Statement: Danquah Institute calls for Transparency in Petroleum Pricing Formula

The National Petroleum Authority (NPA) has announced a review of the petroleum price build-up (i.e. the formula used to determine the pricing of petroleum products). In this review the NPA informs the public that it has decided to increase the Bulk Oil Storage and Transportation (BOST) margin by 50 percent and the Marketers margin by 15 percent.

At the same time the NPA also decided to reduce the ex-refinery price of petroleum products by 2 percent, with the net effect being a no change in prices at the pump.

The Danquah Institute is calling on the NPA to come out and explain to Ghanaians what exactly is going on.

This apparent sleight of hand to increase “Margins” on petroleum products, margins that, along with taxes, the NDC in opposition and during the 2008 election campaign complained were too high and promised to reduce, requires some explanations.

The NPA's review of the petroleum price build-up raises a number of concerns:

1. What is the formula by which this review was undertaken?

2. Why is the NPA refusing to make the formula public?

3.The petroleum pricing formula, which was transparently published during the previous administration, is made up of the ex-refinery price, taxes and margins. Why has this habit changed?

4.Since the last adjustment, petroleum prices on international markets have gone up, the exchange rate has been stable, and related charges (e.g. bank lending rates) have not come down. So on what basis did the NPA reduce the ex-refinery price by 2%? This 2% reduction is incidentally just sufficient to ensure that the 50% increase in the BOST margin not be immediately reflected in the pump price. However this is only for the short term. The 2% reduction in the ex-refinery price is one-time but the increase in the BOST margin is permanent increase.

5.The ability of the NPA to do this only goes to buttress the view that there was a significant amount of padding in the previous 30% adjustment in petroleum prices. Otherwise why is government giving away much needed revenue by reducing the ex-refinery price?

It cannot be ignored that Government budget has suffered a major petroleum revenue leakage following the reduction of taxes in the 2009 budget. Naturally, Government has been looking for ways to plug this hole, hence the increase in taxes on water, akpeteshie, rice, road tolls etc.

However, increasing petroleum taxes is politically difficult, considering the NDC's own stance during the 2008 campaign. Again, procedurally, Government will have to seek parliamentary approval with all the debate it will generate.

The Danquah Institute is therefore of the view that the 50% increase in the BOST margin appears to be a stealthy way of increasing government revenue through the back door because after all, BOST is owned by the state. Margins can be increased administratively by the NPA without seeking parliamentary approval.

The Danquah Institute is insisting that if BOST, which is state-owned, has to be funded, then Parliament should re-introduce the Strategic Stock Levy. This is necessary for the people to know exactly what the money is for.

What this demonstrates is that there is an urgent need for the petroleum pricing formula to be transparently published for all to see.

We will also call on both Government and the NPA to move the deregulation throttle a rev up allowing the OMCs themselves to decide the OMC margins. With that, the price build-up would only have ended up at the ex-depot price.

The public should not be hoodwinked by the arbitrary actions of the NPA and a Government which has been caught in a quagmire of its own making on the issue of petroleum pricing.
Transparency is what the Danquah Institute is calling for.