Downstream Petroleum Audits Crucial For Revenue Realisation

President Nana Addo Dankwa Akufo-Addo has acknowledged the significant contribution of downstream petroleum audit services provided by Strategic Mobilisation Ghana Limited (SML) to the Ghana Revenue Authority (GRA).

A recent audit conducted by KPMG highlighted a clear need for these services. Since their implementation, there has been a substantial increase in both the volume of petroleum products recorded (1.7 billion litres) and tax revenue generated for the state (GH¢2.45billion).

The audit also identified qualitative benefits associated with SML’s services. These include round-the-clock electronic monitoring of product outflows at depots equipped with flowmeters, partial monitoring of inflows and a six-step reconciliation process that minimises under-declarations.

While acknowledging the initiative’s success, President Akufo-Addo stressed the need to review the current contract, particularly the fee structure. Given SML’s proven experience and proficiency over the past four years, the President has directed a shift from a variable to a fixed fee structure.

“However, it is important to review the contract for downstream petroleum audit services, particularly the fee structure. Given the experience and proficiency of SML over the last four years of providing this service, the President has directed that the fee structure be changed from a variable to a fixed fee structure,” the statement added.

So far, the total fee paid is estimated to be around GH¢1.06billion and under the proposed 5-year contract, SML could have been paid an estimated GH¢5.17billion, averaging around GH¢1billion per year.

Additionally, other key provisions of the contract will be reviewed, including intellectual property rights, termination clauses and service delivery expectations.

The afore-mentioned formed part of the report of the audit commissioned by the President in December 2023 and received by the his office on Wednesday, March 27, 2024. It highlighted several key findings that raised questions about procurement processes, service delivery and potential revenue leakages.

Notably, KPMG’s findings revealed a lack of technical needs assessment before engaging SML, the use of single-source procurement without approval, and an absence of parliamentary approval for multi-year contracts – all of which raised red flags regarding compliance with established regulations.

Furthermore, the audit pointed out instances of partial delivery of services by SML and highlighted the GRA’s inadequate performance monitoring mechanisms, indicating gaps in oversight and accountability.

In response to the findings, KPMG proposed a series of recommendations aimed at addressing these shortcomings and improving the overall integrity of transactions between GRA and SML. The recommendations include options to terminate contracts, conduct comprehensive needs assessments for new services, renegotiate contract terms, and enhance monitoring and evaluation processes.

The contract allows the government to terminate the agreement with SML with or without a reason, as long as they provide 120 days’ written notice. In either case, the government would still be responsible for paying SML for any completed work not yet paid for.

If the government cancels the contract without a reason, they would also owe SML a return on their investment in the project. The total claimed investment by SML is US$177.5million, although this figure has yet to be verified by the auditors.

President Akufo-Addo subsequently directed the Ministry of Finance and the GRA to take immediate action based on KPMG’s recommendations. His directives encompass a range of measures designed to rectify the identified issues and ensure compliance with regulatory frameworks.

Services not yet commenced, including upstream petroleum audit, minerals audit, transaction audit and external price verification, are set to be terminated. This decision aligns with the need for thorough assessments and stakeholder engagements before implementing new services, particularly in critical sectors such as petroleum and minerals where revenue leakages could have significant implications.

He also underscored the need for stringent monitoring of SML’s performance in renegotiated contracts and a steadfast commitment to compliance with the Public Financial Management Act (Act 921) and other relevant regulations. This commitment aims to restore trust, enhance transparency and safeguard public resources in all transactions involving GRA and its partners.

The Ministry of Finance and the Ghana Revenue Authority have been tasked with implementing these directives promptly and providing regular updates on progress to the Office of the President.