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Ghana's oil find faces difficult transition
Masahudu Ankiilu Kunateh, Ghanadot
Accra, Feb 10, Ghanadot -
In spite of optimism about Ghana's oil find, with expected
future production of 120,000 barrel per day (bpd), oil
experts disclosed that the country faces difficult
transition period before the oil starts flowing in 2010.
In her latest analysis of the Ghanaian economy, the Regional
Head of Research, Standard Chartered Bank, Africa, Madam
Razia Khan, reveals that a study conducted by the
International Monetary Fund (IMF) in 2008 when oil prices
were higher, suggested that Ghanaian economy growth could
double to 12% by 2012.
At the peak of Ghana's oil production, which is expected in
2018, revenue to the government could total over $1billion a
year. While, more conventional production estimates, based
on output of 40,000 bpd, suggest that it would yield
government revenue of $200million yearly. Most analysts
agree that production may exceed this.
The analysis further affirmed that the key point is that
Ghana will not see any significant revenue for some time.
"Oil production is due to start by late 2010 or early, but
most probably by 2011.
Even then, development costs are likely to be royalty
payments; it could be a while before Ghana starts to earn
any substantial revenue from oil.
Based on industry norms and production around 120,000bpd, at
the current oil price, the calculation is that royalty payments
might total between $100-130million.
However, initial oil production is likely to fall short of
the 120,000bpd, so even this might overstate the earnings
that Ghana might expected at the outset, unless of course,
oil prices recovery", the report indicated.
According to the report, given the promise of future oil
production, the country's options appear to be somewhat
constrained.
Instructively, Ghana's ability to borrow against future oil
receipts is likely to be compromised by at least three
factors, namely the current weakness in the oil prices
(which will be seen to raise the risks concomitant with the
development of Ghana's oil sector), the financial
crunch-which constrains the availability of credit, and the
current state of Ghana's finances-in particular its sizeable
twin deficits.
"It is probably, therefore, that the country will need to
seek financing on non-commercial terms to see it through
this period."
The report further states that although Ghana has long been
favoured by bilateral donors, who are keen to support the
country's democracy, there are several vital considerations.
First, Ghana's post-HIPC decision to tap non-concessional
financing through its maiden Eurobond issuance in 2007 was
controversial.
Donors had argued against it, warning of the debt
sustainability issues that could arise. Second, there is the
fiscal situation that the donor countries find themselves
in, given the cost of their own bailout packages to deal
with the financial and real economy crisis experienced in
these countries.
Bilateral assistance is unlikely to available in any scale,
unless it comes from non-traditional donors such as China,
which is keen to establish close ties with a newly emerging
African oil producer. Such a scenario cannot be ruled out,
but it is by no means certain.
The report indicates that the availability of budgetary and/
or Balance of Payments support will depend crucially on the
adoption of a package of austerity measures, notably,
raising domestic interest rates further (resulting in
further pressure on short term interest rates), and cutting
spending down steeply. Although, such spending is likely to
be available, Ghana still faces a very cumbersome adjustment
period.Ghanadot
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Ghana's oil find faces
difficult transition
Accra, Feb 10, Ghanadot - In spite of
optimism about Ghana's oil find, with expected
future production of 120,000 barrel per day
(bpd), oil experts disclosed that the country
faces difficult transition period before the oil
starts flowing in 2010.
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