The NDC has been concerned for some time now, over developments in the energy sector, and the Minister of Finance's Statement to Parliament on the performance of the economy on November 12, 2002, instead of easing our concerns, has rather heightened our anxieties. We of the NDC are convinced that sufficient preparatory work has not been done to justify the pending petroleum price increases. Government has to introduce new prices as part of a comprehensive package that deals with incomes and remuneration for workers, elimination of waste and inefficiency in the industry, and an honest explanation at this point in time about how Government has handled the existing TOR debt and the windfall arising from the previous drop in world market prices for crude.
It will be recalled that in February, 2001, the NPP Government, passed the Customs and Excise (Petroleum Taxes and Petroleum Related Levies) (Amendment) Act, 2001, Act 593, under which it removed the then existing ad value duty of 15 per cent of the ex-refinery price of petroleum products and the fixed tax imposed under section 2 of the Customs and Excise (Petroleum Taxes and Petroleum Related Levies) Act, 1998, Act 544.
Under Act 593, the Energy Fund Levy, the Strategic Stock Levy and the Hydrocarbon Exploration Levy were all increased by various percentages. The overall effect was a net increase of over 64 per cent in the ex-pump prices of petroleum products, effective February 23, 2001. In June, 2001, under the newly passed Customs and Excise (Petroleum Taxes and Petroleum Related Levies) (amendment) (No. 2) Act, 2001, Act 603, the Government re-imposed the ad value duty of 15 per cent of the ex-refinery price of petroleum products as well as specific excise duty averaging ?200 per litre.
The Memorandum to Act 603 dated 8th June 2001 gave the following as justification for the reinstatement of the taxes and levies: "As a result of the increase in the prices of ex-refinery petroleum products announced in February, 2001, the Tema Oil Refinery (TOR) is now able to recover its running expenses. The yield form these price adjustments is however insufficient to cover the financing of the Company's ?2.5 trillion stock of outstanding short-term debt. An estimated ?2 trillion of this debt was accumulated as a result of below market pricing during the 1999 and 2000 financial year. A large proportion of this debt is owed to Ghana Commercial Bank. This is affecting the viability of the Bank and has to be addressed as soon as possible. A portion of TOR's debt would be restructured by mid August and converted into a government obligation on which debt service payment will be due early next year. For this year alone, after capitalization in mid August, there is still the need to pay over ?1 billion in interest.
There is also the need to raise additional revenue to improve the domestic primary balance of the budget and strengthen the revenue management of the economy". In August 2001, when the price of crude oil on the world market dropped drastically from US$30 to US$23 per barrel, the Government, instead of reducing the ex-pump prices of petroleum products in accordance with the formula it had itself announced a few months earlier, rather maintained the price and explained that this was because it has reinstated those taxes and levies it had removed earlier in the year. In his Mid-Year Review of the Budget presented to Parliament on 8th November 2001, Finance Minister Yaw Osafo-Maafo stated as follows: "Now that the full compliment of the existing fuel pricing formula is in place, the petroleum pricing formula becomes applicable. However, as a result of the previous accumulated debt of the Tema Oil Refinery (TOR) arising from the inability of the previous Government to adjust ex-pump prices upwards when the world oil prices went up, part of any potential saving which may accrue from further reductions in world oil prices will be used to service the TOR debt of approximately ?1 trillion.
It must be noted that the total stock of TOR's debt is estimated at ?2.5 trillion". The Deputy Government Spokesman also buttressed the Government's position by stating that Government's refusal to reduce the prices of petroleum products was because the savings were being used to defray TOR's ?2.3 trillion debt. This was when the world market price of crude oil had fallen to $23.00 per barrel. Strangely, however, the Minister of Energy, Mr. Albert Kan-Dapaah, was quoted in the Daily Graphic of Tuesday, December 4, 2001, as declining to comment on the question of whether or not whatever gains or windfall that had been made from the significant drop in global oil prices had been used to defray the ?2.3 trillion debt of TOR. This was in reaction to the assertion that I, as Ranking member for Energy and Mines, had made in the same newspaper that "an exceptional gain of at least US$54 million has been made from the unexpected drop in world market prices of crude oil." But on December 19, 2001, the same Hon Kan-Dapaah was quoted in the Daily Graphic as breaking his silence and announcing at a SHEP commissioning ceremony at Kofiase near Ashanti Mampong that Government had reaped a saving of ?53 billion from the fall in the market price of crude oil as at the end of November 2001 and that the windfall would be used to service part of the debt owned by the TOR.
In further confirmation of my assertion, the Minister of Finance and the Governor of the Bank of Ghana, in their joint "Letter of Intent, Memorandum for Economic and Financial Policies and Technical Memorandum of Understanding" to the Managing Director of the IMF dated January 31, 2002 stated as follows: "On August 17, 2001, a 15 per cent excise tax was imposed on petroleum products, followed on October 31 by specific duties averaging ?200 per litre. In addition, in order to defray further TOR's accumulated debts resulting from previous price controls, Parliament has approved the principle that part of any potential savings which may accrue from future reduction in world oil prices would be used to service the TOR debts". Thus given the 2001, 64 per cent increases in ex-pump prices of petroleum products, the dramatic drop in world crude oil prices, the assurances by high government officials that massive savings had been made to be used to defray TOR's debts, and the Government's confirmatory letter to the IMF, there is no basis for any increases in petroleum prices now.
This is especially the case when on November 13, 2002 at the commissioning of the Residual Fuel Catalytic Unity of TOR, an NDC Project, the President himself admitted that TOR's problems are largely due to mismanagement, inefficiency, corruption, conflict of interest situations, blatant stealing, ineffective monitoring, bad industrial practices and poor management of the petroleum sector by the Government. Any increases must therefore be preceded by credible and accurate information on the amount of savings that was made when crude oil prices tumbled on the world market; whether or not this was used to defray TOR's debt and if not, why not; the reasons for the non-application of the Government's own Petroleum Products Pricing Formula and the issue of affordability. Additionally, the identified problems and shortcomings relating to mismanagement, inefficiency, corruption, stealing and conflict of interest must be dealt with before there is any talk of price increases.
We have also been made aware that for reasons best known to itself but not unrelated to its stated objective of using TOR to "raise additional revenue to improve domestic primary balance and strengthen the revenue management of the economy," the Government has been gradually reducing the ex-refinery prices petroleum products, thus reducing the margin of profit available to TOR and therefore making it impossible for TOR to earn enough to repay its debts, thus adding to TOR's trillion cedis debt. For example, the ex-refinery price of premium petrol was reduced on Government orders from ?1,879.33 per litre in February, 2001 to ?1,634.20 per litre in August 2001, to ?1,460.29 per litre in November 2002 and finally on December 28, 2001, ex-refinery prices were again reduced to ?1,408.98. By the end of 2001, the total percentage reduction in ex-refinery prices amounted to 25 per cent.
Similarly, ex-refinery prices of kerosene, Aviation turbine Kerosene (ATK), Gas Oil, Residual Fuel Oil and Liquefied Petroleum Gas (LPG) were reduced by 21 per cent, two per cent, 28 per cent, 22 per cent, and 26 per cent respectively. In other words, instead of the Government using the gains accruing from crude oil price reductions to TOR to reduce TOR's trillion cedis indebtedness as announced to the public, the Government has been "creaming" off the "windfall" as revenue to itself which it uses to either shore up its dwindling resources or to underwrite its ever-bloating expenditure. That explains why TOR's debt of ?2.5 trillion as announced by the Minister of Finance in his 2001 Budget Review Report has ballooned to ?3.2 trillion by the time of his 2002 Mid-Year Review, and continues to increase by ?50 billion every month, if the Government's own figures are to be believed. On the contrary, by the time the NDC Government was leaving office in January 2001, the TOR debt was only ?1.6 trillion. Clearly, it is the gross mismanagement of TOR coupled with the Government's desire to cream off the extra resources arising out of the fall in crude oil price, at one time from US$30 per barrel to US$18 per barrel, that have completely undermined the ability of TOR to meet the nation's fuel requirements and have over-exposed its financing banks such as the Ghana Commercial Bank which is now on the brink of implosion from the financing of Ghana's petroleum requirements.
In the current difficult national economic situation characterized by low wage, high unemployment's, and stagnant economy, petroleum price increases will worsen the hardship that the ordinary people of this country are facing. It is our belief that Government must introduce any planned petroleum price increases as part of a holistic package that deals with improved pay package for workers, improvement of management in the petroleum sector and elimination of waste and inefficiency in production. The energy sector represents one more area where the NPP government has lots of confessions to make. In November 1999, whilst in opposition, President Kufuor led a demonstration to protest against petroleum and electricity price increases.
Three years later, in November 2003, Minister of Energy Albert Kan-Dapaah, at the commissing of the Residual Catalytic Unit of TOR blamed the problem of TOR on the failure of the NDC government to adjust prices in year 2000, after their reckless 'Yabre' demonstrations of November, 1999, had made it politically imprudent and impossible to adjust those prices. It is significant that the NPP is experiencing the great challenges that go with governance and it is our hope that they will be humble enough to acknowledge to the good people of this country that the stand they took on a lot of key policy issues in the last administration were mistaken. In all these issues the NDC stands ready to share with the NPP Government its experience to move our great nation forward.
The NDC has been concerned for some time now, over developments in the energy sector, and the Minister of Finance's Statement to Parliament on the performance of the economy on November 12, 2002, instead of easing our concerns, has rather heightened our anxieties. We of the NDC are convinced that sufficient preparatory work has not been done to justify the pending petroleum price increases. Government has to introduce new prices as part of a comprehensive package that deals with incomes and remuneration for workers, elimination of waste and inefficiency in the industry, and an honest explanation at this point in time about how Government has handled the existing TOR debt and the windfall arising from the previous drop in world market prices for crude.
It will be recalled that in February, 2001, the NPP Government, passed the Customs and Excise (Petroleum Taxes and Petroleum Related Levies) (Amendment) Act, 2001, Act 593, under which it removed the then existing ad value duty of 15 per cent of the ex-refinery price of petroleum products and the fixed tax imposed under section 2 of the Customs and Excise (Petroleum Taxes and Petroleum Related Levies) Act, 1998, Act 544.
Under Act 593, the Energy Fund Levy, the Strategic Stock Levy and the Hydrocarbon Exploration Levy were all increased by various percentages. The overall effect was a net increase of over 64 per cent in the ex-pump prices of petroleum products, effective February 23, 2001. In June, 2001, under the newly passed Customs and Excise (Petroleum Taxes and Petroleum Related Levies) (amendment) (No. 2) Act, 2001, Act 603, the Government re-imposed the ad value duty of 15 per cent of the ex-refinery price of petroleum products as well as specific excise duty averaging ?200 per litre.
The Memorandum to Act 603 dated 8th June 2001 gave the following as justification for the reinstatement of the taxes and levies: "As a result of the increase in the prices of ex-refinery petroleum products announced in February, 2001, the Tema Oil Refinery (TOR) is now able to recover its running expenses. The yield form these price adjustments is however insufficient to cover the financing of the Company's ?2.5 trillion stock of outstanding short-term debt. An estimated ?2 trillion of this debt was accumulated as a result of below market pricing during the 1999 and 2000 financial year. A large proportion of this debt is owed to Ghana Commercial Bank. This is affecting the viability of the Bank and has to be addressed as soon as possible. A portion of TOR's debt would be restructured by mid August and converted into a government obligation on which debt service payment will be due early next year. For this year alone, after capitalization in mid August, there is still the need to pay over ?1 billion in interest.
There is also the need to raise additional revenue to improve the domestic primary balance of the budget and strengthen the revenue management of the economy". In August 2001, when the price of crude oil on the world market dropped drastically from US$30 to US$23 per barrel, the Government, instead of reducing the ex-pump prices of petroleum products in accordance with the formula it had itself announced a few months earlier, rather maintained the price and explained that this was because it has reinstated those taxes and levies it had removed earlier in the year. In his Mid-Year Review of the Budget presented to Parliament on 8th November 2001, Finance Minister Yaw Osafo-Maafo stated as follows: "Now that the full compliment of the existing fuel pricing formula is in place, the petroleum pricing formula becomes applicable. However, as a result of the previous accumulated debt of the Tema Oil Refinery (TOR) arising from the inability of the previous Government to adjust ex-pump prices upwards when the world oil prices went up, part of any potential saving which may accrue from further reductions in world oil prices will be used to service the TOR debt of approximately ?1 trillion.
It must be noted that the total stock of TOR's debt is estimated at ?2.5 trillion". The Deputy Government Spokesman also buttressed the Government's position by stating that Government's refusal to reduce the prices of petroleum products was because the savings were being used to defray TOR's ?2.3 trillion debt. This was when the world market price of crude oil had fallen to $23.00 per barrel. Strangely, however, the Minister of Energy, Mr. Albert Kan-Dapaah, was quoted in the Daily Graphic of Tuesday, December 4, 2001, as declining to comment on the question of whether or not whatever gains or windfall that had been made from the significant drop in global oil prices had been used to defray the ?2.3 trillion debt of TOR. This was in reaction to the assertion that I, as Ranking member for Energy and Mines, had made in the same newspaper that "an exceptional gain of at least US$54 million has been made from the unexpected drop in world market prices of crude oil." But on December 19, 2001, the same Hon Kan-Dapaah was quoted in the Daily Graphic as breaking his silence and announcing at a SHEP commissioning ceremony at Kofiase near Ashanti Mampong that Government had reaped a saving of ?53 billion from the fall in the market price of crude oil as at the end of November 2001 and that the windfall would be used to service part of the debt owned by the TOR.
In further confirmation of my assertion, the Minister of Finance and the Governor of the Bank of Ghana, in their joint "Letter of Intent, Memorandum for Economic and Financial Policies and Technical Memorandum of Understanding" to the Managing Director of the IMF dated January 31, 2002 stated as follows: "On August 17, 2001, a 15 per cent excise tax was imposed on petroleum products, followed on October 31 by specific duties averaging ?200 per litre. In addition, in order to defray further TOR's accumulated debts resulting from previous price controls, Parliament has approved the principle that part of any potential savings which may accrue from future reduction in world oil prices would be used to service the TOR debts". Thus given the 2001, 64 per cent increases in ex-pump prices of petroleum products, the dramatic drop in world crude oil prices, the assurances by high government officials that massive savings had been made to be used to defray TOR's debts, and the Government's confirmatory letter to the IMF, there is no basis for any increases in petroleum prices now.
This is especially the case when on November 13, 2002 at the commissioning of the Residual Fuel Catalytic Unity of TOR, an NDC Project, the President himself admitted that TOR's problems are largely due to mismanagement, inefficiency, corruption, conflict of interest situations, blatant stealing, ineffective monitoring, bad industrial practices and poor management of the petroleum sector by the Government. Any increases must therefore be preceded by credible and accurate information on the amount of savings that was made when crude oil prices tumbled on the world market; whether or not this was used to defray TOR's debt and if not, why not; the reasons for the non-application of the Government's own Petroleum Products Pricing Formula and the issue of affordability. Additionally, the identified problems and shortcomings relating to mismanagement, inefficiency, corruption, stealing and conflict of interest must be dealt with before there is any talk of price increases.
We have also been made aware that for reasons best known to itself but not unrelated to its stated objective of using TOR to "raise additional revenue to improve domestic primary balance and strengthen the revenue management of the economy," the Government has been gradually reducing the ex-refinery prices petroleum products, thus reducing the margin of profit available to TOR and therefore making it impossible for TOR to earn enough to repay its debts, thus adding to TOR's trillion cedis debt. For example, the ex-refinery price of premium petrol was reduced on Government orders from ?1,879.33 per litre in February, 2001 to ?1,634.20 per litre in August 2001, to ?1,460.29 per litre in November 2002 and finally on December 28, 2001, ex-refinery prices were again reduced to ?1,408.98. By the end of 2001, the total percentage reduction in ex-refinery prices amounted to 25 per cent.
Similarly, ex-refinery prices of kerosene, Aviation turbine Kerosene (ATK), Gas Oil, Residual Fuel Oil and Liquefied Petroleum Gas (LPG) were reduced by 21 per cent, two per cent, 28 per cent, 22 per cent, and 26 per cent respectively. In other words, instead of the Government using the gains accruing from crude oil price reductions to TOR to reduce TOR's trillion cedis indebtedness as announced to the public, the Government has been "creaming" off the "windfall" as revenue to itself which it uses to either shore up its dwindling resources or to underwrite its ever-bloating expenditure. That explains why TOR's debt of ?2.5 trillion as announced by the Minister of Finance in his 2001 Budget Review Report has ballooned to ?3.2 trillion by the time of his 2002 Mid-Year Review, and continues to increase by ?50 billion every month, if the Government's own figures are to be believed. On the contrary, by the time the NDC Government was leaving office in January 2001, the TOR debt was only ?1.6 trillion. Clearly, it is the gross mismanagement of TOR coupled with the Government's desire to cream off the extra resources arising out of the fall in crude oil price, at one time from US$30 per barrel to US$18 per barrel, that have completely undermined the ability of TOR to meet the nation's fuel requirements and have over-exposed its financing banks such as the Ghana Commercial Bank which is now on the brink of implosion from the financing of Ghana's petroleum requirements.
In the current difficult national economic situation characterized by low wage, high unemployment's, and stagnant economy, petroleum price increases will worsen the hardship that the ordinary people of this country are facing. It is our belief that Government must introduce any planned petroleum price increases as part of a holistic package that deals with improved pay package for workers, improvement of management in the petroleum sector and elimination of waste and inefficiency in production. The energy sector represents one more area where the NPP government has lots of confessions to make. In November 1999, whilst in opposition, President Kufuor led a demonstration to protest against petroleum and electricity price increases.
Three years later, in November 2003, Minister of Energy Albert Kan-Dapaah, at the commissing of the Residual Catalytic Unit of TOR blamed the problem of TOR on the failure of the NDC government to adjust prices in year 2000, after their reckless 'Yabre' demonstrations of November, 1999, had made it politically imprudent and impossible to adjust those prices. It is significant that the NPP is experiencing the great challenges that go with governance and it is our hope that they will be humble enough to acknowledge to the good people of this country that the stand they took on a lot of key policy issues in the last administration were mistaken. In all these issues the NDC stands ready to share with the NPP Government its experience to move our great nation forward.
