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Uncertain petroleum price looms

Accra (Greater Accra) 5 Nov ‘ 99

Operators in the oil and gas industry have predicted that an uncertain petroleum price regime looms over the country especially in view of the increasing price of crude oil on the world market against the weak cedi.

This, they say, has put the oil industry in a difficult position arising from the problems of high and sometimes uncontrollable production costs which most often do not tally with the unit price of the end-product.

Most experts interviewed in Accra by GNA, said the situation has the potential of worsening the plight of Ghanaians if crude oil and petroleum marketing companies go ahead to charge economic rates.

From 10 dollars a barrel at the beginning of this year, the price of crude oil has jumped regularly and is now fixed at 24.37 dollars (as at October 29).

This is putting a severe strain on both the Tema Oil Refinery, Bulk Oil Storage and Transport (BOST) company, oil distributing and consumers.

The experts in the industry are hesitant about what will be the outcome of such a situation. However, analysts are optimistic saying, it is obvious that a high production cost by TOR will result in a further increase in petroleum prices again before the end of the year at least.

The MD of BOST, Dr Kwabena Donkor, answering questions on the future of the oil and petroleum sector concerning the state of the cedi as against the dollar, said "the situation is putting BOST and TOR under serious pressure.

"We might have to act very swiftly in order to save the situation".

Dr Donkor could not tell immediately whether there might be further increases in petrol prices before the year ends.

He said the cost of oil refining in Ghana is not being enhanced by the huge imbalance created by the low Cedi equivalent to the Dollar.

The continued fall of the Cedi (17.9 per cent since January) is threatening to put it out of gear.

Dr Donkor described the future of the oil market in Ghana as quite bleak, posing daunting challenges to managers of the industry.

Officials of TOR and oil marketing company analysts are pessimistic about an early recovery of the cedi against the major currencies.

Experts say the price of a barrel of crude oil will go up to 24 dollars and beyond by the end of the year.

Government will lose about 450 million dollars on the importation of crude oil if current situation do not change.

The Tema Oil Refinery is the sole refinery of crude oil while the importation of the commodity is now decentralised.

Some of the importing companies are the Ghana National Petroleum Corporation, Mobil Oil Ghana Limited, Shell Ghana Limited and Elf Ghana among others.

Dr Donkor expressed the hope that a solution would be found soon to bring about normal pricing in the oil sector to impact positively on the petroleum sector.

The Mines and Energy Ministry maintained in August that economic difficulties are putting pressure on government and a subsidy would mean abandoning major development projects.

Mr Moses Asaga, a Deputy Minister of Finance, spoke last week on what the government will be doing to reverse the problem in the oil industry and the economy in general.

He said "there will be a further reduction in domestic capital expenditure, heightened enforcement of revenue collection procedures, continued negotiation with financiers and donors to earn an enhanced support mechanism".

"The government is also negotiating with the Japanese government to de-freeze the 51 million-dollar facility, which the Japanese government had held up because Ghana is listed among the Highly Indebted Poor Countries (HIPC)."

Ghana was not originally listed in the HIPC programme.

The country's development partners are also being encouraged to commit about 600 million dollars to the country's economic development to help invigorate the government's liquidity problems.

Mr P. D. Vanderpuye-Orgle, Managing Director of Tropic Oil Limited, a local gas distributing giant stationed in nine of the 10 regions in the country said " the rate of fall of the cedi is alarming.

"This is so because we are borrowing in dollars and paying in cedis which keeps falling".

He said government needs to come out with a clear policy on the 30 cedis incentive fund and how it works.

Under the policy, the distributing agencies benefit from a 30 cedis incentive on each kilo of gas sold. Mr Vanderpuye however claim that it is still not enough since the same amount is paid to companies no matter how far one travels from the point of origin.

"This has created a situation where companies do not find it attractive to operate in the remote areas of the northern parts of the country".

GRi../