The National Petroleum Authority (NPA) which is the regulator of the downstream oil sector on Friday, June 17, 2022 organised a workshop for journalists in the Ashanti Region to sensitize them about what goes into the pricing of petroleum products in the country.
The one-day event held at the Golden Bean Hotel in Kumasi brought together media personnel who work across various mediums and platforms in the country.
The issue of petroleum prices, and the rate at which they have been increased, particularly this year, has been an issue of national discourse.
It is for this reason, and many others, that the NPA decided to have a workshop for reporters on the formula for calculating these prices.
The Head of Economic Regulation at the National Petroleum Authority, NPA, Mr. Abass Ibrahim Tasunti statedthat the government of Ghana can only subsidize petroleum products if it has the ability to do so despite the hikes in petrol prices in the country.
“Subsidy in itself is not really a good thing; but because you the consumer, you’re only interested in the cheaper prices, but you forget that if the price is cheaper and the product is not available, you will not like that.”
He said that “for us, if the government wants to subsidize, the NPA as a regulator cannot say it would not allow the subsidy to pass, but it is for the government to analyze or assess its capacity to subsidize, but you must have the money before you can subsidize so that we don’t go back to the issue where you have subsidized, but there’s no money, and there’s a shortage”.
He further explained the NPA could only advise the government when it realizes prices are rising to use the Price Stabilization and Recovery Levy to cushion consumers, which the authority did last year.
Giving a presentation on the Price Formula in Ghana during a day’s capacity-building training for Journalists in the northern region on Monday (June 13, 2022), Mr Tasunti said Nigerian as an OPEC country, when they restructured their petroleum industry last year, decided to scrap subsidies on petrol by June this year.
“Why is Nigeria scraping subsidy on fuel? Most countries in the world want to scrap subsidies on fuel – it is not an easy decision to scrap subsidies on fuel, but it is very good for an economy.
About 70% of vehicles in Nigeria run on petrol; in Ghana, we consume more diesel than petrol, but in Nigeria, it is the other way round because everybody is using the fuel that is subsidized, but because Nigeria produces a lot more crude oil than Ghana does, that is why they’re able to use the revenue they generate from the crude oil export to subsidize the petrol prices for consumers and even that they say they want to scrap the subsidy because they aren’t able to afford the subsidy” he explained.
Mr Saeed Ubeidalah Kutia, the Head of Control, Quality Assurance Directorate, NPA, stated that Ghana had the highest standard of petroleum quality in West Africa and reiterated the commitment of the NPA to continue to deploy the Petroleum Products Marking Scheme to reduce adulteration of petroleum products.
“For instance, before the PPMC commenced in 2013, a survey was done, and the adulteration level was around 35 per cent but immediately after the policy started the adulteration rate went down to around 1.89 per cent and currently we are doing around 1.59 per cent. It has never been 100 per cent anywhere but it is about keeping it as low as you can.
He encouraged consumers to report to the Authority any suspected adulteration of petroleum products for investigation and action, adding that if it were established that that damage had been caused as a result of the adulteration, compensation would be paid to the victim.
Saeed Ubeidalah Kutia, gave an assurance that the authority will continue to put in quality control measures along the value chain to guarantee the integrity of petroleum products in the country.
The National Petroleum Authority has also urged consumers to report issues of fuel adulteration within 48hours for swift investigations and redress.
What Goes Into Petroleum Pricing
The prices of petroleum products on the world market are influenced basically by demand and supply fundamentals. Some factors that affect demand and supply are:
Geopolitics (especially in major oil-producing nations), demand from major oil consumers/economies such as the US and China, stock levels of petroleum products in the major world economies, new oil production technologies, strength of the US Dollar and weather among others.
Another component of the price build-up is taken up by taxes and levies. Taxes and levies are imposed on petroleum products by governments through parliamentary approval. Currently, there are levies and taxes such as the Energy Sector Recovery Levy, the sanitation and pollution levy, the Price Stabilisation and Recovery Lev, the Energy Fund Levy, the Road Fund Levy and Special Petroleum Tax.
Finally, there are the Margins, which are incorporated into the Ex-Pump Price Build-Up to cover various costs of distributing petroleum products. Some are statutory whilst others are not. Examples of the margins are, BOST Margin, Primary Distribution Margin, Fuel Marking Margin, Distribution Compensation Margin, Marketers Margin, Dealers/Retailers Margin, LPG Filling Plant/Premix/MGO-Local Admin Margin and many others.
Reasons for price deregulation:
• Unsustainable nature of subsidies and its impact on government finances.
• Delays in payment of accumulated subsidies resulting in the inability of BDCs to raise Letters of Credit to import products due to liquidity challenges created by the delayed payment of accrued subsidies.
• Foreign exchange (FX) rate losses arising out of rapid depreciation of the Ghana Cedi against the US Dollar.
• Unavailability of foreign exchange to cover oil imports since all BDCs depended on the Bank of Ghana for US Dollars to pay international suppliers.
NPA’S role in a deregulated pricing environment
• Ensure that BDCs and OMCs set prices in accordance with the prescribed petroleum pricing formula.
• Determine the price benchmarks BDCs must use in setting the ex-refinery price of each petroleum product.
• Provide the template that OMCs must use in the determination of their ex-pump prices for every window.
• Review Ex-Refinery prices and Ex-pump prices set by BDCs and OMCs before they implement them at the pump.
• Conduct regular price monitoring exercises to ensure that retail outlets of OMCs and LPGMCs are not selling petroleum products to consumers above the prices set by their companies.