Experts remain focus to see pump prices dropping amidst doubt
Adnan Adams Mohammed
Energy expert has estimated that consumers of petroleum
products should expect the average price of diesel and patrol at the pump drop
as low as GH¢3.50 per litre and GH¢4.00 per litre, if oil prices remain in the
US$20 to 25 per barrel and US$30 to 35 per barrel ranges on the world market
respectively.
“Ghanaian consumers should see the price at the pump drop”,
Alex Mould, former CEO of NPA and GNPC has posited in a write-up he shared to
our news desk, expatiating that, “I estimate that we could see the pump price
go as low as GH¢3.50 per litre if oil prices remain in the US$20 to 25/bbl
range and GH¢4.00 per litre if prices rise to US$30-35 range. However, all this
is dependent on whether or not our cedi remains stable in the current FX range
of GH¢5.5 to 5.8 per US Dollar.”
These will be dependent on the relative strength of the
local currency (Ghana Cedi) comparative to the current foreign exchange rate
range of GH¢5.5 to 5.8 to a US$1.0. Data from the Foreign Exchange market shows
the cedi depreciated by 0.72% against the U.S. dollar, trading at an average
price of GHS5.63 to the U.S. dollar over the period under review; from a
previous rate of GHS5.59 recorded in the second pricing-window of March 2020. The
Institute for Energy Security has, however, forecasted pump prices to remain
largely unchanged for the second pricing window beginning 16 April 2020.
“Taking into consideration the relatively modest reduction
in the prices of petrol and diesel on the international market, as well as the
2.29% marginal reduction in the price of International Benchmark – Brent Crude;
the Institute for Energy Security (IES) foresees prices of fuel on the local market
remaining largely stable”, IES predicted base on their trend and market
behavior analysis in a statement it released last week. But noting that, “Competition
between Oil Marketing Companies (OMCs) to control and gain more market shares
may result in the selling price of fuel falling marginally within the second
pricing-window of April 2020.”
From a consumer perspective, low oil prices on the
international market should translate to lower fuel prices at the pumps, which
then translate to reduced transportation costs, cascading to a reduction in the
cost of goods and services and food.
The Good news is that, last week, the National Petroleum
Authority (NPA) in a circular announced that, Ghana Oil Company (GOIL) had
reduced its pump prices by 10 percent in the deregulated petroleum product
pricing system. This was expected to force other oil marketing companies to
also reduce their prices at the pump. This brought down pump prices from GH¢5.3
per litre in February to the current price of approximately GH¢4.3 per litre
(April 2020), although lower than as expected by many energy experts and
analysts.
The bad news though is that government with oil prices
below US$30/bbl, will experience a drop in oil’s contribution to GDP and
government revenues. This slow down on the economy will severely affect the government's discretionary spending; and the impact will be felt on many of its
infrastructure and capital expenditure projects e.g. roads. Which may in turn
impact consumers’ costs, if not managed appropriately.
Ghana will likely to see a revenue drop from US$1.1 billion
to less than US$600 million by the end of 2020. As a result, the net revenue to
the Government of Ghana will be less than US$400 million after GNPC pays for
its share of development and production costs.
This means the oil contribution to the country’s GDP will
drop by US$2 billion this year and contribution to government revenue will also
drop by nearly US$600 million (approximately 50%).
Mr Mould, in discussing the impact of the COVID-19 in the
write-up proposed some solutions that can help mitigate the negative impact on
Ghana’s economy as an importer and exporter of oil products.
He proposed that, hedging part of the country’s share of the
oil production would have saved the nation some revenue in this disturbing
moments and therefore urged the government to consider a risk management
policy; such as hedging post-COVID-19 pandemic.
“Also we have seen a slowdown in G&G activities (Rig
count is at it's lowest in 10 years) with some development projects delayed and
some oil service contracts rescheduled or postponed.
“This will have to force the government to seek opportunities
for strategic cost-management measures and enact them such as; reduce its wage
bill by rightsizing non-essential workers, as there has been a huge increase in
the workforce especially in the parastatals and a large number of political
appointees may have to be down-sized as well; and rationalizing all subsidies
especially in the power sector.
“Also; as airports are shut to commercial airlines, special
flight arrangements have to be made to keep our production FPSOs manned. Some
major players have stopped short of citing Act of God or Force Majeure. Aker, for instance, has requested a postponement to deliver the final Plan of
Development (PoD) and has even cancelled some of its long lead development
contracts.
“We are bound to see a rising number of legal cases for
compensation for these postponed or cancelled contracts”, he noted.
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