Petroleum deregulation is ill-timed

Some civil society organisations have criticised the timing of the government’s decision to deregulate the petroleum sector.

They have said that due to the unstable macroeconomy, expected benefits might never be realised until such a time that there is an efficient macroeconomy.

In an interview, the Director of the Kumasi Institute of Technology, Energy and Environment (KITE), Mr Ishmael Edjekumhene, said the very reasons why the country did not go for full deregulation were still the same reasons why it should not have done it now, citing the weak performance of the cedi against the US dollar.

“When we started the deregulation in 2005, we knew it will come to this. But the bottom line is that citizens have their responsibilities and the state has its own responsibility. If I don’t get to choose how I buy my fuel and the price is determined by market forces, it is also fair that the government lives up to its responsibility by making sure that we have a stable macroeconomy,” he said.

He added, “If you cannot fix that then you don’t load all those effect of what appears to be your own incompetence and inefficiency onto the consumer. So yes it’s a good policy that we have all known that it is going to come today but I’m concerned about the timing.”

KITE is a non-profit development organisation and a leading actor in the energy, technology and environment sectors in Ghana and the West Africa Sub-region.



Govt’s announcement

Government recently announced plans to take the petroleum sector regulator, National Petroleum Authority, out of the process of pricing petroleum products to allow importers and marketers to reduce their prices as well as pull in more private players into the sector.



Bulk Oil Distribution Companies (BDCs), Oil Marketing Companies (OMCs) and other commercial actors in the sector are backing the directive which gives them the free hand to price their products to reflect the prices according to world market prices.



Deregulation

The government announced a policy of deregulation of the petroleum sector in the 2004 Budget with a view to addressing the fundamental problems of the petroleum industry in the country.

This was aimed at removing the inefficiencies in the sector by allowing private sector participation in the procurement of oil, which had previously been limited to the Tema Oil refinery (TOR).

Under the deregulated regime, the private sector is allowed to import finished petroleum products (about a third of total oil demand) into Ghana through open and competitive bidding. The first such tender for the import of finished petroleum products took place in March 31, 2004.



When will be the best time?

Dr Edjekumhene said the country could not allow unfettered market forces to determine everything in this world and that price increase would continue.

“The world market prices are the same but has to do with depreciation and the only reason why they mention subsidy is the fact that government usually promise the BDCs that it will take the differences which they never do. But the billion dollar question is what is government’s role in where we are and what is the government doing to ensure that it doesn’t wash its hands of the problem that is at stake,” he said.

He said it was bound to happen but it had not happened because of the very reasons why they should not have pushed it through this time round.



Taxes on petroleum

He said government was still taking its taxes on petroleum products and had not done anything about it and that consumers did not have a choice because petroleum products were not something they could do away with.

He said ex-pump prices of petro products were around between 30 and 40 per cent and were all levies and taxes, which had nothing to do with markets but rather increase when government was able to charge more because they were percentage of the ex-refinery price.

“What is the government doing and is it prepared to forgo its revenue to cushion consumers? If we are going to do full regulation then what is the starting point if they are saying that market forces should determine the price?, he said.

Dr Edjekumhene deduced that prices should have been lower than they are to reflect the changing price of the world market but then government said there was debt to be paid.

Therefore, he said, if the Oil Marketing Companies (OMCs) were doing their own pricing and prices were already high, then it was not going to cost the OMCs what consumers were paying to bring the products in.

“So are they going to be allowed to take all the profit or government is going to collect to pay the debt that is said to have been piled up? That supernormal profit who is going to keep the difference. If government is out of the equation, then the true market cost should be lower than what is happening now,” he said.



Pull Quote

“What is the government doing and is it prepared to forgo its revenue to cushion consumers? If we are going to do full regulation then what is the starting point if they are saying that market forces should determine the price?

Key note

Economic experts have said that in spite of how much mo money we generate from the petroleum sector, the desired socio-economic benefits will not be met if government does not manage public spending.