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Here’s what goes into the pricing of fuel - Expert explains

Fuel Pump1 2020 File photo a fuel pump

Thu, 3 Mar 2022 Source: www.ghanaweb.com

Fuel prices have more than doubled within the last couple of years.

According to analysts, this can be attributed to international crude oil prices, taxes, levies and the depreciation of the cedi against the major trading trading currencies.

Commercial transport operators in the country last year embarked on a sit-down strike to petition government on the scrapping of taxes and levies on petroleum products.

But those levies amounting to GH¢1.90p are still being charged on fuel products.

Here is the breakdown

Energy Fund levy (1p)

Sanitation and pollution levy (10p)

Price stabilization and recovery levy (16p)

Energy sector levy (20p)

Special petroleum levy(46p),

Road fund levy (48p)

Energy debt recovery levy (59p)

Executive Secretary of the Chamber of Petroleum Consumers, Duncan Amoah in a Joy News interview outlines the various processes involved in the pricing of fuel.

“There are three stages of pricing, the first one is ex-refinery position. This means you have processed crude into the different components or variables, petrol, diesel, fuel and all of the other products you can get from crude.

Once you get the refining done, in calculating ex refinery you probably are looking at the cost of crude plus the cost of refining which is called tolling. That will give you the cost of the refined product i.e., crude having moved from the base product to a refined product.

You then get it to the depot. So, the next stage is ex-depot. At that stage government is saying I need taxes off the product. So, I’m adding tax A, B, C, D which takes you to ex-depot position.

From ex depot you move to ex pump which is the final stage where margins and markups are done. Where the companies decide what they should price to stay in business. They need to pay pump attendants, utilities and financing costs so they come to the ex-pump price which is the final price," Duncan Amoah explained.

Also, Duncan Amoah further stated that there are some variables that determine ex-pump prices including the cost of importation if you do not have a refinery in your country and the dollar rate.

“If you don’t refine in-country and you need to import, the cost of logistics, insurance, freight whatever it costs to move the product to your country is now what ex refinery price will mean.

So, if you are refining at TOR, let’s say Ghana’s crude, you decided to refine at TOR, then TOR will charge their tolling in addition to the cost of crude and give you ex refinery. But if you are buying from Rotterdam, Rotterdam will charge their tolling in addition to the crude but you’ll still need to pay for freight, insurance, demurrage, that’s why you would want to have your own refinery and cut down on logistical costs.

But unfortunately, we don’t have our own refinery so you’d need to necessarily import from Europe.

And importing from Europe, you’d have to convert your cedi into the dollar. Now the fuel gets to Ghana and the government of Ghana says it has only one legal tender which is the cedi and so you can’t trade in the dollar. So that’s where the conversion comes in," Duncan Amoah pointed out.

According to him, because the cedi is not stable and Oil Marketing Companies have to factor it into their prices - a move which is called forward forex.

He concludes that, adding taxes, margins, markups, levies, importation costs, cedi-dollar rates and international market prices determine the final price that is charged at the pumps.

In his conclusion the COPEC boss said, "If you put the three together, can we manage these three [international oil prices, cedi depreciation, taxes and levies], so that the people of Ghana are not inconvenienced. If you ask any petroleum economists whether we can manage this, the answer is a yes.”

Source: www.ghanaweb.com
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