Business in Ghana

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Posted by Business in Ghana on June 21, 2014

By Matthew Mpoke Bigg,

ACCRA, June 20 (Reuters) – Ghana’s government reintroduced fuel subsidies in April, without announcing the move, and has spent around $85 million since then in extra payments, the head of the Chamber of Bulk Oil Distributors (CBOD) told Reuters on Friday.  The subsidies were scrapped early last year in a bid to reduce the budget deficit and restore macro-economic stability in Ghana, a country that exports oil, gold and cocoa and has seen five years of rapid economic growth.  The reintroduction was not publicly announced and senior government officials were not available for comment.

But the CBOD’s chief executive Senyo Hosi said the fuel importers his organisation represents know about the subsidies because they show as a line in the pricing structure they regularly receive from the National Petroleum Authority (NPA).  “From April 16, they have been doing that massively …. The government has spent roughly $85 million in fuel price subsidies in the second quarter which is not accounted for in the budget,” he said, citing NPA figures.  The new subsidies are around 13 percent of the combined total of the global market price plus the amount added by government in taxes and levies, he said. T he full cost to the government, however, may be higher once the impact of the currency depreciation is taken into account.  Other industry sources, who asked not to be identified, confirmed the reintroduction of the subsidies.

It is possible the decision was made to shield Ghanaians from the full cost of fuel given that inflation stood at 14.8 percent in May and the currency, the cedi, has depreciated nearly 30 percent this year.  At the same time, the government is under domestic and international pressure to show it is doing all it can to tackle the country’s fiscal problems.  “It doesn’t send a very good message.  I’m not sure how long they can afford to keep this up.  They are under so much pressure already,” said Melissa Verreyne of NKC Independent Economists in South Africa.

Ghana’s reserves of oil for domestic consumption normally stand at around four weeks but have fallen to just one week because banks are refusing to extend credit to importers due to outstanding government payments, Hosi said.  “The bank’s are withdrawing funding because we owe them so much. The government’s money owed to us is the major source of our liquidity loss,” Hosi said, adding that consumers could start to see a petrol shortages at the pumps.  Ghana imported 3.39 million tonnes of petroleum products last year, up 6 percent on the previous year, Hosi said.  Spending on oil imports rose 6.6 percent in 2013 to $3.6 billion, central bank governor Henry Kofi Wampah said recently.  Hosi argued that government oil subsidies down the years could have been better spent on developing infrastructure.

The debt owed bulk oil distributors in the first four months of the year stood at 172.6 million cedis ($57.6 million), according to a senior NPA official.

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