Local fuel prices could become more vulnerable to external shocks following a decision by the National Petroleum Authority (NPA) to fully restore the Unified Petroleum Price Fund (UPPF) margin on petroleum products, says experts.
Under normal circumstances, the distance fuel travels to the pump from the storage should determine the cost per litre consumers purchase it. This means fuel prices will vary across the country due to the distance of travel from the storage. But the UPPF simply ensures that fuel prices for all Oil Marketing Companies (OMCs) are the same, irrespective of whichever part of the country one is buying fuel from. The UPPF takes that cost element away for the fuel to be sold as near as possible the actual cost of distribution.
Oil marketing companies reacted quickly to the regulator’s decision, adjusting prices upward by 9 pesewas on July 1st when the new margins took effect. The NPA had reviewed the margins downward last April.
This, experts – including Benjamin Boakye, Executive Director of Africa Centre for Energy Security and Nana Amoasi II, Executive Director of Institute for Energy Security – are of the view that restoring the UPPF in full at the height of the current economic hardship and rising international crude prices is ill-timed, as it has the potential to expose local consumers to more shocks.
While admitting that government could no longer afford to subsidise fuel, Nana Amoasi II said the timing of the decision exposes the Ghanaian fuel consumer to international and foreign exchange shocks.
“With the country’s debt to GDP being about 80 percent, government’s main concern will be to shore up revenue while cutting expenditures, particularly that which compel government to borrow to finance same,” the energy expert and traditional leader added.
Per the NPA’s directive, the reviewed UPPF margin which was 20 pesewas on petrol and diesel will now be 29 pesewas each. That of kerosene and LPG will now increase from 21 pesewas and 18 pesewas to 30 pesewas and 27 pesewas respectively.
“It’s not right,” says Mr. Boakye, adding that consumers were already asking for a reduction, thereby, making the decision insensitive. It will only increase the hardship on Ghanaians, as price at the pump is going up because of the announcement,” he lamented.
Fuel prices, since January this year, have shot up sharply by close to 40 percent, mainly due to the rising international crude oil prices and depreciation of the cedi.
For instance, a litre of petrol which sold at GH¢6.70 in January now sells at GH¢11.40.
With investors continuing to worry over tight global crude supply and lower demand as recession risks linger, it is expected that prices could rise further in the coming weeks and months, according to industry watchers.