risk between the resource owner and the oil companies. The rest of the paper is organized as follows. Section 2 outlines the nature of upstream fiscal arrangements and the instruments that make up Ghana’s fiscal regime. Section 3 makes comparisons with a sample of regimes, particularly from SSA, focusing on their capture of rents and government take, cost containment and cost recovery provisions, avoidance of revenue leakage, income or profit tax provisions and administrative simplicity. Section 4 evaluates Ghana’s fiscal regime against the five commonly used concepts. The conclusions follow in section 5.