Guinness, Cigarettes, and Petroleum Politics in Ghana

Hard to believe but it’s within living memory that the Ghanaian government was
so pervasive and meddlesome that it was setting the price of virtually
everything, including Guinness.


In the 1979-80 budget, for example, bureaucrats in Accra decreed that “Guinness
stout” was to be sold for “¢3 in bars, ¢3.30 in hotels, and ¢3.50 in
discotheques”, up from ¢2.10, ¢3.20, and ¢2.60, respectively.

But that was only the tip of the government’s long arm for micromanagement of
the economy. With painstaking detail, these dedicated bureaucrats proceeded
to list new prices for 11 brands of cigarettes!


And then on petroleum “price adjustment,” in language that presaged what we
would hear 30 years later, the government offered the following
rationalization.


“The last time government adjusted the ex-pump price of petroleum products was
in September 1978 when the world price of crude oil rose to about $14.10 or
¢38.78 per barrel. Since then, there has not been any adjustment in ex-pump
prices in spite of the large increases in the world price of crude oil.”


Government, we were told, “had to subsidize petroleum consumption” to the tune
of “¢40.00 million per month”, making it difficult to “obtain sufficient funds
for the provision of essential services”.


With that preamble, the ex-pump price was raised by nearly 115% to ¢7.5 per
gallon. The price of kerosene, which the government claimed to be subsidizing
for “the rural population,” was increased by 250%.


Now, fast-forward to January 4th 2011, when the CEO of the National Petroleum
Authority, Alex Mould, proffered his own justification for an impending
petroleum “price adjustment”.

“Prices”, he said, “were fixed from October 31, 2009 to date. Within the
period, crude prices have increased by 23% and most of the products [sic] have
also increased about the same magnitude”

He then announced ex-pump price increases “in the regions of between 25% and
30%”, explaining that “the TOR debt recovery levy which Parliament approved
before Christmas” in order to “retire debts owed by the country’s only refinery”
was one of the factors responsible for the hike.

If the bit about TOR debt sounds familiar, that’s because we’ve heard it all
before, as in a 2001 memo sent by the government to the IMF:

“In order to halt the ongoing losses at TOR, the government raised ex-refinery
gasoline prices by an average 91 percent in February 2001, with immediate
effect. In April, the Public Utilities Regulatory Commission (PURC) allowed the
Electricity Company of Ghana (ECG) to raise the retail price of electricity by
96 percent and Volta River Authority (VRA) to raise its wholesale electricity
price by 100 percent.”
In justifying another price increase two years later, the government declared in
the 2003 budget:
“A Debt Recovery Levy will be imposed on the use of petroleum products. The
proceeds from the levy will be placed in a Sinking Fund and used to repay the
accumulated debt of TOR incurred from selling petroleum products below cost in
the past. This is urgent in order to reduce the systemic risk posed by the
large debt of TOR to the Banking Sector and the economy.”
Virtually every budget statement thereafter had a variation of this tortured
justification for raising petroleum prices ostensibly to save TOR and help the
rural folk.


We have since learned that a significant portion of the proceeds from the levy
was used not to retire the TOR debt but to finance a “government communication
strategy” in 2008, an election year. And poverty in the rural areas, according
to the 2005/2006 Ghana Living Standards Survey, actually went up, not down.


Tellingly, the people responsible for this deception and diversion have been
among the most vocal in condemning the latest price hikes and accusing
government of deceiving Ghanaians while ignoring their own record of two-timing
the Ghanaian public.

Now, Ghanaians are left to wonder: Are all politicians forked-tongue creatures
who habitually say one thing but do another, or do they, once in power, operate
under “circumstances beyond their control”?


The answer may be found in the “dual constituency problem”, where leaders of a
country like Ghana that depends on the charity of others for its development
must necessarily serve two masters whose interests do not necessarily always
coincide, if they do at all.


One constituency is the electorate to which politicians make flowery and
seductive promises in order to win power. This constituency has the power to
elect but little money to finance development.


And then there is the constituency of international financial institutions and
donors who have no electoral power but the money to finance our development in
return for conditionalities like “realistic petroleum prices”.


The result is the politics and hypocrisy of petroleum pricing.

The most practical solution to this conundrum is for government to get out of
the petroleum pricing business and let consumers directly reap the rewards and
challenges of competition – open, honest, well-regulated competition. Just as
it was unwieldy and ultimately unsustainable for government to be setting prices
for everything from Guinness to cigarettes to a long list of “essential
commodities” like soap and matches, so has it become increasingly illogical for
government to insist on setting prices for a product over which it has little or
no control.

We need a new and more pragmatic petroleum pricing regime that would give petrol
stations the freedom to set their own prices (possibly within a band), subject
to strict laws against collusion and price fixing and supplemented by laws
against potential government abuse, such as the diversion of the benefits of
falling oil prices that should properly go to consumers.


A timetable for the eventual retirement of the TOR debt must be published both
to tame public anger and restore some confidence in state institutions.


For the long term, we need structural reforms to promote energy conservation and
stimulate economic growth, especially in the rural areas, where over 30 years of
subsidized kerosene consumption (which is paid for from higher premium prices)
have failed to make life better.

Since most rural dwellers use kerosene mainly for lighting, the logical response
to failed subsidies is to accelerate the decades-old rural electrification
programme not only to provide light but also to help transform rural economies
through increased industrial activity.


Proper transportation planning (not the mere expansion of roads which does not
necessarily reduce traffic) must consider current and future patterns in human
settlements and economic activity and their implications for energy consumption
in general; the Energy Commission must intensify public education on best
practices in energy use for enduring behavioral change.


Unless such bold and innovative options are pursued, the charade of politicians
speaking from both corners of their mouths, and a cynical population growing
ever more cynical, would continue to gnaw at the essence of governance.


And that would be bad for our young democracy.

By Nii Moi Thompson (niimoi@yahoo.com)