Gov’t must take a decision on rising fuel prices: public interest is paramount

Oil Marketing Companies (OMCs)

It is rife for government to take a decision on fuel prices keeping in mind the interest of citizens with respect to quality of life.

Over the past couple of years, prices of gasoline, gasoil, and liquefied petroleum gas (LPG) have been subjected to constant increases at the pump, placing financial strain on consumers and households. The hike in fuel prices is adding to the cost of living, with inflationary pressures hitting businesses in the country.

Similar economies in Africa, such as Kenya, South Africa, Tanzania, Togo and Egypt may not be hit as hard as what is presently being experienced in Ghana. These countries have found ways to manage the key determinants of domestic fuel prices – being government’s taxes/subsidies on fuels, the international prices of oil, and the value of the local currency against the US Dollar – so citizens are not badly hit.

The condition for Ghanaians has worsened since the beginning of the year – on the back of particularly the Cedi’s constant depreciation and rising international prices. Consumers are being squeezed at a time when the Ghanaian economy should be recovering from the COVID-19 pandemic, which bodes ill for the recovery.

Oil Marketing Companies (OMCs) are set to implement a new round of steep price hikes, beginning Wednesday 16th March, 2022; reckoned mainly on the fall in value of the Cedi against the US Dollar and international oil prices, to move Gasoline price to at the very least, Gh¢10 per litre, if government fails to intervene.

While the Ghana Cedi continues to record declines in value against the greenback, fuel import prices keep surging. Gasoline’s price on the world market rose by 19.28 percent from its initial price of US$917.48 to US$1094.33 per metric tonne over the past two weeks – representing a total addition of US$176.85 per metric tonne. Gasoil price followed a similar path, increasing by a whopping 34.57 percent to reach US$1137.78 per metric tonne over the period.

On the back of these happenings, Ghanaians can expect hefty cost adjustments at the petroleum pumps for the 6th round this year, with new records being set on bi-weekly basis in the coming months, should government fail to act decisively in the interest of citizens.

Government must learn from countries in Africa with similar economies, who have effectively managed the shocks from the international oil market, and all the domestic factors that determine fuel prices, to relief consumers from the price nightmare.

Experiences of other African Countries

A monitoring report from IES Research Analysts shows that, already prices at the pumps have incurred a net increase of Gh¢1.8 per litre (27 percent) for both gasoline and gasoil, since start of year, and for five (5) consecutive Pricing-windows. Referenced to March 2021, the report reveal that price of both gasoline and gasoil have surged by roughly Gh¢3.33 per litre, suggesting a 65 percent rise.

While gasoline cost per litre in Ghana has surged by roughly some 65 percent between March 2021 and March 2022, Kenya, South Africa and Egypt have recorded gasoline price jumps of approximately 14 percent, 34 percent and 26 percent respectively, within same period.

The differences in prices across the listed countries are due to the interventions of respective governments to the rising international oil prices, and the extent to which local currencies are managed against the US Dollar.

Since March 2021, when 95-octane gasoline stood at 7.53 Egyptian pounds (US$0.48) per litre, Egypt has recorded just four (4) fuel price increases, in contrast to Ghana’s fifteen (15) price jumps. The first was in April 2021 (EGP8.75), second in July 2021 (EGP9.0), the third in October 2021 (EGP9.25), and the fourth hike was recorded in February 2022 (EGP9.50), and the price has since remained stable.

The price increases were largely as a result of surging prices of Brent crude, and to lesser extent, the falling value of the Egyptian Pound against the US Dollar. The price of 95-octane gasoline has since February 2022 stood at EGP9.50 (US$0.60) per litre, translating into a price rise of 26 percent from March 2021.

But for the lifting of fuel subsidies as part of loan conditions set by the International Monetary Fund (IMF), fuel prices in Egypt could have been much lower than what is presently the case.

In Kenya, gasoline prices have remained largely unchanged since February 2021 due to a combination of factors, including application of price subsidies, the prudent management of foreign exchange (forex) exposure, and lowering of product discharge cost.

In percentage terms, fuel price has climbed by some 14, moving from KShs115.18 per litre in February 2021, to KShs 131.63 per litre in early March 2022.

Save for September 2021, that saw 95-octane gasoline selling at US$1.21 per litre, the price of the commodity stayed below US$1.16 per litre since March 2021. Gasoline cost climbed in September 2021 to reflect global increase in the crude prices, and reluctance of authorities to draw from a Price Stabilisation Fund (PSF) as they did in previous months to keep prices steady, regardless of international oil price fluctuations.

Since then, prices haven’t recorded any upward increase due to government’s compensation to fuel marketers for cutting their margins and quoting lower prices through its fuel subsidy initiative using the Stabilisation Fund, and the prudent management of the local currency against the US Dollar. The cushioning of customers from otherwise high cost is partly attributed to reduction in landed-cost for fuel import, and the utilisation of the Petroleum Development Levy.

In South Africa, the price of inland 95-octane gasoline is currently recorded at R21.60 per litre compared with R16.15 in March 2021, suggesting roughly a R5.5 per litre (34%) jump over the past one year, with prices largely affected by international oil prices and local taxes.

Recent price increases are mainly attributable to rising international petroleum prices as a result of Russia’s invasion of Ukraine, and an increase in the slate levy by a further 15 cents per litre in February 2022.

Since beginning of year, the South African Rand has appreciated against the US Dollar on average, when compared to the previous period, leading to a lower contribution to the Basic Fuel Prices on petrol, diesel and illuminating paraffin. The Rand continues to show positive movement against the US currency, shaving some negativity off the final adjusted fuel prices.

Leave a Reply