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General News Mon, 20 Jan 2003

Pricing Formula To Bring About Efficiency

The Ministry of Energy on Monday said that the Petroleum Products Pricing Formula announced in February 2001 had the ability of meeting government's drive to recover the 4.5 trillion cedis owed by the Tema Oil Refinery (TOR).

A Director at the Ministry, Mr Dan Amoah said in an interview that the formula has within it an efficiency element that would make the refinery and any other private body that would come into the oil industry to be efficient ‘since you could not ignore the in-built costs that came with your operations’. He said it took the government a while to appreciate the formula, but now that they do, "we are going to work with it and ensure that we recover the debts."

The debt has made a huge impact on the economy and this saw the government almost doubling petroleum prices last Friday. The foremost objective of the policy is to gear energy prices to levels, based on the principle of full cost recovery of all investments made to procure, refine, transport and market energy services and ensure that ex-refinery prices are set equal to lower than the import parity. It is also to be used to raise revenue for government.
Special levies and taxes have been incorporated into the price structure of petroleum products by an Act of Parliament, Act 544 amended by Act 593 and 577, to generate resources for current and future investments in specific areas and provide a portion of the annual national revenue for government's prioritized development programmes.
The formula put forward by the National Democratic Congress (NDC) government is also meant to ensure that ex-pump prices are uniform in the country. Mr Amoah said the formula to be used is the same as what was announced two years ago. Giving the details of the formula that is to be managed by the yet to be established National Petroleum Tender Board, Mr Amoah said the retail (ex-pump) prices of petroleum products are made up of three essential components: the ex-refinery price, government levies and the distribution margins.
He said the system provides for automatic adjustments in the ex-refinery price of petroleum products to reflect changes in the published prices of these products as well as changes in the exchange rate between the Cedi and the Dollar. Mr Amoah said except for the FOB price and the freight rate, all the line elements of the price build up to a landed cost. He noted that the maximum allowable ex-refinery price is set based on import parity plus a factor mark-up that would have previously been agreed between TOR and government.

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