In addition to creating a breathing space for the BDCs and their partner banks, the move is expected to help reduce the country’s debt burden, which rose to GH¢88.2 billion in March this year by about three per cent of the year’s gross domestic product (GDP).
It also brings to an end the days when the NPA was given the sole prerogative to determine the price at which petroleum products are retailed in the country and ushers in a new era, where oil marketing companies (OMCs) will now determine the price at which a litre of diesel, petrol and premixed fuel, among others, will be retailed to their clients.
But instead of completely washing its hands off the pricing of petroleum products, the Public Relations Officer of the NPA, Mr Yaro Kasambata, told the GRAPHIC BUSINESS on June 12 that the authority would now regularise its regulatory mandate by always setting an indicative price beyond which a company would not be allowed to price its products.
“The object of our Act (NPA Act, (2005), Act 691) is to monitor world prices, do the calculations and ascertain how a BDC will arrive at its ex-refinery price and subsequently do same for the OMCs. So, if the price liberalisation comes into effect, then our indicative price will now serve as a reference price for the OMCs not to sell above that and also to the general public not to buy products above it,” Mr Kasambata said.
“Generally, it will give the market and the public a broad picture with which to work with,” he said.
Full price liberalisation in the downstream petroleum sector has been on government’s table for decades. It was part of a World Bank-inspired programme in the 1990s but stalled over the years due to lack of political will from subsequent governments to stop subsidising the prices of fuel for the consuming public.
The result has been mounting debts and arrears that the government owes the BDCs. It was estimated at US$800 million in April this year.
Budgetary outturns on fuel subsidies have also firmed up over the years.
In 2013, subsidies were estimated at GH¢2.4 billion, equivalent to 3.2 per cent of that year’s total economic output – gross domestic product – but declined to about GH¢126 million last year, thanks to the introduction of an automatic adjustment formular (AAF), which was to herald full price liberalisation.
While praising the AAF for helping reduce the subsidy budget from GH¢400 million in 2012 to GH¢126 million last year, the Finance Minister, Mr Seth Terkper, said the time had now come for the country to move to the final stage of the exercise, where subsidies on petroleum products will be completely removed.
“We have a history where price controls (in the downstream petroleum sector) in this country created some shortages, queues and other difficulties for consumers but over the time, we have been able to reduce those difficulties. I think that we can now move beyond that and look at the issue holistically and ask ourselves; what is indeed the cost of fuel subsidies to both the economy and the players in there?” the minister asked.
Subsidies not the only social interventions
Commenting further on the impact of the subsidy removal, Mr Terkper said: “We have to give it (fuel subsidy removal) a chance because it will definitely reduce the burden on the budget.”
“Subsidies do not only cost the government and the budget, but it burdens the BDCs, the banks and the economy too and that is why we should not fear the subsidy removal,” he said, citing the impact of large fiscal deficits on economic growth.
But wary of a backlash on the government for the decision to scrap a policy that is intended to cushion the poor from economic hardship, the minister said social interventions for low income earners had now gone beyond petroleum subsidies to include special initiatives such as the Community-based Health Planning and Service (CHPS) compound, removal of schools under trees and even the petroleum price stabilisation mechanisms that would be resourced more to play active roles in alleviating poverty.
“Yes, we want to deregulate and cancel subsidies but it does not mean all social interventions will be cancelled. We are even looking at a situation where the price stabilisation mechanism in the petroleum sector will remain to serve as a buffer against some of these increments,” he said.
The subsidy build-ups
Available figures indicate that between May 6 and June 5, this year, the subsidies accrued to GH¢115 million.
Out of the total amount accumulated within the one month period, GH¢55 million accrued over the past two weeks (between May 17, when fuel prices were increased, and June 5) while the remainder arose from under recoveries dating back to May 1, 2015, the data further showed.
The subsidy build-up was mainly due to the government’s recent unwillingness to pass on the full cost of petroleum products to the general public in the latest increment in prices of the products.
The paper learnt that petroleum prices should have gone up by 19 per cent as supposed to the nine per cent increment that was announced and is currently being implemented.