Page 17 - DMEA Week 12 2022

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A beginner’s guide to petroleum industry, establish a Unified uniformity of prices. Full cost recovery is
based on the import parity pricing benchmark
Petroleum Price Fund, and provide for related
petroleum pricing in Ghana purposes. or “landed cost” of refined fuel in Ghana. The
import parity pricing, quoted in US dollars,
The other component of the 2005
Reliable and affordable energy is basic to any regulatory reform was a transparent automatic represents the price that the bulk distributors
country’s ability to grow and equitably share petroleum pricing formula for full cost pay for the delivery at the Tema Port. This
the economic gains. The consumption of recovery. In other words, consumers would includes the free on board price, freight
crude oil and gas, and derivative petroleum bear the full costs of petroleum products. charges, insurance, customs duty, and port
products such as petrol, diesel and kerosene, Only some were cross-subsidised, such as dues.
features strongly in the global energy premix used in the fishing sector. The rationale behind the import parity
geopolitics debate. In addition, Ghana’s 2009 and 2017 energy pricing benchmark is to have a strong
In Ghana, as in many other countries, policies and the 2012 Petroleum Pricing relationship with the actual costs of fuel
the price of fuel — particularly petroleum Regulations state that: imports into Ghana. The petroleum authority
products — is both a political and an Ex-refinery prices of petroleum products employs a two-week inventory window (1st-
economic decision. will be based on import parity prices. 16th of the month) whereby the two-week
Before 2005, the Ghanaian state controlled Transportation and distribution charges average of the free on board prices of the
the import, distribution and pricing of for petroleum products will be regulated products is computed.
petroleum products. But shortages were a to ensure reasonable profit margins for The historical average exchange rate of the
regular occurrence. Coupled with this, the transporters and distributors. cedi to the dollar within the two-week time-
government subsidised consumers, meaning Cross-subsidies between petroleum frame is then added to the equation. Charges
they didn’t pay the full cost of the product. It products will be applied, as necessary, to such as port duties are added to arrive at the
is estimated that Ghana spent about 2.2% of achieve specific national development ex-refinery price, calculated in Ghana pesewas
its gross domestic product subsidising fuel in objectives. per litre.
2004, far exceeding the budget of the Ministry Uniform national prices for petroleum Taxes and levies passed by Parliament are
of Health. products will be maintained. then added along with various oil marketing
The regime was deemed inefficient as the Petroleum products are imported into companies’ (distribution) margins to arrive at
rules were inconsistently applied. Ineffective the country by bulk distribution companies the final ex-pump price. The ex-pump price
subsidies put a strain on the economy and or wholesalers, which then sell them to oil is the price the public pays for fuel at the
often benefited middle-class consumers rather marketing companies or retailers. Demand for various filling stations. Fuel taxes and margins
than the poor. A study indicated that almost the products, especially diesel and petrol, has typically make up about 40% of ex-pump fuel
78% of fuel subsidies in Ghana benefited grown at an average of 5% per year since 2000 prices.
the wealthiest group while only about 3% of due to economic growth. Ghana imposes eight levies and five
subsidy benefits reached the poorest quintile. While Ghana has been a net exporter of margins on petroleum products. The levies
In 2005, Ghana deregulated the crude oil since 2010, the country remains are for energy debt recovery, energy fund,
downstream petroleum industry as part of highly vulnerable to oil price shocks because energy sector recovery, price stabilisation
the debt relief package under the joint IMF– it imports a significant share of petroleum and recovery, road fund, sanitation and
World Bank Heavily Indebted Poor Countries products consumed in the country and pollution, special petroleum tax and unified
(HIPC) initiative. The policy had three exports to others in the sub-region. pricing petroleum fund. The margins paid to
objectives, namely to: These imports mostly come from Europe the distributors are for bulk oil storage and
- remove restrictions on the establishment (Rotterdam). Consequently, the country is transportation, dealers (retailers/operators),
and operation of facilities by the private sector subject to volatility in international markets fuel marking, marketers, and primary
- remove restrictions on the importation of for crude and petroleum products, as seen distribution.
crude oil and petroleum products recently with the Russia-Ukraine conflict. The government and other stakeholders
- remove price controls. Three key factors drive petroleum products can adopt the following reform options to
To give legal effect to the policy, the prices in Ghana. First is the import parity improve Ghana’s pricing in downstream
country passed the National Petroleum price of the product. The second is the foreign petroleum markets.
Authority Act, 2005 (Act 691), which exchange rate. The third is taxes and margins. Firstly, Ghana’s central bank, the Bank
established the National Petroleum Imports are regulated by the petroleum of Ghana, can preferentially auction or sell
Authority. Its mandate is to regulate, oversee authority to ensure full cost recovery, dollars to the bulk distribution companies
and monitor activities in the downstream government revenue generation and at the interbank rate. This will help these

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