Gov’t can't wash hands off petroleum pricing – ISODEC

The Integrated Social Development Center (ISODEC), a civil society group has slammed government for its decision to leave petroleum pricing to only the Bulk Distribution Companies (BDC) and the Oil Marketing Companies (OMC).

According to ISODEC, it will be disingenuous for the NPA and government for that matter to go ahead with this decision because “it appears the NPA is deluding itself by assuming that the so-called competition it expects to happen in the sector will be a matter of course. The fact is, the players who are expected to compete among themselves can also decide to collude and fix prices for their collective benefit and to the detriment of consumers.”

Below is the full statement from ISODEC

FIVE REASONS WHY GOVERNMENT CANNOT WASH ITS HANDS OFF THE PRICING OF PETROLEUM PRODUCTS

The attention of the Campaign arm of ISODEC has been drawn to Government’s intent of moving to the next level of its ongoing deregulation of the down-stream petroleum sector, where the BDCs and the OMCs would be allowed to compete and freely determine their price levels without any involvement of the state.

The announcement in our view, is insincere and of course worrying. Insincere, because government could have shown good faith, by implementing this policy when prices fell drastically and consumers demanded commensurate reduction in fuel prices. Rather, it chose to suspend the application of the petroleum pricing formula.

Again, we believe there will always be, at least in the foreseeable future, an unseen hand in petroleum products price determination beyond the BDC’s margins, exchange rate changes, and crude oil prices on the world market. In so far as government continues to see petroleum products as a juicy and a very reliable source of tax revenue, it shall always have a hand in what price consumers pay at the pumps, unless we have a firm assurance that taxes on petroleum products will remain what they are in perpetuity.

Again, the announcement is worrying, because it appears the NPA is deluding itself by assuming that the so-called competition it expects to happen in the sector will be a matter of course. The fact is, the players who are expected to compete among themselves can also decide to collude and fix prices for their collective benefit and to the detriment of consumers. Our experience in this country has shown regulators to mostly be on the side of those they are supposed to regulate, and against those they ought to protect. Consumers will need to know what measures are being contemplated to forestall cartel formations in the sector.

Specific cause for worry

Here are five reasons why every Ghanaian must be concerned about the Government’s announced intent of washing its hands off the pricing of petroleum products:

1. This whole policy of full cost recovery in the downstream petroleum sector and its attendant subsidy removal is an imposition from the IMF and the World Bank. It has since the turn of the millennium been on the agenda of all IMF / World Bank development assistance to Ghana. Research by the United Nations Development Programme has however shown that the push by the IFIs to privatise and deregulate basic utilities in Sub-Saharan Africa increases, rather than decreases, poverty and inequality”

It adds that, “the focus of investors on cost recovery has not promoted social objectives, such as reducing poverty and promoting equity.”

2. The role of these multilateral donor agencies in this major policy decision undermines our policy sovereignty and the ‘principal – agent’ relationship that exists between Ghanaians and their government;

3. The decision will deny us the opportunity to support the poor and vulnerable in society, especially in the absence of targeted measures such as subsidised mass transit bus system, revamped rail transport system etc. to mitigate the harsh effects of petroleum price deregulation on the poor;

4. The decision will again, deny us the opportunity to support Ghanaian businesses and to make them competitive. In an economy, such as Ghana’s, where the energy mix has tilted more towards thermal generation, any increase in prices of petroleum products will invariably generate corresponding increases in electricity and water tariffs, both of which are key elements in the manufacturing and services sectors. When that happens, employers will have to either cut back on their workforce as a cost saving measure or increase the prices of their goods and services, and in the process compromise their competitiveness.

5. The decision will deny us the opportunity to keep food prices at affordable levels.

This is because 98% of food consumed in urban centres is hauled by road transport. The curtailment of government support in the fuel sector will mean increases in food prices, when fuel prices go up, especially in the absence of cheaper means of hauling food from the farms to the cities. In such scenario, the percentage of the worker’s income spent on food will go up, if wages remain the same, leaving the worker poorer.

CONCLUSION

As a developing country, it is imprudent to leave the very critical aspects of our national life to free market forces. Economic history tells us that the developed economies of the world today, went through a period of protectionism to grow their infant industries before opening up to competition and free market forces.

Our governments therefore have a responsibility to protect consumers from the harsh realities of the market by providing safety nets through targeted subsidies. We regret that, as we proceed to the next level of deregulation, we have not as yet began putting in place any of the lofty programmes promised by the government to mitigate the negative effects of the petroleum price deregulation.

The justifications provided for these harsh measures in the utilities and petroleum sectors are that they will help to reduce our budget deficit and ease our fiscal constraints, which have come about as a result of the recklessness of our political leadership.

If the financial difficulties that we face are the making of politicians then it is fair to demand that discussions around how we get out of it, should not be limited to fuel subsidy alone, but focused more on other wasteful sectors such as the government’s own over-bloated bureaucracy and its associated waste. Particularly government must reduce its spending/abuse of free fuel allocations to ensure that the sacrifices we are called to make are borne equitably by all.