Accra, February 12, 2018//-Consumption of petroleum products is inelastic and results in some volumetric effect because the burden of upward price adjustment depends to a large extent on the volume of consumption.
Before and during the reading of the 2018 budget and the recent ”Meet The Press”, the President of the Republic of Ghana announced specific reductions in utility Perhaps, in clear usurpation of the mandate of PURC. The downward adjustments announced by the President are yet to be effective. Ghanaians are still wondering when the PURC will ratify the unauthorized pronouncement by the president.
One is not clear whether or not the unauthorized announcement of tariff will be a reflection of the expectations of all stakeholders, especially Power Producers and Distributors (i.e. VRA, ECG, etc).
In a similar fashion, Ghanaians are asking for petroleum price reduction because of the incidental burden on them due to continuous increases in petroleum prices.
They are also asking for reduction because they want the government to fulfill the campaign promise made by the current political leadership to reduce fuel prices significantly by scraping the Special Petroleum Tax (SPT).
Ghanaians are even more empowered to demand the reduction because of the believe/impression that the President has the power to reduce fuel prices same as he did by announcing new utility tariffs.
Beyond the painful fuel price politics which is self-inflicted by the current government due to pronouncement in the past, some Ghanaians are asking if the government can ever reduce fuel prices drastically as promised?
The answers are simple:
(1) the government is taking fiscal management advantage of the high petroleum prices, so any attempt to reduce prices by scraping the SPT will mean huge losses in revenue, which the government did not plan for;
(2) the revenue from SPT etc. has been collateralized in the issuance of the Energy Bond and any attempt to vary the revenue inflows creates a platform of risk for bondholders. Again, this could trigger investor response for a premium.
So government may not be able to remove the SPT. In fact, any conversion of the SPT cannot be equal to cancellation or scraping, so government will continue to be halting between explanations and indecision about the SPT.
Perhaps, the most difficult reality government has to face is that the creation of ESLA plc which is said to manage the bond is seen by some as illegal and violates Article 192 of the Constitution, which states that ”no public corporation can be created except by an Act of Parliament”.
One could ask, where is the Act of Parliament establishing the ESLA plc? This may be one of the conduits for legal and political risks for the holders of the Energybond and will be a cause for concern for any investor interested in the yet to be issued remainder of the Energybond under ESLA plc.
By Prof John Gatsi, Senior Lecturer of University of Cape Coast
