Introduction
The price of fuel at the pump is of interest to every Ghanaian because of its direct impact on our daily lives. Whether you drive a personal car or use public transport, the changes in the prices of fuel affects your cost of living. Fuel is a key ingredient required to power the economy, and therefore its level of consumption has a direct relationship with how strong an economy is; a rise in the consumption of petroleum products is usually an indication of a growing economy. The United States of America (U.S.A) consumes the most oil in the world and is the world’s biggest economy, followed by China which is the world’s second largest oil consumer and therefore the second largest economy in the world. Therefore, a product of this nature which has such a direct impact on every citizen’s life, and has no close substitutes will always be of utmost importance to consumers, and hence the need to know what goes into how much we pay for it and what drives the changes in its price.
Who determines the Price of Fuel in Ghana?
The price of fuel in Ghana is determined by a formula that takes into consideration the following factors:
- The world market price of each petroleum product;
- The freight cost from source to Ghana, storage costs and all other associated costs incurred before supply to retail outlets (referred to as the Suppliers’ Premium);
- The Ghana Cedi (GHS) to US Dollar (USD) exchange rate;
- The taxes/levies on each petroleum product; and
- The margins on each product.
The National Petroleum Authority (NPA) regulates the petroleum downstream industry in Ghana. One of its core mandates is to ensure that the pricing of petroleum products is done in conformity with the prescribed petroleum pricing formula which is made up of the components listed above. Until July 2015, the pricing of all petroleum products was regulated by the NPA. Therefore, before the start of every pricing window on the 1st or 16th of each month, the NPA will compute and announce the prices at which each petroleum product should be sold. This allowed government to control prices and subsidised the prices for consumers when it deemed it fit to do so. However, due to the challenges that price control brought on the economy and the threat it posed to the continuous availability of petroleum products, the pricing of petroleum products in Ghana was deregulated in July 2015. Price deregulation allowed market forces to determine the prices of petroleum products without the direct control of government. This resulted in the removal of subsidies on petroleum products, and the prices change in response to price changes on the international market and the strength of the GHS against the USD.
The pricing of Premix Fuel and Residual Fuel Oil (RFO) have not been deregulated. The NPA is still responsible for the computation and announcement of the prices of these two products which are highly subsidised by government. Premix Fuel is the fuel used by fisherfolk in their outboard motors while RFO is used by local manufacturing companies in production of goods. Government made a policy to continue to support these two critical sectors of the economy, particularly because the end-users can easily be targeted. The pricing of Aviation Turbine Kerosene (use by aeroplanes), the gasoil used the mining sector, oil rigs and international marine vessels that bunker in Ghana are also regulated by the NPA.
Even though pricing of petroleum products is deregulated, the NPA plays a supervisory role by ensuring that the Bulk Import Distribution and Export Companies (BIDECs) and Oil Marketing Companies (OMCs)/Liquefied Petroleum Gas Marketing Companies (LPGMCs) who are now responsible for pricing the other products such as petrol, diesel, and LPG do so in conformity with the prescribed petroleum pricing formula. The NPA also conducts regular price monitoring exercises and analyses the prices determined by the BIDECs and OMCs/LPGMCs on a regular basis to ensure that the interests of both consumers and Petroleum Service Providers are protected, with regards to pricing, as required by Section 2e on the NPA Act.
Components of the Ex-Pump Price of Fuel
The price at which a consumer buys fuel at the retail outlet or filling station is called the ex-pump price. The ex-pump price is arrived at by adding the ex-refinery price of the product to the taxes, levies and margins imposed on the product.
The ex-refinery price is the price at which the importers (Bulk Import, Distribution and Export Companies) sell the product to Oil Marketing Companies (OMCs) and LPG Marketing Companies (LPGMCs). It is made up of the world market price also called the FOB (Free On Board) price of the product and the cost of landing the product into Ghana or producing the product locally before it is sold to the OMCs/LPGMCs for supply to their retail outlets.
The Ghana Cedi to US Dollar (GHS/USD) exchange rate is used to convert the ex-refinery price from USD to GHS before sale to the OMC/LPGMS.
Currently, the ex-refinery price represents about 75% and 81% of the ex-pump price of petrol and diesel respectively. The taxes and levies represent about 17% and 14% respectively, while the various margins together represent about 8% and 6% of the pump prices of petrol and diesel respectively.
Why does the price of fuel change frequently?
In Ghana, there are two pricing windows in a month (1st – 15th and 16th to end of month) within which both the BIDECs and OMCs/LPGMCs generally review the prices of petroleum products. The prices of petroleum products on the world market and the exchange rate change daily, however, because of the bi-weekly pricing window policy practiced in Ghana, the daily prices on the world market are averaged for a two-week period and used in the pricing formula.
The author heads the Economic Regulation Department at the National Petroleum Authority (NPA). He has over 11 years’ experience in the petroleum downstream industry in Ghana.
 By Abass Ibrahim Tasunti