Analysis and News

Ghana scores 78 out of 100 points for the 2021 RGI

BY ARMCORE VPI's COO: Kezia Bridgewater

The Natural Resource Governance Institute (NRGI) aims to increase transparency and accountability in the extractive sector.

The 2021 RGI assesses how 18 resource-rich countries govern their oil, gas and mineral wealth. The index composite score is made up of three components. Two measure key characteristics of the extractives sector – value realization (governance regarding allocating extraction rights, exploration, production, environmental protection, revenue collection and state-owned enterprises), and revenue management (national budgeting, subnational resource revenue sharing and sovereign wealth funds) – and a third captures the broader context of governance — the enabling environment (general governance in the country).

Scores are on a scale of 0 to 100 at each level of the index, allowing users to benchmark the quality of resource governance across the composite, components and subcomponents—both within and between countries. Results are grouped into performance bands: good (75-100), satisfactory (60-74), weak (30-45), poor and failing (0-30).

Ghana’s oil and gas sector has placed in the “good” performance band with a score of 78 points. The country made its first major discovery in the Jubilee oil field in 2007 and began commercial production in 2010. Over the past decade, the country was able to establish a robust resource governance framework.

In the categories, Value Realization, Revenue Management and Enabling Environment, Ghana scored 79, 85 and 71 points respectively. The NRGI noted that the strengthening of the licensing process and the governance of national budgeting along with active efforts to improve the national petroleum company (GNPC) and the SWF led to the increase in this year’s Resource Governance Index (RGI). The country’s index increased by 11 points from the 2017 RGI.

This improvement in the governance of the sector is driven by a 14-point increase in “Value Realization” and 20-point increase in Revenue Management.

The nation scored 75 points in the “Licensing” subcomponent. The Ghanaian government established a minimum qualification criterion for companies seeking licenses which require the respective authority to disclose a list of all biddable or negotiable terms. This benefits the oil and gas sector in regards to successful policymaking and public accountability.

The most substantial improvement across Ghana’s oil and gas assessment stems from the Revenue Management component. The subcomponent National Budgeting, saw a 34 points increase. The adoption of the 2018 Fiscal Responsibility Act introduced concrete numerical fiscal rules governing public expenditure, preventing unrestrained spending in times of high resource revenues.

Ghana’s “enabling environment” has scored well in all subcomponents except one. Six of the seven subcomponents scored in the “good” and “satisfactory” category. However, there is one outlier, a “weak” score (31 points) for the open data subcomponent, suggesting that there is need for improvement in the coverage, openness, and disclosure of official statistics and information.

The quality of laws related to the oil and gas sector in Ghana and their enforcement have both improved since the 2017 RGI. Law scores increased by 24 points, driven by the passing of the 2018 Fiscal Responsibility Act and appointment of the Fiscal Responsibility Advisory council in 2019. While both law and practice scores increased, the difference between them widens from -7 to -22, signalling a worrying implementation gap.

The NRGI recommended that the Ministry of Energy, the Petroleum Commission and the Ghana National Petroleum Corporation enhance disclosures so as to ensure transparency, accountability and adherence to established laws. In addition, the Ghana EITI should ensure that the standard requirements of the Extractive Industries Transparency Initiative are met. It also urges the Ministry of Energy and the Ghana National Petroleum Corporation to acknowledge that the energy transition will require bold policies and choices to ensure the continued viability of the oil and gas industry.

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