Wednesday, 15 April 2020

Sell fuel at GH¢3.50/litre - Energy expert urges

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Adnan Adams Mohammed

 

An energy experts 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$20-25 per barrel and US$30-35 per barrel ranges on the world market respectively.

 

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.

 

From a consumer perspective, low oil prices should translate to lower fuel prices, 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).

 

“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 $20-25/bbl range and GH¢4.00 per litre if prices rise to $30-35 range. However, all this is dependent on whether or not our cedi remains stable in the current FX range of GH¢5.5-5.8 per US Dollar.”

 

However, 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 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 mean the oil contribution to the country’s GDP will drop by US$2.5 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, indicated that, “Also we have seen a slowdown in G&G activities (Rig count is at its lowest in 10 years) with some development projects delayed and some oil service contracts rescheduled or postponed.

 

This will have to force 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 the 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 Majeuer. 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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