The dynamics behind the fuel price hike in Ghana

February 2, 2016 • Business & Tech, Featured Articles

The drop in oil prices continues to create headaches for managers of the economy.

This is because a decline in crude oil prices has negative impact on national revenues, the very resources used to develop the country.

From last year, when commodity prices, especially that of oil, started sliding, there have been calls on government to reduce ex pump prices.

This was preceded by the deregulation in the downstream petroleum sector, which brought with it excitement in that segment of the industry.

The move meant that unlike before when the National Petroleum Authority was in charge of the setting of prices, prices of petroleum products such as petrol, diesel and premix fuel will now be determined by market forces and could vary from company to company.

One of those forces was the price at which a barrel of oil would sell on the international market.

Thus, with prices falling from US$70 last year to below US$40 last month, indications were that prices of petrol and other fuels would also drop.

That was, however, not the case.

Economist’s perspective

An Economist and Senior Lecturer at the University of Cape Coast, Dr John Gatsi, explained that the deregulation was to help bring efficiency, availability and quality in the market.

He observed that the initiative also benefited the economy since it took the burden of unnecessary subsidy off the budget.

In Dr Gatsi’s view, Ghana’s deregulation policy requires that once the price of the petroleum products goes down on the international market, the same must apply in the local market.

Ghana’s case

In the case of Ghana, since 2012, oil became a big contributor to the country’s revenue streams.

When the 2016 budget was presented, projected revenue from oil was pegged at US$53 per barrel.

However, oil prices have dropped to about US$28 per barrel and that means the country as of now will lose about 47 per cent of the projected revenue from the petroleum sector.

Dr Gatsi admits that the fall in crude oil prices will have negative impact on the economy.

“We are left with the choice of cutting the revenue to reflect the losses at the expense of existing projects,” he observed.

This, he said, called for the introduction of the 17.5 per cent petroleum tax, which he described as a prudent measure in the midst of declining petroleum sector revenues.

Dr Gatsi, however, explained that the hike was not in the interest of individuals but would help in the general management of the economy.

This benefit, he said, would in the long run impact positively on consumers who are unfortunately hurt by the current price increments.

He also explained that now was the perfect time to introduce the 17.5 per cent tax, given the stability in the exchange rates.

“If the prices were high at the pump, and the current levy was introduced, it would have been unbearable,” he said.

The questions

Industry estimates currently show that the government could rake in about GH¢3 billion from the levy.

As a result, what is important now is how money to be raised will be used.

Since the introduction of the tax is done and dusted, people should be interested in the intended purpose.

By: Dotsey Koblah Aklorbortu

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