Govt subsidized fuel before price increase

The chairman of the National Petroleum Tender Board (NPTB), Prof Ivan Addae-Mensah, has insisted that the government subsidized petroleum products until the recent price adjustments.

He indicated that the government had been absorbing the ex-refinery price that ought to have been passed on to consumers.

According to him, as of February 2005 when the new prices were announced, it had refunded about ¢ 1.7 trillion out of 2.14 trillion in shortfall to the Tema Oil Refinery (TOR) and the oil marketing companies (OMCs).

Prof Addae-Mensah made the point in an interview in response to the assertion held by some members of the public that there was no government subsidy on petroleum products.

The Committee for Joint Action (CJA), a group of political parties and civil society organizations, has strongly contested government claims that there was subsidy on petroleum products. The CJA has been organizing a series of “wahala” demonstrations to put pressure on the government to reduce the prices of petroleum products.

Between 1 January 2005 and 18 February 2005, an additional ¢407 billion had been incurred and is yet to be refunded to TOR and the OMCs.

“Wherever the government got the money from, whether it's from taxes or not, to me, is material. Our duty is to make sure that the TOR does not run into debt,” Prof Addae-Mensah said.

Asked to set the records straight about the issue in order to end the confusion over whether there was subsidy on petroleum products not, Prof Addae-Mensah responded: “I don't know. Those who say there is no subsidy are the people to explain to me. I don't know.

“I am dealing with under- recoveries at the ex-refinery… If government decides that it doesn't want consumers to pay what they ought to pay and it is going to use taxes to defray it, fine. But the fact is that money is been taken from some other sources to be given to TOR and the MOCs. Otherwise TOR will run into debt again and the OMCs will refuse to import finished products,” he added.

Prof Addae-Mensah explained that the TOR ought to receive a certain amount of moneyfor its commodities and the OMCs which imported finished products ought to be paid a rate determined by the import parity price.

He said if the import parity price was higher than what the companies were receiving from consumers and the government was taking up the difference, “then the government is subsidizing. It's as simple as that”. Prof Addae-Mensah said the NPTB had been carrying out monthly evaluations of the ex-refinery price of petroleum products and calculated the under-recovery at the ex-refinery level and the revenue from the sale of the products for the appropriate reimbursement by the government to the TOR and the OMCs

He said the 2003 and 2004 annual reports of the board indicated that except for the first month which recorded an over- recovery, in all the other months the ex-refinery price was below the world market price.

He explained that the pricing formula dictated that any time the ex-refinery price was +2.5 per cent more than the price of the world market at the time of calculation, the difference should be passed on to consumers. Similarly, any time the price fell below 2.5 per cent, the consumer must benefit.

Prof Addae-Mensah cited figures for November 2004, which indicated that the ex-refinery price for premium was ¢2,251.69, the same price fixed in April 2003 when the price increase was done and the ex-pump price was fixed at ¢20,000. However, actual ex-refinery price based on world market prices was ¢3,479.54.

He said the price difference of ¢1, 227.85, which was equivalent to 35.3 per cent should have bee passed on to consumers in line with the pricing formula which pegged at 2.5 per cent, but the government absorbed the difference.

Figures for other petroleum products for November 2003 also indicate that the government subsidized the prices of kerosene by 49.1 per cent, diesel (gas oil) by 54.5 percent, pre-mix by 43 percent and LPG gas 68.9 per cent.

According to Prof Addae-Mensah, for thee month of November 2004 alone, the government subsidized petroleum products to the tune of ¢359, 666, 064, 171, 01 (¢359.666 billion).

He further indicated that although the under-recoveries were occurring before 2003, the government at that time, both National Democratic Congress (NDC) administration and the New Patriotic Party (NPP) administration, were not passing on the difference to consumers but were not refunding it to TOR.

“That is why TOR incurred all these debts”, he noted, adding that from April 2003, the current government decided not to allow TOR to run through such debts again and so decided to absorb difference of what consumers should have paid according to the pricing formula.

“If this is not subsidy to the consumer, I don't understand what subsidy actually means,” he remarked.

Prof Addae-Mensah said the arguments by some people that the government had imposed certain taxes on petroleum products to be used to meet the under-recovery were a fallacy.

He said only legal tax that was meant to defray TOR”s debt was the Debt Recovery Levy, which was ¢640 per litter on the products. The levy was fetching government about ¢90 billion a month.

He said when the under-recoveries went beyond ¢90 billion, the NPTB wrote to the government to warn it that the Debt Recovery Lev y, which actually should have been used to defray the old debt of TOR but was been used to meet the new under-recovery, was now far below the level of under-recovery.

Asked about the implications of increasing price of crude oil on the world market on the prices of petroleum products in the country, Prof Addae-Mensah said the board will advise the government accordingly.