Tullow Oil helps Ghana become newest oil nation

Ghana is poised to begin pumping oil for the first time, kicking off a lucrative new industry expected to bring a billion US dollars annually to a part of the world where most people still get by on less than two dollars a day.

But critics warn the west African country, one of the most stable and democratic on the continent, has yet to pass crucial legislation to avoid what is known in Africa as the “resource curse”. In places like Congo and Nigeria, oil or mineral wealth has fuelled conflict instead of boosting desperately needed development.

Iseq-listed explorer Tullow Oil plc is leading a consortium that will start producing 55,000 barrels per day from rigs off Ghana’s Atlantic Ocean coast in the Jubilee Field, which was discovered three years ago and holds an estimated 1.8 billion barrels of oil.

As new wells are built over the next six months, daily output is expected to increase to around 120,000 barrels – about 10% of the amount pumped by nearby Nigeria, one of the continent’s leading producers.

Those figures are likely to rise. In September, Tullow confirmed the existence of a second large offshore oil field called Owo that holds as much as 550 million barrels under the waters of the Gulf of Guinea.

“The start of oil production represents an important opportunity ... but the sudden onset of oil wealth often comes at the expense of good governance and effective development,” said Ian Gary, a policy manager for the charity Oxfam America.

“Ghana’s challenge as an ’oil hot spot’ will be to manage this industry with transparent and accountable policies and practices, so the people of Ghana can truly benefit over the long-term.”

More than three years after the discovery of oil, Mr Gary said there is still no oil revenue management law in place, and no independent regulator established for the sector.

Ghana’s parliament is debating an oil revenue bill, but key provisions - including preventing oil revenue from being used as collateral for loans – have been removed.

Last week, lawmakers approved a bill allowing 70% of oil revenues to be used for such loans, which have caused countries such as Nigeria, Angola and Republic of Congo to go “deep into debt due to unsustainable oil-backed borrowing”, Oxfam said in a statement.

Ghana’s oil windfall will not be a game-changer: the country already earns billions annually from cocoa and gold reserves, and oil revenues are expected to account for 6% of total domestic revenue in 2011, according to finance minister Kwabena Duffuor.

Nevertheless, the money is badly needed. Most of Ghana’s 23 million people struggle to get by.

In 2009, Africa produced 13% of the world’s oil, “but this has yet to translate into tangible benefits for Africa’s poor”, Oxfam said. “In fact, resource-rich countries in Africa have actually experienced lower growth rates than countries with scarce resources.”

In nearby Nigeria, which produces about 2.2 million barrels of oil per day, oil wealth has spurred years of conflict and kidnappings, with armed militant groups launching regular attacks to destabilise the industry. The militants claim they are fighting on behalf of impoverished residents who gain little from the oil pumped out of their country.

Diamonds, gold, copper and other mineral wealth has fuelled similar conflict as well as full-blown wars across Africa, from Congo to Angola to Sierra Leone. By contrast, Ghana is considered a beacon of stability in an often chaotic region.