Guinness, Cigarettes, and Petroleum Politics in Ghana

Hard to believe but it’s within living memory that the Ghanaian government was

so pervasive and meddlesome that it was setting the price of virtually

everything, including Guinness.

In the 1979-80 budget, for example, bureaucrats in Accra decreed that “Guinness

stout” was to be sold for “¢3 in bars, ¢3.30 in hotels, and ¢3.50 in

discotheques”, up from ¢2.10, ¢3.20, and ¢2.60, respectively.

But that was only the tip of the government’s long arm for micromanagement of

the economy. With painstaking detail, these dedicated bureaucrats proceeded

to list new prices for 11 brands of cigarettes!

And then on petroleum “price adjustment,” in language that presaged what we

would hear 30 years later, the government offered the following

rationalization.

“The last time government adjusted the ex-pump price of petroleum products was

in September 1978 when the world price of crude oil rose to about $14.10 or

¢38.78 per barrel. Since then, there has not been any adjustment in ex-pump

prices in spite of the large increases in the world price of crude oil.”

Government, we were told, “had to subsidize petroleum consumption” to the tune

of “¢40.00 million per month”, making it difficult to “obtain sufficient funds

for the provision of essential services”.

With that preamble, the ex-pump price was raised by nearly 115% to ¢7.5 per

gallon. The price of kerosene, which the government claimed to be subsidizing

for “the rural population,” was increased by 250%.

Now, fast-forward to January 4th 2011, when the CEO of the National Petroleum

Authority, Alex Mould, proffered his own justification for an impending

petroleum “price adjustment”.

“Prices”, he said, “were fixed from October 31, 2009 to date. Within the

period, crude prices have increased by 23% and most of the products [sic] have

also increased about the same magnitude”

He then announced ex-pump price increases “in the regions of between 25% and

30%”, explaining that “the TOR debt recovery levy which Parliament approved

before Christmas” in order to “retire debts owed by the country’s only refinery”

was one of the factors responsible for the hike.

If the bit about TOR debt sounds familiar, that’s because we’ve heard it all

before, as in a 2001 memo sent by the government to the IMF:

“In order to halt the ongoing losses at TOR, the government raised ex-refinery

gasoline prices by an average 91 percent in February 2001, with immediate

effect. In April, the Public Utilities Regulatory Commission (PURC) allowed the

Electricity Company of Ghana (ECG) to raise the retail price of electricity by

96 percent and Volta River Authority (VRA) to raise its wholesale electricity

price by 100 percent.”

In justifying another price increase two years later, the government declared in

the 2003 budget:

“A Debt Recovery Levy will be imposed on the use of petroleum products. The

proceeds from the levy will be placed in a Sinking Fund and used to repay the

accumulated debt of TOR incurred from selling petroleum products below cost in

the past. This is urgent in order to reduce the systemic risk posed by the

large debt of TOR to the Banking Sector and the economy.”

Virtually every budget statement thereafter had a variation of this tortured

justification for raising petroleum prices ostensibly to save TOR and help the

rural folk.

We have since learned that a significant portion of the proceeds from the levy

was used not to retire the TOR debt but to finance a “government communication

strategy” in 2008, an election year. And poverty in the rural areas, according

to the 2005/2006 Ghana Living Standards Survey, actually went up, not down.

Tellingly, the people responsible for this deception and diversion have been

among the most vocal in condemning the latest price hikes and accusing

government of deceiving Ghanaians while ignoring their own record of two-timing

the Ghanaian public.

Now, Ghanaians are left to wonder: Are all politicians forked-tongue creatures

who habitually say one thing but do another, or do they, once in power, operate

under “circumstances beyond their control”?

The answer may be found in the “dual constituency problem”, where leaders of a

country like Ghana that depends on the charity of others for its development

must necessarily serve two masters whose interests do not necessarily always

coincide, if they do at all.

One constituency is the electorate to which politicians make flowery and

seductive promises in order to win power. This constituency has the power to

elect but little money to finance development.

And then there is the constituency of international financial institutions and

donors who have no electoral power but the money to finance our development in

return for conditionalities like “realistic petroleum prices”.

The result is the politics and hypocrisy of petroleum pricing.

The most practical solution to this conundrum is for government to get out of

the petroleum pricing business and let consumers directly reap the rewards and

challenges of competition – open, honest, well-regulated competition. Just as

it was unwieldy and ultimately unsustainable for government to be setting prices

for everything from Guinness to cigarettes to a long list of “essential

commodities” like soap and matches, so has it become increasingly illogical for

government to insist on setting prices for a product over which it has little or

no control.

We need a new and more pragmatic petroleum pricing regime that would give petrol

stations the freedom to set their own prices (possibly within a band), subject

to strict laws against collusion and price fixing and supplemented by laws

against potential government abuse, such as the diversion of the benefits of

falling oil prices that should properly go to consumers.

A timetable for the eventual retirement of the TOR debt must be published both

to tame public anger and restore some confidence in state institutions.

For the long term, we need structural reforms to promote energy conservation and

stimulate economic growth, especially in the rural areas, where over 30 years of

subsidized kerosene consumption (which is paid for from higher premium prices)

have failed to make life better.

Since most rural dwellers use kerosene mainly for lighting, the logical response

to failed subsidies is to accelerate the decades-old rural electrification

programme not only to provide light but also to help transform rural economies

through increased industrial activity.

Proper transportation planning (not the mere expansion of roads which does not

necessarily reduce traffic) must consider current and future patterns in human

settlements and economic activity and their implications for energy consumption

in general; the Energy Commission must intensify public education on best

practices in energy use for enduring behavioral change.

Unless such bold and innovative options are pursued, the charade of politicians

speaking from both corners of their mouths, and a cynical population growing

ever more cynical, would continue to gnaw at the essence of governance.

And that would be bad for our young democracy.

By Nii Moi Thompson (niimoi@yahoo.com)