The Bank of Ghana has taken steps to address the perennial shortage of dollars for the local petroleum sector, with the introduction of a foreign exchange forward auction for Bulk Oil Distributing Companies (BDCs).
According to the central bank’s guidelines, the FX Forward Auctions – which are exclusive for BDCs licenced by the National Petroleum Authority (NPA) – are only on a forward basis at a 30-day auction tenure of a targetted amount as determined by the Bank.
In the maiden auction on March 30, 2022, the Bank sold about US$104.86million above the auction target of US$100million at a rate of GH¢7.39 to a dollar.
“This shows the multiple price forward FX auction is intended to minimise the uncertainty of future FX availability and aid price discovery, especially for the general pricing window within the downstream sector.
“On settlement date T+30 (30 days after the auction), BoG shall debit a successful authorised dealer’s bank account to the tune of the cedi equivalent of their successful bids and credit the designated USD account,” a statement from the Bank said.
The Bank indicated that this exclusive FX auction will be held bi-weekly and conducted no later than three working days before the 1st and 16th of each month. This will run concurrently alongside the general FX forward auctions being conducted for the forex market.
Market experts in the petroleum sector have indicated that previously, without an active forward forex market for the petroleum industry, the speculators tended to largely control the market.
Per the guidelines, the central bank is expected to publish an auction target incorporating inputs received from the NPA for the foreign exchange forwards on a bi-weekly basis. This target will be published four days preceding the pricing window for the downstream sector on the Bank’s website to enable market participants to plan adequately.
This market is being guarded strictly with a set of conditions: such as the requirement of participating BDCs to maintain escrow accounts with banks through which their bids are submitted; as well as BDCs being required to fund those escrow accounts with cash collections as validated by NPA.
The Bank noted that activities of BDCs’ escrow accounts will be closely monitored by the BoG.
Further to this, BDCs can only participate through banks holding their escrow accounts for any particular auction window.
According to the Bank’s summary of macroeconomic and financial data, oil imports into the country increased to US$609.7million in February from US$296.4million in January of 2022. So far, a total US$906.1million of oil products has been imported into the country as of February 2022.
A glance at the trend of oil importation indicates an uptrend – usually small in value, in the millions, at the start of any given year, and then increases into huge values of billions at the end of the year. For instance, in February 2021, oil imports amounted to US$338.5million, and in December 2021 the figure stood at US$2.72billion. In total, about US$15.54billion of oil products were imported into the country last year – indicating a higher demand for greenback.