ACEP's Press Statement On The Challenges Facing Ghana’s Power Sector: The Load Shedding Politics
Ladies and Gentlemen of the Media, the Africa Centre for Energy Policy (ACEP) is pleased to have invited you here to discuss the Centre’s position on the deregulation of the petroleum downstream sector. ACEP commends government for taking the decision to deregulate the downstream Petroleum sector. This is a positive step towards demystifying the downstream market, which could be beneficial to the consumer and reduce the impact of persistent shocks and anxiety introduced into the market whenever the National Petroleum Authority (NPA) announced hardly predictable prices of petroleum products. Deregulation of the sector has been discussed for a long time, but public anxiety about a poorly managed deregulation which gives rise to formation of cartels and price manipulation contributed to the delay in its full implementation. Largely, this anxiety by consumers has been a function of information asymmetry and lack of public education on how the industry functions. Again Politicians were not interested in giving up the high value industry, which helped them entrench patronage and manipulation of entry into the market.
Ladies and gentlemen, even though there has been some reasonable competition among the Bulk Distribution Companies (BDCs), in importation and sale of petroleum products to Oil Marketing Companies (OMCs), the reality is that the consumer does not feel the effect of the competition because NPA sets the price ceiling which all OMCs did not see reason to sell below the ceiling. Therefore the OMCs were benefitting from the windfalls whenever they got favorable prices from BDCs. Ladies and gentlemen, NPA developed an automatic adjustment formula to operate a regulated market. This was meant to ensure reasonable adjustments that responded to movements in the key variables that determined the most efficient price for petroleum products. However they could not fully implement the automatic adjustment formula because of political interference. We do know that, in most cases the formula worked when prices had to go up, but when prices had to go down we saw laxity in the strict use of the formula or marginal downward adjustment based on the excuse of financing under-recoveries. This was rather not a fair strategy to protect the interest of the consumer contrary to the mandate of NPA. The fact also is that the most efficient automatic adjustment formula operates in a free market where competition and entry to the market is regulated only to the extent of meeting the basic entry criteria.