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22.10.2004 Press Review

Editorial - De-Regulation Should Mean Cheaper Petrol

By gye Nyame Concord

() As a result of the debate on government's planned full deregulation policy expected to come off next February and contributions by Energy Minister Dr Paa Kwesi Nduom and former PNDC Secretary and energy expert Mr Ato Ahwoi on JOY FM's 'Newsfile' programme, we repeat this editorial for its essence.

On Saturday, May 8, 2004 the only fully-owned West African oil marketing company (OMC) in the country, Unipetrol, officially changed its corporate name to Oando. The ceremony, which took place at the company's outlet at Legon, had Energy Minister Paa Kwesi Nduom in attendance.

In his address at the occasion, the Oando Managing Director urged the government to carry through its pledge to completely deregulate the petroleum sector.

Under such a regime, the OMCs will import crude oil with their own funds, pay for its refining by the Tema Oil refinery (TOR), pay for its storage by TOR and then set their own per litre price at the filling stations. Under the current set up, the government funds the entire process and sets the ex-pump price.

Anticipating a possible rise in the petrol station prices under the proposed method, the Oando boss urged Ghanaians to allow the government to remove the subsidy that it currently pays on each litre of petrol, so that the money could be used for development projects to their own benefit.

The GYE NYAME CONCORD will like to state emphatically that it strongly disputes the premise that a deregulated petroleum sector in which OMCs bear all the costs would necessarily lead to higher prices for petroleum products. It may only happen if the government, which prides itself on the ability to take bold and tough decisions, develops cold feet at the 11th hour and is unable to generate the needed political will to bear its share of the sacrifices that a totally deregulated petroleum sector must, of necessity, impose on the government.

The alleged subsidy that the Oando boss is making a song and dance about, is only temporary; it has come about only because the $32 per litre of crude used to calculate the current ¢20,000.00 per litre price at the filling stations, is less than what currently obtains on the world market, and the government lacks the will to pass on the increase to consumers in an election year.

When the current price was first set in February 2003, there was no subsidy on it. In fact there are some who claimed at the time that at ¢20,000 per litre for premium petrol, the government was raking in a monopoly profit of about ¢5,000 per litre.

Now, why a deregulated petroleum sector should lead to lower prices: There are at least 10 different taxes and levies imposed by the government on the ex-refinery price to arrive at the ex-pump price of ¢20,000 per litre. Without those taxes and levies the ex-pump price could well be less than ¢15,000 per litre, if the calculation is based on only the international crude price, freight and refining and storage charges. Those taxes may be tolerated in the current situation where the government bears all the costs associated with buying crude oil and getting it ready for use, often with funds borrowed at commercial rate.

But the situation ought to change dramatically where the OMCs provide all the funding. It will be highly immoral and amount to indiscipline of the highest order for the government to dodge all the costs associated with getting crude ready for use and then turn round to impose taxes and levies on the ex-refinery price. It would amount to the government eating its cake and having it at the same time, a situation that offends against natural justice.

This is the sacrifice that we referred to above; if government thinks a deregulated petroleum sector is the sensible way to go, then it must be ready to forgo the billions, if not trillions, of cedis it rakes in annually under the current petroleum products funding regime. It cannot be otherwise, and the earlier the government understood the full implications of a full deregulated sector and decided to abide by it the better for the peace of the nation.

GYE NYAME CONCORD also has a word of caution for the OMCs clamouring for full deregulation: They should remember that a fully deregulated petroleum sector would mean that is they, the OMCs, that set the ex-pump price; they should also remember that they are not the only people who are capable to calculating both the ex-refinery and the ex-pump prices because all the elements – world crude price, freight, refining and storage charges – are common public knowledge and any price they set will be promptly repudiated and challenged, if found not borne out by the prevailing economic situation.

The OMCs will be making a great mistake if, for any reason they allow the government to reap where it has not sown. If that happened, the OMCs would be held strictly accountable, and they may not like what they get.

The GYE NYAME CONCORD believes that a wiser step by the government in the petroleum sector is to deregulate partially by absorbing the refining and storage costs. That way it would retain some moral right to impose some moderate levies on the ex-refinery price, may be at the level that the previous government left them. This is our word to the wise.

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