Removal of subsidy on RFO hurting textile industry

With inflation and rising utility prices putting pressure on business margins, suspending the subsidy on residual fuel oil (RFO) has compounded the textile industry’s challenges – forcing the likes of Tex Styles Ghana Limited (TSG) to shut down a couple of times this year.

Government, effective November 1, 2022, withdrew the subsidy on RFO to ease the financial burden on the Price Stabilisation and Recovery Account (PSRA).

“The policy directive takes consideration of growing concern about the sustainability of the Account to meet under-recovery payment obligations for premix fuel and RFO,” a letter issued by the National Petroleum Authority (NPA) said.

Speaking to the Business and Financial Times, Sales Director at Tex Styles Ghana, Emmanuel Debrah Kissi, bemoaned the impact of the subsidy’s complete withdrawal on RFO to the country’s textile industry – particularly TSG.

At the start of the year, the subsidy on RFO was 55 percent; then it was slashed by 15 percent around July and completely suspended at the start of November.

“Our utility cost has really gone up since then. We are paying the full 100 percent price for the cost of RFO, and it’s actually becoming a challenge getting it,” Mr. Debrah Kissi told the Business and Financial Times.

Moving away from the subsidy, he further warned of an impending shortage of textiles for the country in the coming days.

Citing TSG’s supply chain team, he said: “What’s available will last the nation till the end of December, if we don’t get Bulk Distribution Companies (BDCs) to bring some stock in. This year, we have had to shut down about twice or thrice based on the unavailability of RFO,” he said.

Suspension of subsidy to ensure availability of product

Justifying the subsidy’s suspension at a news conference, Head of Economic Regulation-NPA, Abass Ibrahim Tasunti, said the move is meant to ensure availability and supply of the product – a low grade of fuel oil, which contains the undistilled residue from atmospheric or vacuum distillation of crude oil and is mostly used by manufacturing industries.

He said due to increases in global fuel prices and exchange rates, funds accrued through the Price Stabilisation and Recovery Levy – used in paying for subsidies on RFO and premix fuel – were not enough to meet the demand.

Debts due to subsidy

Government is in debt of more than GH¢154million, representing subsidy on RFO from January to September this year; and only GH¢15million of the debt, which covers January to March for a subsidy, has been paid – with the total amount for April to September yet to be paid, according to Mr. Tasunti.

Last year, government paid importers an accumulated subsidy of GH¢136million on RFO; and the inability of the Price Stabilisation and Recovery Account to meet debt demands resulted in a refusal by importers to sell the product… causing supply challenges for the industry.