Does the politics matter? Legal and political economy analysis of contracting decisions in Ghana’s upstream oil and gas industry

Abstract

Ghana is often cited as one of Africa’s most stable democracies. Since 2004, the country has awarded 18 petroleum agreements to various international oil companies (IOCs) and their local partners to explore for hydrocarbons in its offshore basins. In 2010, Ghana became an oil-producing country following earlier commercial discoveries in 2007. Nevertheless, the likelihood of the Ghanaian State getting its fair share of petrodollar revenues primarily depends on its ability to negotiate good petroleum contracts and effectively regulate the industry. This article examines the legal and political economy factors that influence contract outcomes in Ghana’s oil and gas industry. It sheds light on how the inner workings of the political economy, especially in a competitive clientelist setup involving intense electoral competition between two dominant parties in an emerging oil-producing country, influence contractual outcomes—an area less explored in the literature. We find that the country's emerging oil and gas industry has become deeply intertwined with the pervasive, entrenched and clientelist multi-party politics of the day. As such, entrenched rentier social groups—business and political elites—have sometimes sabotaged institutional reform to create conditions that favour rent capture. This is evident, for example, in the award of oil and gas licensing and other supply chain contracts. Ghana’s post-1992 ‘winner takes all’ political mindset and the perceived big financial bonanzas the oil industry offers, resulted in suspicions of impropriety regarding the award of some oil acreages. We argue that if the laws were allowed to work, as they should in practice, Ghana’s oil and gas industry would be better regulated, and better outcomes would arise from the contracting process. Discretionary power should be limited as much as possible and, where granted, subject to a high level of scrutiny.