Blame fuel price hikes on cedi value, taxes – IES analyst
An energy market analyst with the Institute for Energy Security (IES), Raymond Nuworkpor, has attributed the recent hikes in fuel prices to the depreciation of the local currency (cedi), and the imposition of new taxes on Ghanaians by the government.
Adding to these is the international market price dip fears due to the pandemic.
Speaking with The Ghana Report, on the development Mr Nuworkpor, said, “the factors responsible for the recent hike in prices on the local market are the continuous depreciation of cedi, government levies and taxes, and international market price dip fears.”
According to him, the continuous rise in fuel prices would push the cost of production, a cost that would be pushed to consumers, thereby increasing the cost of living.
He has since asked the government to immediately institute measures to curtail the continuous depreciation of the cedi, which he said is the biggest contributor of the fuel price hikes.
Cedi Depreciation
Regarding the cedi, he noted that for the past three pricing windows, the cedi has continued to depreciate against its major trading partner, the US Dollar, Mr Nuworkpor, has observed.
The cedi has seen some 5% depreciation against the dollar in the last three pricing windows.
“This means, increased product procurement costs for Oil Marketing Companies (OMCs), since they have to make their purchases on the international market in dollars and then sell those products in local currency,” he explained.
Taxes, levies and international market price fears
He has also noted that the multitude of levies and taxes in the petroleum price build up, the short window for payment of these taxes to the Ghana Revenue Authority (GRA) have also contributed to the price hikes.
Aside existing sector taxes and levies, he stated that the Energy Sector Recovery Levy of 20 pesewas per litre on petrol/diesel under the ESLA introduced during the 2020 budget among others have added to the price hike.
The other taxes are the Sanitation and Pollution Levy (SPL) of 10 pesewas, COVID-19 levy of 1% on National Health Insurance Levy (NHIL), COVID-19 tax of 1% on VAT, financial sector clean-up levy of 5% on profit-before-tax of banks, road tolls review, and gaming tax.
In addition to this, are the fears of plummeting international market prices account, in large part, for the unwillingness of the majority of OMCs to buy huge stocks from the Bulk Oil Distribution Companies (BDCs).
The rationale behind this decision by the majority of OMCs is the fact that they are obligated to pay taxes to the government through GRA within 25 days of taking delivery of products, whether they sell it or not.
The consequence of this arrangement is the refusal of the majority of OMCs to take large volumes from the BDCs.
Coupled with fears of plummeting international market prices resulting from rising Covid cases, there is almost no incentive for OMCs to take larger volumes from the BDCs, Mr Nuworkpor explained.
He further explained that the smaller the volumes taken, the higher the cost and vice versa, noting that higher cost is ultimately transferred to consumers.
Fuel prices rise despite dip on the international market
Following a dip in prices on the international market in response to fears that rising Covid-19 cases would negatively affect demand of crude oil and its products, fuel prices were generally expected to fall in the second pricing window of August.
However, it did not happen, rather fuel prices rose on the local market over the weekend, the energy market analyst said.
Earlier this month, IES predicted that there would be a fuel price reduction at the pumps in the second pricing window of August 2021.
Although marginal, the energy think tank noted that the reduction was because of a drop in prices on the international market.
In a statement on August 15, it said, “for this window, with the 1.49% reduction in the price of the International Benchmark – Brent Crude, the 2.17% decrease in the price of Gasoline.
The 1.77% decrease in gas oil price and the marginal depreciation of 0.17% of the local currency against the US dollar,” price of fuel on the domestic market at the various pumps will dip entering into the second pricing window of August.”
READ ALSO: Deal With Fuel Prices Hikes – COPEC To Government
The Chamber of Petroleum Consumers-Ghana (COPEC) in June asked the government to institute measures to prevent further hikes in fuel prices.
This was because fuel prices were increasing, as the Chamber said foresees another increment in the coming days.
The Chamber attributed the projected rise in fuel price to global happenings, which directly affects prices at the pump, and by extension transport fares.
Oil prices on the world market have increased from $60 dollars in March this year to $73 dollars per barrel this month.
As a result, there was a 3% hike in fuel prices, which moved the price of petrol at some pumps from GH₵ 6.05 to GH₵ 6.23 per litter over the weekend.
The Executive Secretary of COPEC, Duncan Amoah, said, “Everything that happens on the global stage now directly impacts the pump,” and insisted that, “the system needs to be fixed immediately.”
According to him, it was not good enough for the government to allow continuous increment in fuel prices, affecting consumers badly.