In the early months of the year, the country has persistently witnessed a rise in fuel prices causing agitations amongst industry players, transport operators and the everyday Ghanaian.
Currently, a litre of petrol and diesel is being sold at GH¢6.90 and GH¢6.99 depending on the Oil Marketing Company one is purchasing from.
Several factors are currently fueling the final price of fuel and diesel. These factors include:
A) The rise in Oil Prices – COVID recovery
According to the Financial Times, “ExxonMobil, the US’s biggest oil producer, racked up losses of more than $20bn last year — the first annual loss in its history.”
UK energy group BP lost US5.7 billion, down from a US$10 billion profit in 2019.
ConocoPhillips, one of the US’s largest independent producers lost US$2.7 billion down from a US$7.2 billion profit in 2019.
These heavy losses suffered by the above oil producers among others were all due to the COVID pandemic which saw nations entering a period of total and partial lockdowns.
With economic activities now buzzing to life and nations opening up borders, the global demand for fuel has increased. Producers are now capitalizing on the market to make up for the losses incurred.
B) The rise in Oil Prices – World price
Ghana is heavily dependent on the international market for its fuel supply as the country has no functioning oil refinery. Ghana’s premier oil refinery, Tema Oil Refinery shut down its refinery operation in June of 2018. Due to a wide range of reasons of which include the use of old equipment, poor management and a mountain of debt.
It was estimated that TOR owed GH¢167 million to the Ghana Revenue Authority and other state agencies such as the Social Security and National Insurance Trust (SSNIT) for the non-payment of the tier one pension scheme totalling GH¢3 million and the Electricity Company of Ghana.
TOR’s purpose was to boost local capacity which will help drive down prices. But with the refinery malfunctioning, Ghana is at the mercy of the international market.
The cost that goes into the shipping, landing, offloading of the essential commodity as well as other cost factors drives up prices. Thus, importers and Oil Marketing Companies include their margins to churn out profits.
C) The rise in Oil Prices – Cedi depreciation
The Cedi depreciation against the dollar is a deciding factor in the price of fuel. This is because fuel is purchased in dollars and not in cedis. Given the underperformance of the Cedi against the dollar, importers would have to change more cedis for dollars in order to buy the essential resource.
This also impacts how much cedis OMC’s in the country must hold to purchase the essential commodity from the importer, hence, influencing price at the pumps.
D) The rise in Oil Prices – Taxes and levies
There are 12 imposed taxes and levies on petroleum products in the country. These taxes and levies include:
i. Energy Debt Recovery Levy (49 pesewas)
ii. Energy Fund Levy (1 pesewa)
iii. Energy Sector Recovery Levy (20 pesewas)
iv. Price Stabilisation and Recovery Levy (14 pesewas)
v. Sanitation and Pollution Levy (10 pesewas)
vi. Road Fund Levy (48 pesewas)
vii. Special Petroleum Tax (46 pesewas)
viii. Primary Distribution Margin (11 pesewas)
ix. BOST Margin (9 pesewas)
x. BOST Margin (9 pesewas)
xi. Marketers’ Margin (46 pesewas)
xii. Dealers (Retailers/Operators) Margin (30 pesewas)
A cumulation of the above tax component leads to a price build-up of GH¢2.93. What this means is that for every litre of petrol or diesel one buys at GH¢6.90 or GH¢6.99 there is a tax component of GH¢2.93. This represents about 42% of the price build-up.
E) The rise in Oil Prices – Electric Vehicles
The aforementioned factors are the most talked-about factors influencing fuel price. However, the advent of electric vehicles has a role to play.
The world is becoming more environmentally conscious given the rise in global temperatures and the impact of climate change. Car manufacturers are gradually making the shift from diesel and petrol-fueled engines to electric powered motors. This poses a threat to the global oil market.
According to the International Energy Agency (IEA), in 2016, More than 750,000 electric cars were sold with global electric car stock growing to more than 2 million.
With the growing popularity and advocacy for electric vehicles, the demand for fuel for transportation will be eroded across the globe. Given this anticipation, oil producers may be attempting to make the best gains now by stifling supply to shore up prices.
In a Bloomberg series, “Sooner Than You Think,” it was estimated that should electric vehicles continue on a 60% growth trajectory, electric vehicles could displace oil demand of 2 million barrels a day as early as 2023.
Exxon Mobil spokesman Casey Norton is however of a different opinion. According to Casey, even if electric vehicles dominate the transportation arena there will be an insignificant change in global demand.
“If every car sold in 2025 was an EV, leading to every single passenger vehicle in the world being an EV by 2040, the global demand for oil and gas would be the same as it was in 2010,” Casey stated.
To ensure some respite during this time, the government of Ghana must get the Tema Oil Refinery working at its full capacity and eliminate some of the taxes and levies on petroleum products. Currently, the government has suspended the Price Stabilization and Recovery Levy (PSRL) on petroleum products for two months, which took effect on November 1, 2021. This however insignificant as the Price Stabilization and Recovery Levy stands at 14 pesewas.