{"id":111040,"date":"2015-04-24T06:14:13","date_gmt":"2015-04-24T06:14:13","guid":{"rendered":"http:\/\/4cd.e16.myftpupload.com\/?p=111040"},"modified":"2015-04-24T06:14:13","modified_gmt":"2015-04-24T06:14:13","slug":"article-deregulation-will-end-petro-politics-imani","status":"publish","type":"post","link":"https:\/\/citifmonline.com\/2015\/04\/article-deregulation-will-end-petro-politics-imani\/","title":{"rendered":"[Article]: Deregulation will end petro-politics – IMANI"},"content":{"rendered":"

“Fuel Subsidies are back, quietly at $3m a week and could be more”, one of the most authoritative voices in the downstream petroleum sector in Ghana said to a second query by IMANI staff this week. IMANI had been informed by operators in the downstream sector two weeks ago of the introduction of subsidies.\u00a0 This development is disturbing and has the potential of derailing a vital component of Ghana\u2019s IMF\u2019s bailout package whose full details were published by the IMF on Tuesday.<\/p>\n

As part of remedial actions required by the IMF support programme, the Government has stated that it intends to strictly implement the existing automatic price adjustment mechanisms for utility tariffs and fuel prices to eliminate subsidies (except for items that benefit from cross subsidy in the petroleum price build-up and the life line consumers of utilities). This is in line with the expenditure measures agreed in the home-grown policy as well as in the consultative sessions the Government held on the economy (Senchi Forum). See pages\u00a052<\/a>\u00a0<\/span>and 97 of the detailed IMF package.\u00a0 It is hoped that with the IMF watching, the Government with the understanding of Civil Society will display the political will to coherently apply the pricing formula and eventually end meddling with the fuel market.<\/p>\n

In spite of the processes leading to a deregulated petroleum sector in Ghana having begun 18 years, no Government within that period has succeeded in fully implementing it. Successive Governments have lacked the necessary political will to do so. Meanwhile these Governments have continued to\u00a0provide subsidies purportedly aimed at the poor, though lacking the financial wherewithal to fund such a social programme. Despite the much touted independence of the National Petroleum Authority (NPA), the Government still has a fair amount of control in determining what consumers pay. Also, the formula for pricing petroleum has always been shrouded in secrecy and technical jargons. Petroleum pricing by the NPA often times fail to impute the real time effects of fluctuations in crude oil prices, exchange rates, etc. These practices by the NPA have had deleterious consequences on the operations and financial positions of players in the petroleum downstream industry.<\/p>\n

Real and Perceived Interests of Government and Private Sector<\/strong><\/p>\n

Governments over the years have played political games through their interference in petroleum pricing and the provision of subsidies. On the back of campaign promises and political manifestoes, several Governments have interfered in the implementation of the pricing formula, making controversial decisions in the face of contrasting market fundamentals. This situation is expected considering that petro-politics is a feature of petroleum pricing in most parts of the world. The development though, coupled with the provision of subsidies that Governments cannot finance has heaped social and economic costs on the Ghanaian citizen.<\/p>\n

As part of efforts to deregulate the petroleum industry, the function of the Bulk Distribution Company (BDCs) was established under the National Petroleum Authority (NPA) Act 691 (2005) to encourage local participation and investment in the oil downstream sector. BDCs are to import, store and distribute refined petroleum products to Oil Marketing Companies (OMCs); invest in supply chain infrastructure to augment existing investments by government. The role of BDCs is to remove major fiscal constraints from the government\u2019s budget. The BDCs operate in a sector which accounts for over 10% of Ghana\u2019s Gross Domestic Product (GDP). However, the BDCs have sometimes been accused of apparent inconsistencies and skewed logic. The BDCs have argued for removal of subsidies and upward adjustment of petroleum prices when market conditions in their opinion demanded that. That position apparently shifted when they argued against downward price adjustments in the face of a reversal in market conditions. Unfortunately, these accusations against the BDCs fail to critically consider that these are organisations are profit-oriented, but most importantly are owed several millions of Cedis by the Government from under-recoveries and forex losses. Their primary goal is to operate efficiently and profitably, as such they will support policies by the NPA \/ Government that culminate in a reduction in the debt owed them.<\/p>\n

Automatic Petroleum Product Pricing Formula (APPPF)<\/strong><\/p>\n

In June 2001, the Automatic Petroleum Product Pricing Formula (APPPF) was adopted, which compared Ghana\u2019s ex-refinery prices for ten petroleum products in cedi terms during the preceding 30 days to corresponding prices for those products in northwest Europe (plus shipping and port charges), and computed the total value difference between the two (using product consumption volumes for the current month in Ghana). The formula was deemed to be triggered, when the weighted value of domestic products diverged by more than 2.5 percent from the equivalent value based on European prices \u2013 \u201cimport parity\u201d. Some of the issues that lead to changes in the various components of the pricing formula include crude oil prices, the exchange rate, weather conditions on the high seas, efficiency and financial strength of Tema Oil Refinery (TOR), Oil Marketing Companies (OMCs) and Bulk Distributing Companies (BDCs), and government\u2019s fiscal regime (taxes and subsidies).\u00a0The National Petroleum Authority (NPA) as part of its mandate is to monitor ceilings on the price of petroleum products in accordance with the prescribed petroleum pricing formula.<\/p>\n

The APPPF was set up to achieve three specific goals, namely:<\/p>\n