Time not right for reduction in fuel prices - Government

The government says the time is not right for a reduction in the ex-pump price of petroleum products.

It says if the 15 per cent Ad Valorem Excise Duty and Excise Duty Specific are introduced now; prices of petroleum products would increase and not decrease.

The government's explanation was contained in a statement issued in Accra by Mr Kwabena Agyepong, Deputy Government Spokesman, in reaction to calls by the Minority Group in Parliament asking for a reduction in prices of petroleum prices.

Mr Agyepong said the Minority's statement does not only "oversimplify a rather complex pricing issue" but it is also "potentially misleading".

According to the government, the formula for ex-pump prices makes it explicitly clear that the ex-pump price is a summation of the ex-refinery price, government taxes/levies and margins for the oil marketing companies.

It says the Minority has conveniently ignored the obvious impact of recent legislative enactment by parliament. In July this year, Parliament passed a bill to reinstate the taxes, namely the 15 per cent Ad-Valorem Excise Duty and a weighted average of 192 cedis per litre Excise Duty Specific.

"At the time of the reintroduction, the Ministry of Energy promised to monitor crude oil prices and exchange rates and implement the taxes only when favourable conditions will not lead to significant increases in the ex-pump prices."

In August, a reduction in the traded price of crude oil offered an opportunity for the Ministry of Finance to reintroduce the 15 per cent Ad-Valorem Excise Duty but deferred that of the Excise Duty Specific to a time when the price of crude oil would be low enough to accommodate such a change without a significant revision in the ex-pump prices.

Going by the formula for the determination of ex-refinery prices and using an exchange rate of 7,214 cedis to one US dollar and crude oil price of 20.68 US dollars per barrel, the deputy government spokesman said there is a reduction of 59.38 cedis per litre.

The Excise Duty Specific, which ought to be imposed, is a weighted average of about 192 cedis per litre, he said, adding, "If the two are introduced today, there will be an increase not a decrease in ex-pump prices."

Mr Agyepong said the Ministry of Energy continues to monitor crude oil and petroleum product prices as well as the cedi/dollar exchange rate and would implement the Excise Duty Specific reintroduced by parliament when conditions were favourable without significant increases in the ex-pump prices.

Windfall profits or over-recovery of costs, as well as under-recovery, by the refinery, are made from time to time and are carefully monitored by the ministry. "Indeed, the cumulative windfall profits as at September was 40.688 billion cedis," he said.

"It ought to be pointed out, however, that beyond the ex-refinery cost, the Tema Oil Refinery (TOR) continues to grapple with interest payment on the 2.3 trillion cedis debt arising out of the unrealistic pricing policy of the NDC government."

Mr Agyepong said, as at September, interest payments made by TOR on its indebtedness was over 248 billion cedis, adding: "Clearly, this figure pales the windfall profit of 40.7 billion cedis into insignificance."

"Apart from the reinstatement of the Excise Duty Specific in the near future and until such a time that the components of the ex-pump pricing formula are adequately realised, one should not expect a direct and immediate correlation between any downward trend in ex-refinery prices and reduction in ex-pump prices of petroleum products."