Oheneba Lovelace Prempeh

Countries all over the world accept that they do not control the prices of their imports, and Ghana is no exception. In shopping malls and neighbourhood provisions stores, shoppers accept the displayed prices of commodities and buy what they can afford.

The government does not interfere with the prices in sales outlets, including in the ever popular Makola market. But, when it comes to imported petroleum products, the story appears to be different. Because the prices of refined petroleum products impact on almost every economic activity in Ghana, the government's keen interest is understandable.

Oheneba Lovelace Prempeh, could not have described the situation more succinctly: "Tema Oil Refinery (TOR) is Ghana's central nervous system."

Mr. Prempeh is a credible reference point having worked for the nation's only refinery, as deputy managing director for 13 years. During that period, he was also the finance director of the company. A paper he wrote on Ghana's oil and gas industry last year provided broad insights into what Ghanaians can expect of the sector going forward.

He explained: "TOR consumes more than 40% of Ghana's export earnings, by way of petroleum imports and generates a significant portion of the government's fiscal revenues through taxes and levies on petroleum products."

It seems that because of the important place petroleum products occupy in the national economic system, their pricing is treated differently from other equally essential imports.
Currently, the National Petroleum Authority (NPA) sets the prices of petroleum products in the country.

However, due to what some analysts consider government's irrational fear of losing power, the pricing of petroleum products has often been subject to political interference, much to the detriment of TOR, oil wholesalers and importers.

Yet, the pricing of petroleum products in Ghana, has not always been determined by government or its agencies.

Before the establishment of TOR in 1961, imported refined petroleum products, similarly to other imported goods, were brought into the country and sold by multinational companies.

When TOR started operations, the expatriate oil marketing companies (OMCs) such as Shell, Texaco, Total and others, were stopped from importing refined petroleum products.  Instead, they were given the responsibility by government to import the crude oil required by TOR, for processing into finished products.

Mr. Prempeh is a credible reference point having worked for the nation's only refinery, as deputy managing director for 13 years. During that period, he was also the finance director of the company.
A paper he wrote on Ghana's oil and gas industry last year provided broad insights into what Ghanaians can expect of the sector going forward.

According to Mr. Prempeh's paper, the expatriate OMCs negotiated and signed a processing agreement with TOR. After processing, the refined products belonged to the expatriate OMCs, who then paid the negotiated processing fee to TOR, after which they added their margin, fixed their ex-pump selling prices and sold the petroleum products to the public. There was no interference from the government at the time.

"In 1965, the government cancelled the agreement with the expatriate OMCs and stopped them from importing crude oil for processing at the refinery. Thereafter, responsibility for crude oil importation was transferred to the petroleum department of Ghana Supply Commission," Prempeh said.

He added: "The Ghana Supply Commission negotiated a new processing agreement with TOR. From 1965 onward, the imported crude oil and TOR refined products belonged to the Ghana Supply Commission. After paying the negotiated processing fee to TOR, it was the Ghana Supply Commission that marketed and sold the finished petroleum products to the expatriate OMCs. At that time, there was no established formula for determining ex-refinery prices. Once again, there was no interference from the government."

During the entire time that the suppliers of crude oil to TOR changed from the expatriate OMCs to the Ghana Supply Commission, prices of petroleum products were being determined by market forces. As a result, the refinery remained profitable, making respectable revenues from the processing fees it charged from the suppliers and owners of the crude oil.  

The remaining story of how the Ghana Supply Commission was replaced by the Ghana National Petroleum Corporation (GNPC), soon after the former was created in 1983, is familiar to many Ghanaians.

According to GB&F's highly placed industry source, TOR's problems started when it assumed the responsibility for importing and owning its own crude oil from GNPC in 1996.

In his paper, Prempeh states that: "Unlike the expatriate OMCs and the Ghana Supply Commission which in the 1960s through to 1985 were allowed to set their own ex-refinery and ex-pump prices without direct government interference, GNPC and TOR were not so fortunate. Indeed, it was when GNPC took over the oil trading responsibility of the Ghana Supply Commission in 1985 that the government, acting through the Ministries of Finance and Energy, became involved in the management of ex-refinery and ex-pump selling prices of petroleum products, with consequences for the survival of GNPC, TOR and their local banker, Ghana Commercial Bank."

Another highly placed source, who was in government in the 1980s, also explained that government's interference in the management of ex-refinery and ex-pump prices of petroleum products was because the prices were regarded as a national structural problem, having impacts on inflation and socio-political considerations, such as, increases in transport fares, food prices. These in turn fuelled workers' agitations for increases in salaries and wages.

In an attempt to change TOR's status from an oil trader back to its original status as a fee-taking refinery, the government reappointed GNPC in 2009 to resume the management of the government-to-government contract for the importation of crude oil from Nigeria. But, neither GNPC nor TOR was given the power to fix ex-refinery prices.
The government influenced the pricing regime up until the present day, with prices now to be managed by the NPA, the downstream regulator of the oil industry.

Under the circumstances, some analysts believe it is not necessary for TOR to own and sell refined petroleum products because, historically, due to political interference by successive governments, the NPA has often fixed prices, which has been detrimental to the profitability and viability of the refinery. Instead, they recommended that TOR secure uninterrupted oil supplies from major crude oil suppliers for a processing fee, in order to remain profitable.

In his paper, Mr. Prempeh argues that the NPA has outlived its usefulness and goes to the extreme of recommending its abolishment. "With Ghana soon to have an integrated oil and gas industry, it will be simply absurd to have two separate regulatory authorities; a downstream regulator and an upstream regulator. It will be a complete waste of resources and a potential duplication of functions," the paper states.

It appears critical that the citizens of Ghana and industry insiders call for a review of the status and role of NPA. It is common best practice one regulatory body is enough to cater to the needs of both the upstream oil sector, no matter how nascent and the downstream sector, no matter how vibrant.

The start of oil production in Ghana also calls for a review of how prices of petroleum products are determined in the country. Prior to the discovery and subsequent production of oil in Ghana, the commodity was treated as an import and Ghanaians had no control over its price.

With the country's new status as an oil producer, it would seem awkward to supply TOR at import parity prices, when it is common knowledge that the crude oil is coming from the Jubilee Field, just a few thousand miles from Tema.

In many oil producing countries, particularly in North Africa and the Middle East, citizens pay relatively less for petroleum products. In addition, citizens benefit from a wide array of social services including heavily subsidised education, medical care and so on.

It can be argued that those countries which are producers of a raw material benefit to a greater degree from cost savings on that material than those who must import it, similarly to the neighbourhood kenkey house, where children of the kenkey producer and seller are allowed to have the local Ghanaian dish free while other children queue to buy it to eat.

While it may still be early days in the production of crude oil in Ghana, and as Ghanaians bask in the euphoria of the country's new oil producer status, many Ghanaians are becoming more aware of the potential of their oil resources. The new oil revenues could help the government fund subsidies for basic social
services, scholarships for education, the establishment of a credible system of identifying Ghanaian citizens, not to mention the carrying out of a street naming exercise and home address programme to assist the postal services of Ghana and many more initiatives.

Already, parliamentarians have passed a law to empower the executive to use Ghana's petro-carbon resources as collateral for loans. Perhaps, the people of Ghana could ask its honourable men and women to legislate a pricing scheme that would allow Ghanaians to benefit from cheaper prices of petroleum products as well.