Petroleum Downstream Sector Deregulation

Posted by Admin on 2009-01-05 13:22:27 UTC

Ever since independence, Government's involvement in Petroleum pricing and related activities over
the years has resulted in the under recovery of costs by the Tema Oil Refinery (TOR).
INTRODUCTION

1. In his address to Parliament on the State of the Nation delivered on 3rd February 2005, His
Excellency the President of the Republic had this to say about petroleum in Ghana, in the light of the
global increases in crude oil prices which have become common knowledge.

2. "This year government will take a decision on the deregulations of the petroleum sector. The
continued handling by government of the sector makes it difficult to respond appropriately to market
forces when necessary. At the moment the unrealistic pricing makes our petroleum products the
cheapest within our immediate neighborhood and prone to smuggling. Mr. Speaker, the general laws of
economic reality apply to Ghana and we cannot continue to pretend otherwise. Deregulation will free
government budgetary resources allowing it to cut down on borrowing and to increase allocation to
vital social services. It will also allow the private sector to assume the role of a service provider within
a well regulated environment".

He continued to say that:

3. "Initially this policy is bound to cause some shock to the system. In the short term, it is likely to
result in a rise in inflation. However, several studies have been made and we believe that with
goodwill and sound management, whatever problems will be encountered within the short term will be
surmounted, and the economy will be the healthier for this policy".

4. This is a basic backdrop for deregulations in Ghana and the adjustment in petroleum prices which
constitutes the essence of our meeting today.

DEREGULATION

5. The Government announced a policy of deregulation of the sector in the 2004 Budget with a view to
addressing the fundamental problems of the petroleum industry in the country.

6. The deregulation of the petroleum sector aims at removing the inefficiencies in the sector by
allowing private sector participation in the procurement of oil, which has previously been limited to
the Tema Oil Refinery. Under the deregulated regime, the private sector is now allowed to import
finished petroleum products (about a third of total oil demand) into Ghana through open and
competitive bidding. The first such tender for the import of finished petroleum products took place in
March 31, 2004.

7. The opening up of imports of refined petroleum products by private enterprises is a step towards
eventual full liberalization of the sector. The private sector will be encouraged to participate fully in
the importation of crude oil for processing by TOR for sale to the local market and for export.

8. Government will be putting in place the legal and institutional framework for the new petroleum
regime. Draft legislation governing the deregulation of the petroleum sector will be submitted to
Parliament for passage into Law.

9. Under the framework, the Oil Marketing Companies (OMCs) and other distributors will be able to set
retail prices for petroleum products according to a pricing formula and without prior review or
approval by any other authority. The pricing system will have parameters set to ensure that all costs
and applicable taxes are fully recovered.
10. The government will continue to be concerned that the poor should have access to essential
petroleum products (especially kerosene) on relatively favourite terms. This objective will be
effectively achieved through careful structuring of petroleum duties and flexible formula-based pricing
than it has been under the variable cross-subsidization inherent in TOR's pricing regime. The duty
structure being applied for the new pricing regime has taken into account the findings of a poverty and
social impact assessment study.

11. The activities of the OMCs and distributors in the industry will be subject to oversight by an
independent authority to be known as the National Petroleum Authority (NPA). The NPA will have the
power to intervene if the pricing formula is not applied appropriately. The oversight body will ensure
that consumers and the general public are also protected in the pricing regime.

12. The government has been engaged in consultation with all stakeholders in the petroleum industry
and the public can be assured that the best interest of the Ghanaian will be protected under the
deregulated market system.

13. As the government frees itself from the petroleum sector, resources hitherto used in subsidizing
petroleum products will be freed and channeled into other priority sectors including health, education,
agriculture, rural development etc.

14. National institutions engaged in the petroleum sector such as TOR will be revamped through private
capital infusion to enable them operate efficiently and competitively.

PETROLEUM PRICING

15. It is the end-product of government's deregulation exercise that market forces will determine the
prices of petroleum products under the eagle eye superintendence of the NPA. Nevertheless,
government, mindful of its initial responsibilities to shepherd the process to success, is currently
working closely with the National Petroleum Trade Board (NPTB). In the light of the existing pricing
formula, the following prices have been arrived at with immediate effect.

1. Premium 30,000/gallon
2. Kerosene 24,000/gallon
3. Gas Oil 26,400/gallon
4. LPG 5,700/kg
5. Premix 21,000/gallon
6. Marine Gas Oil 21,000/gallon

TRANSPORTATION CHARGES

16. Changes in the prices of petroleum products are mostly transmitted to the general public through
the charges that are levied by operators of the transportation system. On the previous occasions of the
major price adjustments in petroleum product prices, there had been a degree of disorder in this
transmission of the petroleum cost increases, resulting mostly in the general public having to pay more
than was justified by the increase in the cost of providing those transport services.

17. It has been agreed on all sides that the increases in transport charges will be pegged at the level of
30%. In arriving at the increases, the consultative team, comprising all road transporters and the
government, took into account vehicle operating costs, as well as the impact of transport fares on the
economy in general.

18. A schedule has been prepared by the transport operators which will be publicized throughout the
nation. This schedule provides a model for the transportation cost adjustments that should apply
nationwide. Government therefore expects an orderly rearrangement of charges so that there is
fairness throughout the system. We must thank the transportation industry and associations for the
spirit of national solidarity with which they took part in the multi-lateral consultative process which
constitute a hallmark in good governance.

THE IMPLICATIONS FOR COST OF LIVING AND WAGES

19. With the increase in prices of petroleum products we are aware that cost of living in the country
will go up. Government is not oblivious of the effect of this on the population especially the poorer
sections of the society. Government has therefore decided to take these measures to reduce the
burden of the price increase on society.

20. Wages and Salaries - Government is in consultation with all interested groups especially the TUC,
the Forum and the Employers Association to negotiate and adjust wages and salaries of all workers. The
Ministry of Finance will announce the details in his Budget Statement next week.

21. Public Transport - Government will increase the number of the new mass transport buses from the
current number of 354 to about 950 and spread them all over the country.

22. Government has decided to absorb the fees paid by parents at the primary and Junior Secondary
Schools.

23. Government will accelerate electrification of rural areas and improve electrification in other built
up areas in urban centers.

24. Government will introduce an improved hire purchase/credit system for workers to help them
purchase essential equipment.

CONCLUSION

25. It is out great honour to present to you a comprehensive solution to the complex and serious issues
facing this nation as a result of recent developments in the international petroleum market.

26. We must place on record the appreciation of the responsible political authorities for the unstinted
spirit of national solidarity that has been displayed by representatives of the participants in the
petroleum industry, the representatives of organized labour, and the private sector, in arriving at
consensual model that will permit all of us to work out appropriate responses to the extremely difficult
situation that confronts Ghana.

Thank you.