Guinness, Cigarettes, And Petroleum Politics In Ghana

Hard to believe but it’s within living memory that the Ghanaian government was so pervasive and meddlesome that it was setting the price of virtually everything, including Guinness. In the 1979-80 budget, for example, bureaucrats in Accra decreed that “Guinness stout” was to be sold for “¢3 in bars, ¢3.30 in hotels, and ¢3.50 in discotheques”, up from ¢2.10, ¢3.20, and ¢2.60, respectively. But that was only the tip of the government’s long arm for micromanagement of the economy. With painstaking detail, these dedicated bureaucrats proceeded to list new prices for 11 brands of cigarettes! And then on petroleum “price adjustment,” in language that presaged what we would hear 30 years later, the government offered the following rationalization. “The last time government adjusted the ex-pump price of petroleum products was in September 1978 when the world price of crude oil rose to about $14.10 or ¢38.78 per barrel. Since then, there has not been any adjustment in ex-pump prices in spite of the large increases in the world price of crude oil.” Government, we were told, “had to subsidize petroleum consumption” to the tune of “¢40.00 million per month”, making it difficult to “obtain sufficient funds for the provision of essential services”. With that preamble, the ex-pump price was raised by nearly 115% to ¢7.5 per gallon. The price of kerosene, which the government claimed to be subsidizing for “the rural population,” was increased by 250%. Now, fast-forward to January 4th 2011, when the CEO of the National Petroleum Authority, Alex Mould, proffered his own justification for an impending petroleum “price adjustment”. “Prices”, he said, “were fixed from October 31, 2009 to date. Within the period, crude prices have increased by 23% and most of the products [sic] have also increased about the same magnitude” He then announced ex-pump price increases “in the regions of between 25% and 30%”, explaining that “the TOR debt recovery levy which Parliament approved before Christmas” in order to “retire debts owed by the country’s only refinery” was one of the factors responsible for the hike. If the bit about TOR debt sounds familiar, that’s because we’ve heard it all before, as in a 2001 memo sent by the government to the IMF: “In order to halt the ongoing losses at TOR, the government raised ex-refinery gasoline prices by an average 91 percent in February 2001, with immediate effect. In April, the Public Utilities Regulatory Commission (PURC) allowed the Electricity Company of Ghana (ECG) to raise the retail price of electricity by 96 percent and Volta River Authority (VRA) to raise its wholesale electricity price by 100 percent.” In justifying another price increase two years later, the government declared in the 2003 budget: “A Debt Recovery Levy will be imposed on the use of petroleum products. The proceeds from the levy will be placed in a Sinking Fund and used to repay the accumulated debt of TOR incurred from selling petroleum products below cost in the past. This is urgent in order to reduce the systemic risk posed by the large debt of TOR to the Banking Sector and the economy.” Virtually every budget statement thereafter had a variation of this tortured justification for raising petroleum prices ostensibly to save TOR and help the rural folk. We have since learned that a significant portion of the proceeds from the levy was used not to retire the TOR debt but to finance a “government communication strategy” in 2008, an election year. And poverty in the rural areas, according to the 2005/2006 Ghana Living Standards Survey, actually went up, not down. Tellingly, the people responsible for this deception and diversion have been among the most vocal in condemning the latest price hikes and accusing government of deceiving Ghanaians while ignoring their own record of two-timing the Ghanaian public. Now, Ghanaians are left to wonder: Are all politicians forked-tongue creatures who habitually say one thing but do another, or do they, once in power, operate under “circumstances beyond their control”? The answer may be found in the “dual constituency problem”, where leaders of a country like Ghana that depends on the charity of others for its development must necessarily serve two masters whose interests do not necessarily always coincide, if they do at all. One constituency is the electorate to which politicians make flowery and seductive promises in order to win power. This constituency has the power to elect but little money to finance development. And then there is the constituency of international financial institutions and donors who have no electoral power but the money to finance our development in return for conditionalities like realistic petroleum prices”. The result is the politics and hypocrisy of petroleum pricing. The most practical solution to this conundrum is for government to get out of the petroleum pricing business and let consumers directly reap the rewards and challenges of competition – open, honest, well-regulated competition. Just as it was unwieldy and ultimately unsustainable for government to be setting prices for everything from Guinness to cigarettes to a long list of “essential commodities” like soap and matches, so has it become increasingly illogical for government to insist on setting prices for a product over which it has little or no control. We need a new and more pragmatic petroleum pricing regime that would give petrol stations the freedom to set their own prices (possibly within a band), subject to strict laws against collusion and price fixing and supplemented by laws against potential government abuse, such as the diversion of the benefits of falling oil prices that should properly go to consumers. A timetable for the eventual retirement of the TOR debt must be published both to tame public anger and restore some confidence in state institutions. For the long term, we need structural reforms to promote energy conservation and stimulate economic growth, especially in the rural areas, where over 30 years of subsidized kerosene consumption (which is paid for from higher premium prices) have failed to make life better. Since most rural dwellers use kerosene mainly for lighting, the logical response to failed subsidies is to accelerate the decades-old rural electrification programme not only to provide light but also to help transform rural economies through increased industrial activity. Proper transportation planning (not the mere expansion of roads which does not necessarily reduce traffic) must consider current and future patterns in human settlements and economic activity and their implications for energy consumption in general; the Energy Commission must intensify public education on best practices in energy use for enduring behavioral change. Unless such bold and innovative options are pursued, the charade of politicians speaking from both corners of their mouths, and a cynical population growing ever more cynical, would continue to gnaw at the essence of governance. And that would be bad for our young democracy.