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Business News of Tuesday, 12 October 2021

Source: thefinderonline.com

Government to lose GH¢58 million monthly for zeroing fuel levies

President Nana Addo Dankwa Akufo-Addo has granted approval to zero the PSRL President Nana Addo Dankwa Akufo-Addo has granted approval to zero the PSRL

The announced reduction of Price Stabilisation & Recovery Levies (PSRL) on petrol, diesel and liquefied petroleum gas (LPG) on petrol, diesel and LPG to zero will cost the government about GH¢58 million a month.

President Nana Addo Dankwa Akufo-Addo has granted approval to zero the PSRL on petrol, diesel and liquefied petroleum gas (LPG) for two months.

The approval follows advice from the National Petroleum Authority (NPA) to mitigate the impact of rising prices of petroleum products on the world market on consumers.

US$346.92 increase in petrol prices this year

The price of petrol in the world market went up by $346.92 between January and October 16 - 31, 2021 pricing window.

Petrol at world market: $436.69 per metric tonne in January

The world market price used for petrol in the first window of January 2021 (January 1-15) was $436.69 per metric tonne.

Petrol at world market: $783.61 per metric tonne in October

However, this has increased to $783.61 per metric tonne for the upcoming window of October 16 - 31, 2021.

$270.72 increase in diesel prices this year

Similarly, the price of diesel in the world market went up by $270.72 from January to October 16 - 31, 2021 pricing window.

Diesel at world market: $419.28 per metric tonne in January

For diesel, the world market price in the first window of January 2021 (January 1- 15) was $419.28 per metric tonne.

Diesel at world market: $690 per metric tonne in October

This has increased to $690 per metric tonne for the upcoming window of October 16 - 31, 2021.

Global situation

Energy prices are rising from the US to Europe and Asia as the economy recovers from the global pandemic and people return to the offices.

Consumers feel the pain

Consumers in Ghana have recently been enduring price hikes in petroleum products.

PSRL reduced to zero

The PSRL – which is currently 16 pesewas per litre on petrol, 14 pesewas per litre on diesel and 14 pesewas per kilogramme on LPG – has been reduced to zero to cushion consumers.

Price drop per litre of petrol

If the directive was to take effect yesterday using the price big oil marketing companies in the country, the price of petrol would have reduced from GH¢6.52 per litre to GH¢6.36 per litre, representing a 2.45% drop.

Price drop per litre of diesel

That of diesel would have reduced from GH¢6.52 per litre to GH¢6.38 per litre, representing a 2.08% reduction.

The purpose of the PSRL is to stabilise prices for consumers and pay for the subsidies on premix fuel and residual fuel oil (RFO).

Petrol (54%), ex-pump (46%), levies, taxes and margins

Per the current pricing window, the ex-refinery price of petrol is 54% of total price, while taxes, levies and margins take up the remaining 46%.

The components are levies and taxes (29%), statutory margins (8%), and oil marketing companies (OMC) margins (9%).

Diesel (55%), ex-pump price (45%), levies, taxes and margins

In the same vein, the ex-refinery price of diesel constitutes 55% of total price, while taxes, levies and margins make up 45%.

The breakdown is levies and taxes (29%), statutory margins (8%) and OMC margins (8%).

Sharp increases in demand for oil globally

A statement from the NPA said the prices of crude oil and refined petroleum products had seen sharp increases on the world market due to a rise in demand of oil globally without a corresponding increase in supply, particularly from the Organisation of Petroleum Exporting Countries (OPEC) and its allies.

Impact of deregulation on consumers

It said because pricing of petroleum products in Ghana is deregulated, changes in prices of petroleum products on the world market have a direct impact on prices at the pumps.

Global market outlook shows rising prices

The statement said the outlook of prices on the global market shows an upward trend; hence, the need to seek government's intervention to lower the levies to cushion consumers from feeling the full impact of the rising prices.

"At this time, it is important that the PSRL, which is currently 16 pesewas per litre, 14 pesewas per litre on diesel and 14 pesewas per kilogramme per litre on LPG are zeroed to cushion consumers," it continued.

The statement said the NPA would work with the Ministries of Energy and Finance to quicken the legislative processes to give immediate effect to the directive by the President.

The NPA expressed gratitude to the President for granting the request to zero these levies to minimise the effect of rising prices of petroleum products on the world market on consumers in Ghana.

Full deregulation of the petroleum sector was implemented to save government from mounting debts that threatened the economy.

$3.11bn spent on subsidies

Data available shows that the government has spent US$3.11 billion as subsidies on petroleum products in a period of 10 years.

Critics argue that the costly and inefficient subsidies, which were incurred between 2008 and 2018, could have been used for developmental projects across the country.

The subsidies comprised real value factor (RVF) and forex loss under-recoveries interest (FLURI) claims.

The real value factor refers to the financial cost (interest) incurred by Bulk Oil Distribution Companies (BDCs) for the delayed payments of price under-recoveries.

Forex loss under-recoveries interest, on the other hand, refers to the financial cost borne by BDCs for the delayed payment of forex loss under-recovery (FLUR) by the government.

Breakdown of the various subsidies

The breakdown includes FLUR - $806.2 million ($806,245,964); FLURI - $85.3 million ($85,393,670); PUR - $2.1 billion ($2,130,851,365); and RVF - $87.7 million ($87,713,497).

Negatives of subsidies

Considering the fact that the opportunity cost of these subsidies is the revenue foregone by not charging the international prices domestically, there is a high probability, therefore, of a shift in the allocation of scarce economic resources to finance the increase in crude oil price in the country.

Consumption subsidies, on the other hand, increase domestic consumption and trigger an increase in demand for imports.

This increases the energy dependency ratio and worsens the balance of payment and energy security in Ghana.

Furthermore, consumption subsidies lead to wasteful consumption and inefficient use of energy.

This puts pressure on government resources and leads to unsustainable budget deficits in the country.