He said it was likely that such a move would be ineffective in the long run, resulting in the return of the dreaded and unsustainable subsidies.

He told the Graphic Business in an interview that the country would be better off if the government continued to use the PSRL to build up strategic stocks to stabilise prices.

He was speaking to the paper on the pros and cons of a recent directive by the Ministry of Energy (MoE), asking the NPA to use the PSRL as a price stabilisation mechanism to manage the fluctuation of prices at the pump.

Already, some experts and members of Parliament (MPs) have argued that the inclusion of the PSRL in the pricing structure under a separate Act of Parliament should go to Parliament for approval.

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Providing comfort

In a letter dated November 30, the MoE directed the NPA “to, as a matter of urgency, apply the PSRL to manage the ex-pump prices in the price build-up to ensure that prices are stable as an interim measure”.

The directive was said to be in line with Section 2 (b) of the Energy Sector Levies Act (ESLA) 2015 (Act 899), which requires that under-recoveries, in times of rising prices, should be financed from the PSRL and over-recovery, in times of falling prices, should be transferred to the fund.

Following the ministry’s recent directive, the NPA on December 1, announced a 70 per cent drop in prices of diesel and LPG. It further directed oil marketing companies (OMCs) and LPG marketing companies (LPGMCs) to apply the revisions in their price build-up, effective that day.

While this provides some relief to consumers, Mr Terkper, who oversaw the passage of the ESLA in 2015, said such a directive was alien to the ESLA law, which is not specific on using the PSRL to affect the petroleum price build-up, the components of which are regulated by a separate act.

He said the law rather called for the setting up of a special fund, which he started using from 2016 to build strategic stocks. He noted that that section of the act on stabilisation was explicit with respect to payment of subsidies for only LPG. He also wondered if the Minister of Finance had issued any directive to the Energy Minister for the use of the funds to pay subsidies.

“We need to understand that it is only the Minister of Finance who is authorised to manage and apply the funds,” he stated.

Sustainability

Beyond the legal lapse, Mr Terkper said the latest application of the PSRL was not sustainable and could be injurious to the economy, should the ESLA be terminate as envisaged.

“If you give the funds to the BDCs and OMCs through the price structure, the payment of subsidy will return when the PSRL is terminated and exhausted, unless we make it a perpetual tax.”

“However, under the buffer stock system, we would have been buying at low crude prices and selling when the price is high. If the low and high selling prices are managed well, as is done in some advanced and middle-income countries, a self-financing buffer could result from ploughing back the profit or margin and Ghana can even export from the stocks in times of excess,” he noted.

Farm tanks

The former Finance Minister recalled that prior to leaving office in January this year, the Ministry of Finance was facilitating an arrangement between the Ghana Infrastructure Investment Fund (GIIF), the Bulk Oil Storage and Transportation Company Limited (BOST) and the Ghana Oil Company (GOIL) to build more farm tanks across the country to store strategic stocks, using proceeds of the PSRL buffer margins and GIIF Petroleum Fund (ABFA) allocations.

Beyond cushioning prices in times of increments, Mr Terkper said a well-managed strategic stock system could become an avenue for exporting to landlocked countries, thereby creating an additional revenue-generating measure for the state.

However, with the current system, he feared that the government was indirectly including subsidy in the price build-up, which could return to hurt the economy.

Until mid-2015 when fuel subsidies were scrapped, it was estimated that the country was using about GH¢2 billion to subsidise prices of petroleum products, ostensibly for the poor.