Kufuor & his NPP must stop the Economic Abuse

Tue, 28 Nov 2006 Source: Amankwah, Nana Kofi

How in the world can John Agyekum Kufuor and his NPP administration purchase our nation’s crude oil from forward future markets which is hedging?

Instead of buying from the current spot rate for the crude oil market prices at $56. 26 per barrel, the hedging prices are currently over $65.00 $70.00 and $80.00 per barrel The Kufuor administration has taken the nation crude oil purchasing power to the future hedge in forward markets, while the spot rate market is booming at its lower level of $56. 26. Even the speculators have predicted that the prices will fall even further.

I am curious why the NPP administration is still selling fuel for $4. 00 per gallon. I decided to investigate the Ghana National Petroleum Authority. I discovered that Ghana does not buy its crude oil at the Spot rate, (prices that are determined by the supply and demand,) but from the forward future markets the hedging. The Kufuor administration has already locked in high prices which are very expensive and also risky business for a nation like Ghana to be involved in. This is a disastrous economy policy from the NPP government. This nonsense must stop immediately. Recently, the national petroleum authority had reduced the fuel prices in Ghana from 35,660 to32, 500 cedis. This is a mental abuse and an insult to Ghanaians. If we compare the current Spot rate in world crude oil prices, fuel prices in Ghana must be 22,300 cedis. The inflation rate in Ghana will decline as fuel prices drop. This will enable the bank of Ghana to eventually further lower interest rates. In fact, the core inflation figure in Ghana now is at is high level due to Agyekum Kufuor and his bad NPP economic policy of locking in high crude oil prices in forward future markets. Why is it that crude oil prices are falling around the world and still the unemployment rate in Ghana is at this high level?

My fellow countrymen and women, as an economist, let me explain the differences between the spot rate and hedging. The Chicago Mercantile Exchange introduced the system of hedging which many brokers have been using for trading in currency, gold, oil and other major commodities. This system is very dangerous, and a risky way of doing business in hedging. Hedge means you are going to lock in some price of goods today, but the goods will be delivered at a later time such as a 3, 4, 5, 6, month period. The motive behind hedging is you pick up the phone and call the broker that you wanted to hedge in crude oil world markets price for the next six month. He is not going to sell to you at the current spot rate, but a very higher price because he cannot predict how the markets is going to react for the next six month. In forward market prices you are buying the goods today, but the items will be delivered in six month time. Countries should not buy their crude oil from hedging. This is a risky business. You can’t predict which direction the market is heading. Kufuor can’t run our country affairs as how he runs his father Nkawie Kufuor timber affairs. As a spokesperson for common people in Ghana, I will not rest until Kufuor administration reduces fuel prices. Ghanaians are suffering both common people and middle class. As a result of this I am calling the attention of the opposition party and the energy committee in parliament to have immediate hearings on this NPP economic psychosis. John Agyekum Kufuor and his NPP government should explain to Ghanaians what system they are using to purchase the nations crude oil from the world markets.

In 1999, Sam Jonah was the chief executive of the Ashanti goldfield. He took the company to the future hedge in forward market, while the spot rate was booming. This resulted in millions of dollars of losses to Ghanaians economy. Kufuor and his economic adviser should realize that the Adam Smith theory of economics that they learned from school does not work in our modern society. They should use their common sense and think very carefully about the consequences of misusing our nation’s resource before the act.

Nana Kofi Amankwah (New York)

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Columnist: Amankwah, Nana Kofi