Terkper cautions gov’t over fuel subsidies

Seth Tekper, former Minister of Finance under President John Mahama's administration

Former Finance Minister, Seth Terkper has cautioned government of the risk of huge subsidy debts and its potential to hurt the economy and collapse the energy sector of the economy should government resume paying petroleum levies.

The National Petroleum Authority (NPA) is planning to use proceeds of the Price Stabilisation and Recovery Levy (PSRL) to stabilise prices of diesel and liquefied petroleum gas (LPG). A development, Mr. Terkper believes will be unsustainable and ineffective, resulting in huge energy sector debts.

Mr. Terkper in a statement advised that Ghana would be better-off, if government used the stabilisation levy to build strategic stocks for future use and stabilise prices.

A recent directive by the Ministry of Energy (MoE), asking the NPA to use the PSRL as a price stabilisation mechanism to manage the fluctuation of prices at the pump.

Already, some experts and members of Parliament (MPs) have argued that the inclusion of the PSRL in the pricing structure under a separate Act of Parliament should go to Parliament for approval.

In a letter dated November 30, the MoE directed the NPA “to, as a matter of urgency, apply the PSRL to manage the ex-pump prices in the price build-up to ensure that prices are stable as an interim measure”.

The directive was said to be in line with Section 2 (b) of the Energy Sector Levies Act (ESLA) 2015 (Act 899), which requires that under-recoveries, in times of rising prices, should be financed from the PSRL and over-recovery, in times of falling prices, should be transferred to the fund.

Following the ministry’s recent directive, the NPA on December 1, announced a 70 per cent drop in prices of diesel and LPG. It further directed oil marketing companies (OMCs) and LPG marketing companies (LPGMCs) to apply the revisions in their price build-up, effective that day.

While this provides some relief to consumers, Mr Terkper, who oversaw the passage of the ESLA in 2015, said such a directive was alien to the ESLA law, which is not specific on using the PSRL to affect the petroleum price build-up, the components of which are regulated by a separate act.

He said the law rather called for the setting up of a special fund, which he started using from 2016 to build strategic stocks.

He noted that that section of the act on stabilisation was explicit with respect to payment of subsidies for only LPG.

He also wondered if the Minister of Finance had issued any directive to the Energy Minister for the use of the funds to pay subsidies.

“We need to understand that it is only the Minister of Finance who is authorised to manage and apply the funds,” he stated.

Beyond what Mr. Terkper, considered as legal lapse, the latest application of the PSRL was not sustainable and could be injurious to the economy, should the ESLA be terminated as envisaged.

“If you give the funds to the BDCs and OMCs through the price structure, the payment of subsidy will return when the PSRL is terminated and exhausted, unless we make it a perpetual tax.”

“However, under the buffer stock system, we would have been buying at low crude prices and selling when the price is high. If the low and high selling prices are managed well, as is done in some advanced and middle-income countries, a self-financing buffer could result from ploughing back the profit or margin and Ghana can even export from the stocks in times of excess,” he noted.

Mr. Terkper said prior to leaving office in January this year, the Ministry of Finance was facilitating an arrangement between the Ghana Infrastructure Investment Fund (GIIF), the Bulk Oil Storage and Transportation Company Limited (BOST) and the Ghana Oil Company (GOIL) to build more farm tanks across the country to store strategic stocks, using proceeds of the PSRL buffer margins and GIIF Petroleum Fund (ABFA) allocations.

Beyond cushioning prices in times of increments, Mr Terkper said a well-managed strategic stock system could become an avenue for exporting to landlocked countries, thereby creating an additional revenue-generating measure for the state.

However, with the current system, he feared that the government was indirectly including subsidy in the price build-up, which could return to hurt the economy.

Until mid-2015 when fuel subsidies were scrapped, it was estimated that the country was using about GH¢2 billion to subsidise prices of petroleum products, ostensibly for the poor.

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