PAYING REALISTIC FUEL PRICES (JUNE 3, 2009)

THE upward adjustment in the prices of petroleum products has been a subject of controversy in many countries, especially those that do not produce oil.
This is largely because it tends to have a cyclical effect on the economy. That is, it triggers rises in the general price levels of goods and services and this can contribute to an appreciation in the rate of inflation and adversely affect economic growth and development.
It is worth pointing out that since 1973 when the Organisation of Petroleum Exporting Countries (OPEC) gained root as an oil cartel and strengthened its hand in the determination of oil prices and output on the global scene, the issues of oil and its pricing have taken centre stage in the economic management of governments the world over.
For many developing, non-oil producing countries such as ours, escalating oil prices, accompanied on many occasions by falling primary commodity prices, have wreaked devastating havoc on their economies.
These have created significant deficits in the balance of trade, balance of payments and the Gross Domestic Product (GDP) which combine with other unfavourable macro-economic factors to undermine the standard of living of the people.
In Ghana, the adoption of the policy of deregulation by which the management of the pricing and import of petroleum products was ceded to the private sector, in conjunction with the National Petroleum Authority (NPA), in 2001, is designed to recover costs and ensure the steady supply of the product.
This, in essence, has brought with it the phenomenon of full cost recovery by way of passing the full cost of imports, taxes and margins for distributors to the consumers.
While this may appear to make economic sense, the reality is that governments have a primary responsibility to prevent a deterioration in the quality of life of the people, including intervening in the market where this threat is ominous.
Currently, our economy is not in a good shape to support either the retention of the current price levels of petroleum products or the payment of subsidies to cushion the people against expected price hikes.
Already, the government, in the face of accumulated debts to the Tema Oil Refinery (TOR) and oil marketing companies (OMCs) from under recovery last year, has had to cough up an average of more than $12 million monthly to service these debts and enable these companies to continue to import oil.
These debts, together with other outstanding debts in the oil sector, the continued increase in the price of crude oil on the international market and the fall in the value of the cedi relative to the dollar, make the justification for an upward review in the prices of petroleum products compelling.
It is an open secret that at the current level of fuel prices, ours remain the cheapest as far as prices in the sub-region are concerned, in many instances between 40 and 60 per cent cheaper.
This has already triggered the smuggling of the products to Burkina Faso, Mali, Niger, Togo and Cote d’Ivoire. Through these negative activities, Ghanaians are subsidising petroleum consumption in these countries and this is not good for our economy.
We believe that Ghanaians appreciate the country’s current economic situation and the global trend and will come to terms with an upward review, unpalatable though it may be.
This notwithstanding, we believe that the government, at a point, will have to act to ensure that such upward reviews are not done as a matter of ritual to undermine the standard of living of the people.