Cartelization of BDCs Should be Checked -CUTS Ghana

Press Release, Wednesday 20^th May, 2015

Consumers of petroleum products have been taken aback by the National Petroleum Authority (NPA) decision to increase petroleum prices by about 9% on average, which took effect from 17^th May, 2015. This increment has come at a time when Ghanaians least expected an upward surge in the price.

With the automatic adjustment formula, fuel prices ought to be reviewed regularly when there are changes in the pricing components . What Ghanaians find to be strange is the way the government and the NPA have been handling price adjustment.

From the latter part of last year to early part of this year, the prices of crude oil plummeted in the world market from a previously high price of USD 106 per barrel in 2014 to USD 46 per barrel . However, the NPA and the Finance Ministry told Ghanaians that the falling prices could not be passed on to consumers because of the debt owed to the Bulk Distribution Companies (BDC).  On 24^th February, 2015, the Chief Executive Officer of the NPA, Mr Moses Asaga, said that the authority had settled the GH 412 million debts it owed the BDCs.

After the NPA had settled the BDC arrears, the prices at the pump were still kept the same and every cry by the public to get the prices down never made sense to the NPA. The President and the Finance Minister suggested that the petroleum pricing formula was to be reviewed to include a mitigation fund.  They argued that such a levy would ultimately help stabilize fuel prices on the local market when oil prices on the world market soar in the future. Though this discussion never went beyond the implementation stage, one thing was clear: the NPA did not collect exactly GH 412. That is to say that the authority collected more than it was required and the public fund and the public needs to be informed how much was accrued. The effrontery to keep the prices the same at the time when any sound arithmetic suggested otherwise constitutes fraud!

It is regrettable that Ghanaians are paying more for petroleum products at a time the country is a net importer of crude oil. Again, the situation we find ourselves in Ghana is a paradox. There is an overreliance by the government on petroleum revenue, hence, Ghanaians suffer more when the prices of the crude goes down in the world market and government is unable to meet its projected revenue targets . Meanwhile, when world market prices surge, the government and its agencies are quick to pass on the increase to the pump prices. The craze of unreasonable expectation from petroleum receipts should be managed to some extent.

Key Recommendations

1.      Suspension of the special petroleum taxes of 17.5%

Last year, on the backdrop of the falling prices of crude oil, Government through a certificate of urgency requested that a special petroleum levy of 17 .5% be put on petroleum products . This, according to the Finance Ministry, was to rake in about GH 1.4bn. At a time when the country is being trampled by an iron foot of severe energy crisis and most businesses have to rely on diesel or petrol-run generators, suspending the special taxes would help businesses to stay in business. It is far better for government to shed GH 1.4bn on this than to allow industries and businesses to overheat and suffer liquidity crisis. This would keep production lines humming again. Currently, the country s GDP has started falling due to the effect of the energy crisis. By allowing business to have breathing spaces would mean that more workers would be on payroll. This would also reduce our imports, while government taxes on payroll and VAT on finished goods would compensate for the suspension of the special petroleum taxes. This is prudent economics.

2.      NPA must be transparent with the automatic adjustment formula.

Determination of the prices of fuel by NPA should not be an issue of discretion by the NPA. The cherry picking by the NPA is grossly unfair to consumers. It violates every rule of fairness! At the time when world prices were low and that substantial reduction of pump prices would have saved consumers some cedis and peswas, the NPA allowed itself to be used by the government to keep prices beyond market prices. Now this same NPA has come out to review prices up simply because it believes that prices are going up in the world market and Ghanaian consumers cannot be taken for granted.

3.      Cartelization of BDCs Should be Checked

The essence of the petroleum sector de-regularization was to bring about competition in the industry and thereby result in competitive prices at the pumps. However, this has not been achieved and can never be achieved if the collusive tendency by the BDCs remains unchecked. So far, it appears that the BDCs have taken the country for a ransom and anytime they threaten the NPA, the authority panders to their threats by increasing prices simply because of the fear that their actions would affect the supply equation of petroleum products. In a functional competitive environment, it is illegal for businesses selling the same or similar products to agree on prices or fees for goods and services. This is price fixing. So far, it will not be an exaggeration to say that the BDCs exist as a cartel in the country, and their actions always leading to price hike. Parliament through an appropriate legislation must act to save the country from these antitrust elements of the BDCs before things spiral out of control.

4.      The right to know: the NPA must disclose more

As at now, the NPA pricing approach is not completely known to the public. A complete breakdown of all the charges that Ghanaians are paying would help clear any fog of suspicion held in the people s mind, and restore people s confidence in the NPA.

5.      Prudent microeconomic stability is the key to the stable prices of the petroleum produces.

The NPA s main reason for this upward adjustment is the Cedi depreciation against the Dollar. Ghanaians find it so irritating when the Finance Minister justifies price increase to the depreciation of the cedi.  The duty of every government is to achieve strong economic fundamentals and not to turn around and justify price increase as result of failing economic fundamentals . If the economic fundamentals were to be right, a gallon of petrol could be sold less than GH 5.