The government-planned reduction of margins in the price build-up by a total of 15p/ltr as a measure to stabilize fuel prices is akin to an average of 15 p/ltr suspension of the Price Stabilisation and Recovery Levy (PSRL) implemented months ago, and therefore reflects no major change in fuel prices.
Clearly, the new measures do not appear different from that of the suspension of the PSRL, in terms of the real effect on fuel prices; only a ‘replica’ of the PSRL. While the suspension of the PSRL reflects a change from the levies/taxes side in the price build-up, these new measures reflect changes from the margins side of the price build-up.
Like the suspension of the PSRL, which was made to run for three months, from November 2021 to the end of January 2022, the reduction of margins in the petroleum price build-up is also expected to run for three months, starting from April 1, 2022.
While these reductions in margins are expected to reduce prices of petrol by 1.6% and diesel by 1.4%, the PSRL suspension reduced petrol by 16 pesewas per litre, 14 pesewas per litre on diesel, and 14 pesewas per kilogram on LPG for the period.
In his address on March 24, 2022, Minister of Finance, Ken Ofori Atta, said:
“Unlike in other countries where the hike in crude oil prices and exchange rate volatility are leading to shortages in supply of petroleum products, government is implementing measures to guarantee constant supply of petroleum products. To mitigate the impact of the rising price of petroleum products at the pump, for the next three months, government has decided to reduce margins in the petroleum price build-up by a total of 15 pesewas per litre with effect from 1st April.”
Ken Ofori-Atta
The Minister also assured that, “the NPA is in discussion with the OMCs to reduce their margins within the spirit of burden-sharing. The Government will do all it can to ensure consistent supply of fuel and manage the rate of ex-pump price increase by ensuring that BoG has access to adequate foreign exchange.”
Times Have Changed
Meanwhile, a breakdown of these new measures include: a 2 pesewas per litre reduction in the BOST margin; reduction of the Unified Petroleum Pricing Fund (UPPF) margin by 9 pesewas per litre; a 1 pesewa per litre reduction in Fuel Marking Margin; and a 3 pesewas per litre reduction in Primary Distribution Margin (PDM).
It is worth noting that, times have changed. Periods when the PSRL was suspended, though had crude oil prices skyrocket, was characterized by the global conditions of: increased demand as economic activities rebounded, weather-related energy supply disruptions and restrained production from OPEC and its partners.
However, price movements have been exacerbated by the Russia-Ukraine crisis in addition to much of the previous conditions. Thus, requiring that more aggressive measures be taken to reduce fuel prices.
During the suspension of the PSRL, fuel prices declined only briefly and further rose in subsequent pricing windows. For instance, fuel prices of OMCs such as GOIL reduced from GHS6.90 in November 2021 to GHS6.60 in December 2021, reflecting a 4.34% decrease, it however, rose to GHS6.85 in January 2022, representing a 3.78% increase, though this means a net reduction in fuel price of 0.56 percentage points over the period.
Given the changing dynamics within the global oil and gas market, fueled by the ongoing geopolitical tensions, domestic fuel prices have risen by more than 4% on average since February, 2022, indicating that the expected 1.6% reduction in price of petrol and a 1.4% reduction in price of diesel per the new measures will only do so much.
Besides, experts who have continuously shared perspectives on the action the government could take to reduce the unabated rise in fuel prices have rather called for a removal or significant reduction in three levies/taxes in the price build-up; the PSRL, the Special Petroleum Tax (SPT) and the Pollution and Sanitation Levy.
Along these lines, an Energy Economist and Political Economic Analyst, Dr. Theo Acheampong, is cited to have said: “If we work on these three line items, we can get anything up to 20-25 per cent reduction overnight on these line items…”
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