Restructure subsidies - ISODEC

The Integrated Social Development Centre (ISODEC), which is kicking against the proposed scrapping of subsidies on utilities and fuel, wants Government to restructure subsidies from its current form to ensure it is pro-poor.

The current structure of subsidies on utilities and fuel does not go to benefit the mass of citizens who live below the poverty line.

“The current form [of subsidies] is bad, not subsidies in general. The current policy [of full cost-recovery] is likely to crash again with the increase in the prices of fuel on the international market in the future,” Dennis Nchor, an Oil and Gas Policy Analyst with ISODEC said.

“Do not remove fuel subsidies unless you have put in place policies to protect the poor in the transport sector. The social intervention programme by Government will not work. Why is [Government] so much in a hurry to let the public feel the impact of your election over-expenditure,” Mr. Nchor said.

According to Mr. Nchor, “last year’s budget deficit is what is pushing Government to rush into removing fuel subsidies”.

From 2009-2012, Government spent GH¢1.5billion on petroleum subsidy alone. This has led to the introduction of full cost-recovery rates on petroleum and Liquefied Petroleum Gas (LPG) in February this year by Government.

Hitherto, fuels were subsidised by as much as 30 percent for petrol and diesel. However, Kerosene and pre-mix fuel are still heavily subsidised; 72 percent for kerosene and 88 percent for the premix fuel used in the fishing industry. The National Petroleum Authority (NPA) projects that the subsidies, if they are sustained at current levels, will cost GH¢2.4billion this year.

Government budgeted US$470million (0.7 % of GDP) at the beginning of 2012 for utility and fuel subsidies. However, at the end of 2012 the realised subsidies during the year was US$809million (1.1 % of GDP); in excess of US$339million (0.5% of GDP).

Government, according to the 2013 budget, expects to spend about GH¢1billion on subsidies this year. Between January-April the budget deficit was GH¢3.4billion, or 3.8 percent of GDP -- against a target of GH¢2.7billion or 3 percent of GDP.

Mrs. Alpha Welbeck, Head of Pricing of the National Petroleum Authority, at a stakeholder forum on the use of fuel subsidy for social protection intervention last week, acknowledged that by the current structure subsidy ‘doesn’t get to the targeted group’.

“Subsidies do not benefit poor people, but rather the rich and middle-class who drive big cars; our neighbouring countries - through smuggling; and abnormal profit accruing to independent marketers who adulterate Kerosene and diesel for profit.” In recent times, the three power utilities -- Volta River Authority (VRA), Ghana Grid Company Limited (GRIDCo), Electricity Company of Ghana (ECG) -- and the Ghana Water Company Limited (GWCL) have tabled proposals to the Public Utilities Regulatory Commission to review their tariffs. The utilities want consumers to pay realistic tariffs for power and water as central government, which heavily subsidises power and water, often fails to meet its obligation on time.

Source: GNA