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Opinions of Thursday, 5 November 2009

Columnist: Kutando, Ouborr

Should the president go to Cape Coast or to Elmina?

All over the country, the recent 5% increase in fuel prices are stoking popular anger, the ruling NDC administration is facing the brunt of even their supporters, opposition are using their propaganda machinery to look for scapegoats and policy makers are looking for solutions.

Should we as nation continuously play petrol politics to the detriment of harnessing the huge potential in guaranteed tax revenue from the energy sector that we need for development? I think we should be circumspect and holistic in dealing with these issues.

Yes, the NDC government has increased oil prices and disposable incomes of Ghanaians have been cut as a result. Yes, they lied they will reduce petrol prices drastically when they desperately wanted power. But with all seriousness, oil is an internationally traded commodity and for Ghanaians to enjoy it, we must be ready to pay international prices to get our share. Even when we finally begin drilling our own oil, Ghanaians will pay OPEC determined prices for crude oil.

The arguments that the Mills Administration are making were the same arguments the Kufuor administration continuously made when they were in power. But the politicization of petroleum issues and selfishness of our politicians have always made the shoe look very ugly on the other foot.

As a nation, we should look at the issue holistically and work towards longer term solutions to solve these problems and educate the citizens that, just as no president can make rain fall at their wish, they have no control of fuel prices and can never reduce them drastically against world prices. With all sincerity, the Government has little influence on global crude prices. Cutting or freezing fuel duty is possible but is it a good policy? will it benefit the majority poor? Or will it just benefit the oil companies, distributors and the small middle and upper class who own all the vehicles? In evaluating public policy options available to the government for the rising fuel prices, its common knowledge most Ghanaians support policies to reduce fuel prices by subsidies or reduced taxes. But price-minimization policies are likely to harm the ordinary Ghanaian and the economy in totality by increasing total fuel consumption and vehicle travel, and associated costs such as infrastructure costs, eroded revenues, traffic crashes, import costs and the emission of more pollutants.

In 2004, the Kufuor Government spent about ¢1,872 billion ($200 million) to subsidize the consumption of petroleum- higher than the ¢1,449 billion budgeted for the 2004 Ministry of Health and equivalent to the total HIPC relief for Ghana. Fuel price reduction is not the silver- bullet to mitigate the suffering of all Ghanaians, other carefully thought strategies can benefit Ghanaians more.

Policies that will gradually and predictably increase fuel taxes, transport policies that will strategically improve and increase public transport systems efficiency, incentives to encourage fuel efficient vehicle use, and development of alternative fuels and alternative forms of transport will maximize total benefits and make ordinary Ghanaians better- off. If these difficult and yet carefully crafted long term policies are instituted, fuel prices could more than double and Ghanaians and the economy will not feel the impact.

It is true that fuel prices have increased significantly in recent years and are likely to rise more in the future. Between 2000 and 2009 average Ghanaian gasoline retail prices have increased significantly, from ¢6,400 per gallon in 2000 to ¢53,000 per gallon currently and fuel prices rose from $ 27.72 per barrel in 2000 to $142 per barrel in 2008 and presently around $80- but it is imperative for us to carefully define the problem in other to develop and implement optimal policies. We can take ad hoc and short term measures to curtail the excessive financial burdens in the country but do we want to continuously take ad hoc measures? Long term solutions are painful and may seem undesirable because they do not solve the problem now and do not appease voters. But a short term solution such as fuel tax reductions exacerbates other economic, social and environmental problems.

Political adversaries of the ruling government are having a field day with their propaganda machinery against long term solutions. Among other arguments, they are arguing that the high fuel prices are harming the economy and overburdening consumers. It is true, but 70% of vehicles in Ghana are located in Accra, Tema, Kumasi and Takoradi- which are not the high poverty zones in the country. Therefore, the relatively well-to-do minority will benefit more than the majority poor. When we look back, fuel subsidy policies by the NDC Government in 1999 did more harm than good to the ordinary Ghanaian. Among its effects were the shortages, long queues, hording, smuggling, huge Tema Oil Refinery debt and it slammed the door on economic gains as it raised inflation from 13.8% in 1999 to 40.5% by the end of 2000. The government can take to other pro-poor policies offset the impact of rising fuel prices. It’s just prudent for the government to look at policies that reflect future needs, increase overall efficiency and help solve multiple problems for Ghanaians.

If I was the president, I would first come out to apologize to Ghanaians for reneging on my campaign promise (at least for now) and explain that the realities of governance are totally different from political campaigns.

Then, I will stop the blame-shifting and hit the ground running with my better Ghana agenda to attain long term maximum benefits for Ghanaians with robust petroleum policies that would withstand the test of the times. This will prevent the president himself and future presidents the conundrum of always deciding whether to go to Cape Coast or to Elmina.

Yes! financial discipline at Tema Oil Refinery is the first step. Then, we will need to develop an efficient and cheap public transport system (am sure the Ministers got great insights when they boarded the trotros) to reduce our over dependence on fuel, explore opportunities to exploit renewable energy resources such as wind, solar, and geothermal power, provide tax relief’s for fuel efficient vehicles, develop other forms of transport by providing walking and bicycle lanes and encouraging car pooling among others.

And to answer the earlier question, I believe President Mills being a man of great integrity would have loved to drive straight to Elmina to appease Ghanaians but just like the village money lenders who would decide what a family who owes money should eat for dinner, the International Monetary Fund (IMF) will always pressure the Mills government to take that difficult road to Cape Coast.

By Ouborr Kutando