POLITICS OF FUEL PRICES IN GHANA

TOPIC INTRO

Henry Kokofu is the CEO for EPA.

Speaking on Peace FM’s ”Kokrokoo” Friday morning, Henry Kokofu noted that a lot of people are not using fuel productively and this negatively impacts the petroleum sector.

He, therefore, advised vehicle owners and drivers in the country to conserve fuel by being economical in its usage.

Citing some of the things he would have Ghanaians to either stop or check, he stated that it’s not all the time that people should drive to every place, and that urged car owners or drivers to sometimes park their cars and just walk.

HISTORY OF PETROLEUM PRICING IN GHANA FROM 2000

1. PETROLEUM PRICING UNDER KUFFUOR

During the Presidency of J.A. Kuffuor, prices of fuel were determined by government. This was done through a cap system and payment of subsidies to BIDECs and OMCs to cushion Ghanains when fuel prices increase at the world market. It means that government pays part of the cost of imported fuel and hence determines fuel prices for OMCs (fuel stations).

Then in 2005, the National Petroleum Authority Act was passed by President Kuffuor which also saw the establishment of the National Petroleum Authority (NPA) as the petroleum downstream industry regulator whose mandate is to:

1. Regulate, oversee and monitor activities in the petroleum downstream industry; 
2. Establish a Unified Petroleum Price Fund (UPPF); and 
3. Provide for related purposes. 

Full cost recovery means that government ensures at all times that the full cost incurred by BDCs are recovered so that they do not run at loses. Under this, government allowed a list of items to be factored into the cost of imported fuel such as:

1.  international price for refined fuel brought in, 
2. freight charges, 
3. exchange rate, 
4. customs and port duties, 
5. insurance and losses. 
6. The historical average exchange rate of cedi to the dollar within the two-week timeframe is then forwarded into the equation. 
7. Approved taxes and levies passed by Parliament are then added 
8. Various OMC (distribution) margins to arrive at the final Ex-pump price, which is the price the public buys fuel at the various filling stations.

HOW WERE FUEL PRICES DETERMINED UNDER PROF MILLS?

In 2012, an automatic fuel adjustment formula was adopted to affect the full cost recovery that President Kuffuor was subsidizing for BDCs. 

What it means is that all the variables that determine the prices of fuel in Ghana were put in a formula so that anytime one variable increases, the price of fuel automatically increases.

For example, if the cedi depreciated, more Ghana cedis is needed to buy fuel which is sold in dollars and so automatically, fuel prices increases. Again, fuel prices on the world market is a component of our price build-up and so fuel prices automatically increases when fuel price at the world market increases under the automatic fuel adjustment formula.

According to a paper published by the IMF, one of the objectives of the introduction of the automatic fuel adjustment formula is to "ensure full pass-through of changes in international fuel prices to domestic retail prices so as to protect fuel tax revenues and avoid price subsidies."

So what it meant was that, by 2012, constant increases in the price of fuel in Ghana were not determined by government anymore unlike it used to be under President Kuffuor.

HOW WERE FUEL PRICES DETERMINED UNDER PROF JM?

After the introduction of the automatic fuel adjustment formula by Prof. Mills, the government of JM went to IMF for policy credibility and came back with another harsh policy called - fuel deregulation policy. 

By that, Prof. Mills government, JM and the NDC had been arguing for the removal of subsidies but was forced to kowtow to political pressure in the early days of the IMF.

Upon all the pressure, in July 2015 the fuel price deregulation policy was introduced by John Mahama which completely gave the responsibility for setting ex-pump prices to the the various Bulk Import Distribution and Export Companies (BIDECs) and Oil Marketing Companies (OMCs).

From that point up to today, changes in fuel price are not determined or dictated by government but by the BIDECs and OMCs as a direct response to changes of prices of petroleum products on the world market by the OMCs and strength of the Ghana Cedis as well as the competition amongst the various fuel stations.

Because of automatic adjustment formula and deregulation, we now have fuel prices being different from various OMCs.

WHY DOES LORRY FARES INCREASE WHEN FUEL PRICE 

As a result, GPRTU adopted the Price Adjustment formula so that anytime fuel prices increases, lorry fares are increase.

Currently, COPEC and ordinary Ghanians are able to predict increments in fuel prices and lorry fares just by looking at the changes in prices of fuel prices on the world market as a result of the deregulation and price adjustment formula.

Everybody knows that when price at the world market increases, fuel prices and lorry fares will adjust automatically.

HOW HAVE GOVERNMENTS OVER THE YEARS DEALT WITH PRICE INCREMENTS AFTER DEREGULATION POLICY?

Because of the automatic adjustment formula and deregulation policy, government has control to determine fuel prices and the only thing Government can do to cushion Ghanains is to either reduce taxes or abolish them.

WHAT IS CAUSING THE RECENT FUEL INCREMENTS?

In June 2021, COPEC indicated that prices on the world market have increased from $60 dollars in March to $73 dollars per barrel June 2021. On that occasion, the Executive Secretary of COPEC, Duncan Amoah, said, “Everything that happens on the global stage now directly impacts the pump.”

As a result, there was a 3% hike in fuel prices which moved the price of petrol at some pumps from GH₵ 6.05 to GH₵ 6.23 per litter over the weekend.

THE NDC AND FUEL POLITICS

By July 2014, fuel prices in this country had been increased three times, the highest in the history of this country. This caused transport fares to be increased by 15% with immediate effect in June that year alone.

Even when fuel prices were determined by government of Ghana in 2008, on an occasion that fuel prices were reduced on the world market and same was done in Ghana, the NDC were not happy and made noise about reduction in fuel prices. They claimed it was vote buying.

Surprisingly, IMANI that is today crying that fuel prices should be brought down published that deregulating fuel prices in 2015 so that government does not pay subsidies was a good thing. They said "Deregulation will end Petro Politics and Satisfy Ghana’s IMF Deal on Fuel Subsidies"

JM and NDC

In 2015, with the automatic fuel adjustment formula, even at a time when prices of fuel came down from $106 per barrel in 2014 to $46 dollars in 2015, fuel prices were rather increasing in Ghana under JM. 

The Finance Ministry under JM told Ghanaians that the falling prices could not be passed on to consumers because of the debt owed to the Bulk Distribution Companies (BDC). 

Then on 24th February, 2015, the Chief Executive Officer of the NPA, Mr Moses Asaga, said that the authority had settled the GH 412 million debts it owed the BDCs.

This debt indicates that they were could not pay the subsidies and the reason they cancelled it.

Akufo-Addo

In 2019, fuel prices were reduced to Ghc 5.19 effective 18th June 2019.

In October 2021, Government moved to abolish the Price Stabilisation and Recovery Levy that was imposed by JM and NDC to cushion Ghanains.

On October 11, 2021, the National Petroleum Authority (NPA) approved the removal of the Price Stabilisation and Recovery Levies (PRSL) on petrol, diesel, and LPG for two months. In a press statement issued by the Authority, it noted that the reduction is to cushion consumers from the rising prices of petroleum products on the world market.

On January 12, 2022, government announced the extension of the removal of the PSRL

In 2021, there was some 15 pesewas reduction which was commended by CSOs and transport operators though indicated it was not enough.

In December 2021, fuel prices were reduced from Ghc 6.9 to Ghc 6.8

On 17th December 2021 again, fuel prices were reduced to a further Ghc 6.60