NPA is its own enemy
Last Sunday, the price of petroleum products went up by between four and 9%.
It means a gallon of petrol is going for GH¢15. When crude oil was $115 per barrel, a gallon of petrol was sold for GHȻ15. Now, the price of a barrel of crude is around $60.
The increase was greeted with a lot of criticism, but the question is why?
The National Petroleum Authority (NPA) should take the blame for the kind of reaction that greeted the price increment.
This is because crude oil prices dropped by nearly 60% since June 2014 as production around the world soared, outstripping demand at a time of lacklustre global economic growth.
Ironically, Ghanaians have enjoyed only 12% reduction in the prices of petroleum products.
Some critics have been quick to rubbish the 12% reduction considering the nearly 60% drop in the price of crude oil.
At the time, the NPA argued that it has to save to pay for under recoveries incurred through subsidies when prices were on the ascendancy.
The NPA was warned that once it refuses to reduce prices significantly, any attempt to increase prices when crude oil prices begin to rise would be resisted, but the NPA did not listen to good counsel.
Under the International Monetary Fund’s (IMF) three-year bailout programme, subsidies for utilities and petroleum products are to be fully eliminated through strict implementation of tariff and price adjustment mechanisms (quarterly and bi-weekly adjustments for utility tariffs and petroleum products prices respectively).
Currently, the cost of levies, VAT and distribution margins sum up to 42.10% and 39.87% on the prices of petrol and diesel respectively, according to industry watchers.
Already, Special Petroleum Tax of 17.5% was imposed on selected petroleum products in November last year.
In addition, an adjustment of the Energy Fund Levy on petroleum products from Gp0.05 to Gp1.0, part of which would be used to establish the Renewable Energy Fund, is expected to result in increases in the prices of petroleum products.
The mitigation levy and this will sharply increase these percentages and further worsen the deteriorating living standards being experienced currently.
The severe impact of Special Petroleum Tax of 17.5% and the mitigation levy being proposed by government will be felt when prices of crude oil begin to rise.
Also, subsidies on petroleum products, totalling GH¢50 million in the budget, have been scrapped as part of the bailout plan.
The scrapping of these subsidies is likely to inch up petroleum prices further for 2015, irrespective of changes in the price of petroleum prices on the international market.
Judging from the kind of resistance the 9% increase has faced, how the NPA can carry through the expected increases in the future, only time will tell.