Ghanaians must brace themselves up to pay realistic prices for petroleum products, Mr Moses Asaga, the Chief Executive Officer of the National Petroleum Authority (NPA), has said.
But the Minister of Finance, Mr Seth Terkper, is advocating the re-introduction of the automatic adjustment formula to curtail the incurring of huge debts in future.
According to Mr Terkper, in as much as he was for the gradual removal of subsidies, it was imperative for the government to introduce other social intervention mechanisms to mitigate the effects of the removal of subsidies.
Justifying his position on the issue of removal of subsidies, Mr Asaga said the rationale was to enable the government to clear its indebtedness to the bulk oil distributing companies (BDCs) to totally clear off government’s indebtedness to them and ensure regular, uninterrupted supply of “high quality products”.
Additionally, Mr Asaga said, the removal of subsidies would protect the petroleum industry and the banks and also make room for the government to use the money which would have been used to pay subsidies to cater for other social intervention mechanisms.
“The government subsidises petroleum products to make them affordable to Ghanaians, but it is now time for the government to cut back on subsidies because we cannot continue to accumulate huge debts,” he said.
Government debt
The government currently owes the BDCs more than GHc1.3 billion, being subsidies from July 2011 to December 2013.
Meanwhile, it had, from January to June 2014, accrued GHc295.1 million, representing price differentials incurred as a result of the depreciation of the cedi.
Explaining the rationale behind the need to scrap subsidies in their entirety, Mr Asaga told the Daily Graphic in an interview in Accra yesterday that it was neither sustainable nor feasible to continue subsidising.
According to him, the price of petroleum products had been “kept flat for the last three months without any increase, although the cedi had kept depreciating”.
Petroleum products are usually priced in dollars and so the depreciation of the cedi affects the pricing as well.
Gradual process
He argued that the prices of petroleum products in Ghana were among the cheapest in West Africa but conceded that the removal of subsidies must be a gradual process.
“It is better to gradually remove the subsidies now than never,” Mr Asaga added.
Finance Minister’s position
In a separate interview with the Daily Graphic, Mr Terkper said subsidies were introduced in the petroleum sector three decades ago, at which time it provided much relief for motorists and passengers.
He said petroleum subsidies were social intervention programmes which could not be taken off instantly.
“We need to approach the issue holistically because many more people are benefitting from subsidies. We cannot just take it off without providing fleets of vehicles and other affordable means of convenient transport,” he noted.
He said the suspension of the automatic adjustment formula, challenges with the Single Spine Salary Structure, the depreciation of the cedi and the fall in the prices of cocoa and gold on the international market were some of the factors that had resulted in the accumulation of the debt.
I am for moderate adjustment
Welcoming the call for a debate on whether or not subsidies should be removed, Mr Terkper said subsidies should be realistic, such that the government would be in a position to contain them in the budget.
“We should not suspend the automatic adjustment formula and later turn around to exorbitantly increase petroleum prices,” he pointed out.
He said he was for the moderate adjustment of petroleum prices and indicated that there was no policy suggesting the removal of subsidies in their entirety.
