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28% fuel price hike in 10 months due to increasing prices of imported products

Mon, 18 Oct 2021 Source: The Finder

In line with global trends, the price per metric tonnes of petrol, diesel and liquefied petroleum gas (LPG) imported from the world market into Ghana jumped in the first 10 months of this year by between 65% and 79%.

As the country imports refined products and not crude oil, the increase for the three products in real terms ranges from $270.72 to $346.92 in the first 10 months of this year.

Each commodity and price hike

The increases in the price of imported refined petroleum products are petrol -$346.92 (79%), LPG - $328.61 (74%) and diesel - $270.72 (65%)

Ex-pump prices up between 28% and 32%

However, the ex-pump price, which is the price consumers pay, recorded between 28% and 32% increase from the January 1- 15 to October 1-15, 2021 pricing windows.

28% increase for a litre of petrol

The price of a litre of petrol increased by GH¢1.17 from GH¢5.08 in the January 1- 15 pricing window to GH¢6.52 in October 1-15 pricing window, representing 28% increase.

28% increase for a litre of diesel

In the same vein, the price of a litre of diesel also went up by GH¢1.17from GH¢5.08 in the January 1- 15 pricing window to GH¢6.52 in October 1-15 pricing window, representing 28% increase.

32% increase per kilogramme of LPG

For LPG, the price per kilogramme increased by GH₵1.9 (32%) in the first 10 months from GH¢5.90% in the January 1- 15 pricing window to GH¢7.80 in October 1-15, 2021 pricing window.

$346.92 increase in petrol prices this year

The price of petrol per metric tonne in the world market went up by $346.92, representing 79% between January and October 2021 pricing windows.

Petrol at world market: $436.69 per metric tonne in January

The world market price used for petrol in the first window of January 2021 (January 1-15) was $436.69 per metric tonne.

Petrol at world market: $783.61 per metric tonne in October

However, this has increased to $783.61 per metric tonne for the pricing window of October 16 - 31, 2021.

$270.72 (65%) increase in diesel prices this year

Similarly, the price of diesel in the world market went up by $270.72, representing 65% from January to October 2021 pricing windows.

Diesel at world market: $419.28 per metric tonne in January

For diesel, the world market price in the first window of January 2021 (January 1- 15) was $419.28 per metric tonne.

Diesel at world market: $690 per metric tonne in October This has increased to $690 per metric tonne for the window of October 16 - 31, 2021.

$328.61 (74%) increase in LPG at world market

The price per metric tonnes of LPG recorded $328.61 increase, representing 74% between January and October 2021 pricing window.

LPG at world market: $445.69 per metric tonne in January

The world market price of LPG in the first window of January 2021 (January 1- 15) was $445.69 per metric tonnes.

LPG at world market: $774.30 per metric tonne in October

This has, however, increased to $774.30 in the pricing window of October 16 - 31, 2021.

Petrol-54% ex-refinery price, 46%-levies, taxes and margins

Per the current pricing window, the ex-refinery price of petrol is 54% of total price, while taxes, levies and margins take up the remaining 46%. The components are levies and taxes (29%), statutory margins (8%), and oil marketing companies (OMC) margins (9%).

Diesel-55% sex-refinery price, 45%- levies, taxes and margins

In the same vein, the ex-refinery price of diesel constitutes 55% of total price, while taxes, levies and margins make up 45%. The breakdown includes levies and taxes (29%), statutory margins (8%) and OMC margins (8%).

LPG-74% ex-refinery price, 26%-levies, taxes and margins

Per the current pricing window, the ex-refinery price of LPG is 74%, while taxes, levies and margins make up 26%.

The components are levies and taxes (16%), statutory margins (4%), and oil marketing companies (OMC) margins (6%).

Global situation

Energy prices are rising from the US to Europe and Asia as the economy recovers from the global pandemic and people return to the offices.

The prices of crude oil and refined petroleum products have seen sharp increases on the world market due to a rise in demand of oil globally without a corresponding increase in supply, particularly from the Organisation of Petroleum Exporting Countries (OPEC) and its allies.

Full deregulation of the petroleum sector was implemented to save the government from mounting debts that threatened the economy.

$3.11 billion spent on subsidies

Data compiled by the Chamber of Bulk Oil Distributors (CBOD) shows that the government has spent $3.11 billion as subsidies on petroleum products in a period of 10 years.

Critics argue that the costly and inefficient subsidies, which were incurred between 2008 and 2018, could have been used for developmental projects across the country.

Price Under Recoveries (PUR) is the actual price subsidy due to the government’s intervention to prevent the passing of price increases on the world market to consumers; as is still done on premix fuel and RFO today.

The subsidies comprised real value factor (RVF) and forex loss under-recoveries interest (FLURI) claims.

The real value factor refers to the financial cost (interest) incurred by bulk oil distribution companies (BDCs) for the delayed payments of price under-recoveries.

Forex loss under-recoveries interest, on the other hand, refers to the financial cost borne by BDCs for the under-recovery caused by the rapid depreciation of the cedi against the US dollar.

Breakdown of the various subsidies

The breakdown includes FLUR - $806.2 million ($806,245,964); FLURI - $85.3 million ($85,393,670); PUR - $2.1 billion ($2,130,851,365); and RVF - $87.7 million ($87,713,497).

Since price deregulation started in July 2015 no other under-recoveries were incurred apart from what is incurred on Premix Fuel and RFO.

The FLUR and FLURI were all on under-recoveries incurred prior to July 2015.

Negatives of subsidies

Considering the fact that the opportunity cost of these subsidies is the revenue foregone by not charging the international prices domestically, there is a high probability, therefore, of a shift in the allocation of scarce economic resources to finance the increase in crude oil price in the country.

Consumption subsidies, on the other hand, increase domestic consumption and trigger an increase in demand for imports.

This increases the energy dependency ratio and worsens the balance of payment and energy security in Ghana.

Furthermore, consumption subsidies lead to wasteful consumption and inefficient use of energy.

This puts pressure on the government’s resources and leads to unsustainable budget deficits in the country.

Source: The Finder
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