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Opinions of Saturday, 18 July 2009

Columnist: Gyamerah, Michael

On Prices of Petroleum Products and NPP hypocrisy

My recent four-week visit to Ghana confirmed what I have always thought of the reactionary Danquah-Busia tradition; a bunch of shameless and self-seeking individuals who consider Ghana as their private property.

This article exposes the unprincipled and outright dishonest position of the shameless NPP opposition on the 30% petrol price increase in June, 2009. The opposition’s criticism of the petrol price increase and the recent petrol shortage that hit Accra were designed to undermine President Mills’ government

The petrol shortages that hit Accra barely a week ago can be traced to the deregulation of the petroleum market in Ghana under the NPP. Tema Oil Refinery (TOR) has been reduced to merely refining crude oil to petroleum products. Contracts for lifting crude oil to TOR were given to NPP supporters during the deregulation exercise. These selfish and greedy NPP supporters imported cheap heavy (sour) crude that led to corrosion of the refining equipment which finally resulted in TOR being shut down since February 2009. Since TOR satisfies nearly 70% of the Ghanaian market when operating at full capacity, contracts for importing petrol, and gas oil/diesel to make up the balance were also given to NPP supporters when the market was deregulated.

It is worth noting that only a tiny fraction of these NPP petroleum products importers have facilities to store the imported petrol and other refined petroleum products. Hence TOR's facilities are used with TOR collecting storage and handling charges. Following the depletion of TOR's reserves of petroleum products when refining operations were stopped in February 2009 due to corrosion caused by the use of cheap sour crude imported by NPP supporters, TOR has been reduced to simply storing and handling petroleum products imported by these NPP supporters. TOR's difficulties have been compounded by the fact that some of the importers have not even paid for the storage and handling charges.

The reliance of the country wholly on imported refined petroleum products such as petrol and gas oil/diesel since February, 2009 has led to Professor Mills’ government falling prey to the selfish and greedy NPP folks who have the license to import petrol and gas oil/diesel etc. Their manipulation of the market and delays in importing petroleum products have all been used to undermine the Mills administration, as seen by the recent petrol shortages in Accra.

Since petrol and gas oil/diesel etc are now being imported, it is the height of wickedness and hypocrisy for the NPP folks to even attack the Mills administration for the recent 30% increase in petrol price.

I present an analysis below to expose the NPP wicked agenda.

1. On June 5, 2009 the Deputy Energy Minister gave the landed price of petrol (gasoline) on Joy FM's program Front Page as US$666/metric ton as compared to the April 2009 price of US$447/metric ton, in an effort to explain the basis of the 30% price increase of the pump price of petrol

2. The landed price of petrol in early June 2009 given by the Deputy Minister works out to US$1.94/US gallon, while the April 2009 landed price of petrol works out to US$1.30/US gallon. These may be compared to the US Energy Information Administration (US-EIA) June 2, 2009 Rotterdam spot price of gasoline (petrol) of US$1.898/US gallon and the average Rotterdam spot price of gasoline (petrol) for April 2009 of US$1.3542/US gallon; an increase of 40.16% (petrol price in Ghana went up by 30% during the same period)

3. The landed price of gasoline of US$1.94/US gallon given by the Deputy Minister when used as a basis with the NDC's reduced taxes and levies which constitute 12.75% of the pump price of gasoline (petrol) in Ghana and the petroleum marketer's margin of 23.22% of the pump price (that is a total of 35.97% of the pump price), the price of petrol works out to be GHc 1.12/litre or GHc 5.09/imperial gallon at the early June 2009 exchange rate of US1.00 = GHc 1.40

4. The figure of GHc 1.12/litre or GHc 5.09/imperial gallon is approximately equal to the June 2009 price of GHc 1.11/litre or GHc 5.04/imperial gallon announced under the watch of Professor Mills government. In fact, the Rotterdam spot price of gasoline (petrol) given by the US-EIA of US$1.898/US gallon may be used to calculate the pump price in Ghana as GHc 1.098/litre or GHc 4.99/imperial gallon

5. A comparison of the US-EIA Rotterdam spot price and those presented by the Deputy Energy Minister and the calculations in (3) and (4) above show that the calculations above are equivalent to the National Petroleum Authority (NPA) formula for fixing the price of petrol in Ghana. In addition, the NPA recommended and the government accepted petrol price at the pump in Ghana of GHc 1.11/litre or GHc 5.04/imperial gallon is approximately the same as the price obtained using the US-EIA Rotterdam spot price which gave GHc 1.098/litre or GHc 4.99/imperial gallon as the pump price

6. It may therefore, be concluded from the above analysis that Professor Mills government has been above board in dealing with the people of Ghana and in addition to reducing the taxes and levies on petrol, the 30% increase in the price of petrol is supported by the spot price of petrol reported by the US-EIA. This is significant since all the petrol dispensed at the pump in Ghana since June, 2009 is imported as a result of TOR being shut down

7. For comparison, the prices of petrol at the pump from July 2008 to the end of December 2008 under the NPP would be compared with the expected pump prices in Ghana calculated from the US-EIA Rotterdam spot prices for gasoline (petrol)

8. In July 2008, to be precise on July 8, 2008 the US-EIA Rotterdam spot price of gasoline (petrol) peaked at US$3.44/US gallon. That worked out to be US$ 0.99/litre. At US$1.00 = GHc 1.05 in July 2008, that gave a Rotterdam spot price of GHc 0.95655/litre. Using the even lower current NDC era 35.97% taxes and levies plus petroleum marketer's margin, the pump price of petrol in Ghana should have been GHc 1.495/litre or GHc 6.79/imperial gallon. The pump price in Ghana was however, GHc 1.18/litre or GHc 5.36/imperial gallon; 21.07% lower than the price based on the Rotterdam spot price

9. In November 2008, around the time of the first reduction of petroleum prices following pressure from the CJA and the then opposition NDC, the Rotterdam spot price averaged US$1.0916/US gallon. At an average of US$1.00 = GHc 1.15, the Rotterdam spot price works out to GHc 1.25534/US gallon. At the current 35.97% taxes and levies and the marketer's margin, the pump price of petrol in Ghana should have been US$1.9655/US gallon or GHc 0.51997/litre which equals GHc 2.36/imperial gallon. The pump price of petrol at the time under the NPP was reduced by 10.2% to GHc 1.0596/litre or GHc 4.81/imperial gallon which was approximately 100% (that is almost twice) higher than the price of GHc 2.36/imperial gallon that should have been charged Ghanaians using the current NDC government's levies and taxes and marketer's margin of 35.97% of the pump price

10. The December 24 - 29, 2008 Rotterdam spot price of petrol (gasoline) was US$ 0.8073/US gallon. The gasoline price during this period represented the lowest and coincided with the NPP government directing the NPA to reduce the price of petrol to GHc 3.50/imperial gallon in order to influence the 2008 presidential elections run-off

11. At the Rotterdam spot price of gasoline (petrol) of US$ 0.8073/US gallon, and an exchange rate of US$1.00 = GHc 1.20 between December 24 - 29, 2008 the spot price works out to GHc 0.96876/US gallon. Using the NDC government's approved 35.97% taxes and levies plus petroleum marketer's margin, the pump price of petrol in Ghana under the NPP government should have been GHc 1.513/US gallon or GHc 0.40026/litre which works out to GHc 1.82/imperial gallon. Since the petrol price approved by the NPP government was GHc 3.50/imperial gallon, this represented over 1.92 times (nearly twice) the GHc 1.82/imperial gallon that would have been charged under the current NDC government using the Rotterdam spot price and 35.97% taxes and levies plus marketer's margin

12. In fact, the calculated pump price of GHc 2.36/imperial gallon in November 2008 and the GHc 1.82/imperial gallon at the end of December 2008 using the Rotterdam spot prices of gasoline (petrol) justify Professor Mills’ election campaign pledge to reduce the pump price of petrol in Ghana

13. Ghanaians should also note that the pump price of petrol in Ghana is high partly because of the rather high petroleum marketer's margin of 23.22%. Since the marketer's margin for diesel is 14.15% and that for kerosene is 16.62%, the marketer's margin for petrol should be reduced to about 15%

14. Coincidentally, most of the petroleum marketer's are NPP cohorts, who in spite of the huge profits on petrol sales with the 23.22% margin, at a time majority of ordinary Ghanaians are enduring economic hardships resulting from the current world-wide economic crisis, have NPP politicians and supporters criticizing Professor Mills and his government for the 30% increase in the price of petrol

15. The NPP politicians and supporters criticizing Professor Mills’ government should compare petrol pump prices of GHc 2.36/imperial gallon in November 2008, and GHc 1.82/imperial gallon at the end of December 2008 calculated from the Rotterdam spot prices of petrol and the petrol pump prices under the rule of the NPP which were between GHc 3.50 - 4.81/imperial gallon, and contrast that with the current pump price of petrol of GHc 1.11/litre or GHc 5.04/imperial gallon and that calculated from the Rotterdam spot price given by the US-EIA as GHc 1.098/litre or GHc 4.99/imperial gallon

16. The above analysis clearly justifies the 30% increase in the price of petrol and exposes the hypocrisy of the NPP and their supporters in their crude and sinister attempt to play petrol price politics to undermine Professor Mills’ government.

Michael Gyamerah, Ph.D., Houston, Texas.