NPA boss advocates removal of fuel subsidies (Spread)

The Chief Executive of the National Petroleum Authority (NPA), Mr Alex Mould, says the payment of subsidies on all petroleum products at the current level is not sustainable and should be abolished to save the sector from crisis. 

 Mr  Mould, therefore, called for an upward adjustment in the prices of petroleum products — petrol, diesel and LPG — to totally remove the subsidies on them.

Justifying  the removal of the subsidies, he said the recent 90-day hold-up in the payment of subsidies had a consequential delay in letter of credit payments, resulting in the delay for scheduled delivery of petroleum products onto the Ghanaian market.

Speaking at a roundtable organised by Citi FM, in Accra yesterday, Mr Mould said one way to increase the prices without Ghanaians feeling the sudden huge increment was for the NPA to be “allowed to implement the pricing mechanism based on the petroleum pricing formula to be executed every two weeks, monthly and quarterly”.

The programme, dubbed, “Fuel subsidies in Ghana: Necessary evil or misallocation of resources”, brought together participants from civil society organisations, the Ministry of Energy and the media.

While from 2009 to 2012 the cost of subsidy was GH¢1.5 billion, NPA projections indicate that it will cost the public purse GH¢2.4 billion this year to subsidise fuel.

 That is an average of GH¢200 million monthly and approximately GH¢6.7 million daily. Given that there is an estimated 1.2 million vehicles, including commercial ones, the government is spending approximately GH¢5.60 daily to subsidise fuel for each vehicle. 

According to NPA figures, premium is currently being subsidised at 19 per cent, kerosene at 123 per cent, diesel at 20 per cent, LPG at 66 per cent and premix at 236 per cent. 

The government’s decision to remove petroleum subsidies in late 2011 caused an uproar, with the Trades Union Congress (TUC), civil society organisations and the opposition parties leading the crusade against their removal.

A similar action in Nigeria brought that country to a standstill, as the labour movement and civil society organisations took to the streets to demonstrate until subsidies were restored.

Mr Mould said it was time for the government to get out of pricing in the sector and allow the private sector to play a leading role.

He said as a measure of increasing efficiency in the sector, the Tema Oil Refinery (TOR) needed to be supported with more investment.

According to him, it was time the country took a firm decision on subsidies, what petroleum products needed to be subsidised, how much needed to be spent on subsidies and whether the country needed to maintain a flat price throughout the year and how that could be sustained.

Mr Kwabena Nyarko Otoo, the Director of Research and Policy at the TUC,  disagreed with Mr Mould on the removal of subsidies and the assertion that the government should be out of pricing issues concerning the sector.

“The petroleum sector is too important for the government to get out and leave it in the hands of the private sector, which is mainly driven by profit,” he said.

A policy analyst at the Integrated Social Development Centre( ISODEC), Mr Dennis Nchor, observed that while in the long term it was necessary to remove the subsidies, the country should not rush into doing so without putting in place mitigating measures to cushion the poor who would be at the mercy of price hikes. 

But Mr Kofi Bentil, the Vice-President of IMANI, said the only time the government could sell the idea of the removal subsidies was when there were concrete plans to use funds saved from the subsidy removal for well-planned infrastructure development.

According to him, the present situation was such that the country was using all its oil revenue to subsidise fuel.

The country  targeted  GH¢1.23 billion ($768 million) from the sale of crude oil in the 2012 fiscal year, according to the 2012 budget presented to Parliament in November 16, 2011.