Fuel Crisis: What the IMF Boss in Ghana is saying
The International Monetary Fund (IMF) Resident Representative to Ghana Alphecca Muttardy has told The Chronicle that the deregulation process should have started last year but was deferred to this year, confirming what Matt Carlson also told the paper a few minutes later.
She however, would not agree to a suggestion that it was because the Fund finds the government amenable to their dictates that they deferred the introduction of the programme so it would not suffer at the polls.
She explained that it was unfair for the taxpayer to keep subsidizing petroleum products for the benefit of a few people, the rich. She said it is better to put resources into better use, especially in the productive sectors of the economy. “The resources could be put into more productive ventures,” she said.
She argued against the suggestion that the deregulation was an imposition by the IMF because, “it is an initiative of your own government, as they told you at the workshop on deregulation.” (Referring to what the Minister of Energy had said at a workshop last week) She would however not tell what the likely consequence of the failure to deregulate would be for us. She seemed not to foresee government's non-compliance with its own initiative. She was however, quick to add that the IMF would continue to support the country.
On the exact time the petroleum downstream deregulation takes off the Fund Representative responded, “I don't know.” She also said she did not know how much petrol would be selling.
In June last year, the Minister of Finance and Economic Planning Mr. Osafo Maafo and the Governor of the Bank of Ghana, Dr. Paul Acquah sent a Memorandum of Economic and Financial Policies of Government for 2004-05 to the IMF.
According to the memorandum, an automatic adjustment formulas for the pricing of petroleum, is defined to ensure full cost recovery at Ghana's state-owned oil refinery, Tema Oil Refinery (TOR) and utilities by passing on to consumers changes in the costs of exogenously determined inputs including crude oil.
The automatic formula will be calculated by the tenth of each month, using an average of representative petroleum product prices (fob Mediterranean, from Platt's Oilgram) for the previous three calendar months for each of the following products: premium gasoline, kerosene, gas oil, residual fuel oil, and liquefied petroleum gas. The formula will then add TOR's shipping, insurance, and related charges, to arrive at a set of ex-refinery prices at full-cost recovery levels.
Premix will be computed as a weighted average of premium gasoline (96.67 percent) and engine oil (3.33 percent) at full cost recovery prices. All full-cost recovery prices, and the prices currently charged by TOR, will each be multiplied by TOR's sales volumes for those products for the previous month, and the resulting actual and full-cost recovery sales values summed across products.
The National Petroleum Tender Board, which will be turned into the National Petroleum Authority, will use the current formula to determine cost recovery prices, which will be compared with actual prices to determine the magnitude of the implied subsidies to TOR and the oil marketing companies. These prices will be determined once a quarter, on or before July 31 and October 31, 2004, and January 31, 2005. Cost recovery prices will reflect the full pass through of all taxes, levies, and distributor margins.
Stating the budgetary cost of petroleum subsidies, the memorandum noted that if the cost of petroleum price subsidies for the third and fourth quarters of 2004, as calculated using the automatic price adjustment formula specified above, exceeds the programmed amounts, the ceilings on net domestic financing for end-September and end-December 2004 will be raised by half of the first ¢200 billion in excess cost, and by the full amount of any excess cost beyond ¢200 billion. If the subsidy cost is less than programmed, the net domestic financing ceilings will be unchanged until the subsidy shortfall reaches ¢523 billion, which will allow the spending cuts to be fully reversed; beyond that point, the net domestic financing ceilings will be reduced pari passu.