GHANA: With oil, we are going to fly - Kufuor

The discovery of economically viable oil reserves off shore Ghana is in danger of raising too many expectations. It will take quite some time before the oil can be commercially exploited. In the meanwhile, the economy has been performing well and, as Neil Ford points out, it might be best not to pay too much heed to the newly discovered oil.

A recent announcement by Irish firm Tullow Oil and Gas could see Ghana join the ranks of Africa's net oil exporters. The country has long produced a small quantity of crude oil that helped to reduce its oil import bill but government efforts to encourage further investment into the country's upstream oil and gas potential have not been wholly successful.

Yet now the Tullow discovery could have a massive impact on Ghana's fortunes: by providing an additional source of export revenue, cutting the national bill for the purchase of refined petroleum products and generating income that could be invested in the rest of the economy. It all seems to add up to a recipe for success, but can Ghana avoid the fate that has befallen so many other African oil producers? In June, Tullow announced that the reserves estimate on its Mahogany discovery in its West Cape Three Points block had been upgraded from 25Om barrels to 60Om barrels. Shares in Tullow, which operates the block with partner Anadarko Petroleum, rose 12% on the news and further underlined the company's growing role in African upstream developments. The Irish firm already includes the offshore Kudu gas fields in Namibia among its African assets. The chief executive of Tullow, Aidan Heavey, commented: "Based on evidence to date, ultimate reserves are likely to be materially in excess of previous estimates, with some high potential zones still to be drilled."

It is also hoped that the discovery could trigger even more investment into Ghanaian upstream exploration that could lead to further discoveries. Tullow and Anadarko also have a concession for acreage in the Taño Basin, which is the source of most of Ghana's existing oil production.

'Oil is money'

The president of Ghana, John Kuftior, welcomed the discovery. He told journalists: "Oil is money, and we need money to do the schools, the roads, the hospitals. If you find oil, you manage it well, can you complain about that? Even without oil, we are doing so well already. Now with oil as a shot in the arm, we're going to fly."

Kufuor conceded that while the country would benefit economically from the discovery, he would probably also benefit politically. He said: "My joy is that I'll go down in history as the president under whose watch oil was found to turn the economy of Ghana around for the better."

Kufuor also said that he would ensure that Ghana did not follow in the footsteps of some other African oil producing states by squandering their natural wealth through corruption and focusing on oil to the exclusion of other sectors of the economy.

He commented: "Some are doing it well and I assure you if others failed, Ghana will succeed because this is our destiny to set the good pace for where we are. So we're going to use it well. We're going to really zoom, accelerate, and if everything works, which I pray will happen positively, you come back in five years, and you'll see that Ghana truly is the African tiger, in economic terms, for development."

The Ghanaian economy is currently performing well after several years of steady growth, but the president may have become a little carried away in the heat of the moment. It is likely to be several years before the oilfield is brought on stream and the oil money begins to flow, so oil is unlikely to have a huge impact within the next five years, unless Accra takes the unwise but popular step of borrowing money on the back of anticipated oil revenues. Moreover, 600m barrels is indeed a sizeable find but it is insufficient to give more than a helpful boost to the economy; it cannot become the basis of national development.

Of more immediate concern is the power supply crisis that is affecting the nation. The West African Gas Pipeline (WAGP) will bring plenty of gas feedstock for gas fired generating capacity in the longer term but the country's over reliance on hydroelectric production has been harshly exposed over the past year.

Water levels at the Akosombo Hydro scheme on Lake Volta are lower than usual and, as in 1999-2000, low water levels have affected output. However, poor maintenance of the scheme coupled with limited investment in national transmission and distribution infrastructure mean that the country is not making the most of the water and power resources that it does possess.

As a result, power has been cut for about 24 hours every four days in many areas. Ghana's Data Bank has suggested that the national economy could suffer to the tune of $1.4bn if the power supply crisis is not settled.

That there is nothing that the discovery of oil can do to solve this problem should bring home to Ghanaian politicians the fact that oil is not a panacea for the country's economic ills. Ghana was once a power exporter and hopes to regain this position when new gas fired capacity is brought on stream and new interconnectors are put in place as part of the West African Power Pool (WAPP), but power dependent businesses are certainly suffering in the meantime.