Government’s revenue targets from oil and gas for 2020, already facing doubts as Tullow cuts production by about 30 percent, have been further hit with a 25 percent plunge in global oil prices.
Markets opened yesterday with crude prices falling from an already coronavirus-affected price of US$50 per barrel to US$32 – the biggest single day drop since start of the Gulf War in 1991. The price collapse was the result of Russia and Saudi Arabia’s inability to agree a deal between them to cut production and keep prices at an appreciable level.
As global stock and futures markets decline, the government of Ghana is also worrying about the effect of a price collapse on its oil revenues – which it hoped and predicted in its 2020 budget to raise US$1.2billion from royalties, corporate income tax, carried and participating interest, and surface rentals.
“If the international oil price should stay around the US$30 per barrel mark till end-year, Ghana’s government is less than likely to get even half of its projected revenue for 2020,” Paa Kwasi Anamua Sakyi, Executive Director of the Institute for Energy Security – an energy think-tank, told the B&FT in an interview. The situation, he noted, could be further compounded by low oil production, as evident in Tullow’s revised production targets.
To Mr. Anamua Sakyi, the collapse of oil prices should be bitter-sweet for the government and Ghanaians. On the one hand, a deregulated market should lead to drops in fuel prices at the local pump stations and on the other, reduced revenue to government; but that is not the current situation on the ground.
“Aside from the fall in international fuel prices by more than 50 percent, the country has experienced an appreciation of the local currency against the US dollar by more than 5.5 percent; thanks to the Coronavirus and OPEC+ decisions.
“One would have expected that these two variables would produce a substantial reduction of fuel prices at the pump, in order to support positively the disposable income of Ghanaians. But consumers may not experience that substantial gains, as oil marketing companies (OMCs) are unwilling, due to what they claim as ‘depressed margins’,” he said.
As a result, Mr. Anamua Sakyi explained that the country is losing out on low oil prices induced by both the Coronavirus and OPEC+ decisions from two ends – a loss in projected revenue, and loss of the possibility of much lower fuel prices.
Consumer Protection Agency wants fuel prices to drop
In a swift reaction to the sharp drop in oil prices, the Consumer Protection Agency (CPA) has called on OMCs to respond to the market trends and reduce the price of fuel at the pumps with urgency.
“It is very much surprising that the oil marketing companies adjust prices upward immediately there is a little shift of the factors which determine prices on the world market, but are reluctant to reduce prices when those factors drop.
As at November 2019, crude on the world market was trading at US$63 per barrel, but has however dropped to between US$45 to as low as US$31 per barrel…also, the cedi to dollar which was trading at GH¢5.9 in November 2019 is now trading at GH¢5.3.
With these factors available to us, the oil marketing companies and BDCs have no justification not to reduce prices – but they are taking advantage of the poor consumer and making abnormal profits,” the CPA said in a statement signed by its Head of Complaints, Benjamin Akoto.
The CPA therefore urged the regulator to ensure that consumers are not taken advantage of at the expense of fair-trading practices. “The CPA therefore experts nothing less than a 10 percent reduction of oil prices in the country.”