Introduction Of Petroleum Price Mitigation Fund In Ghana – Shifting The Burden Of Petroleum Subsidy Financing From Government To Consumers

INTRODUCTION

The President of Ghana early in the year 2015 announced the decision of Government to introduce a Price Mitigation Fund to insure against future price hikes resulting from rising crude oil prices. The Minister of Finance has subsequently unveiled Government’s plan to review the Petroleum Pricing Formula to implement the President’s Directive. Whether this policy is good or bad, necessary or not, has been the subject of intense public debate.

There is no doubt that a price mitigation fund has its relevance. It prevents the government against the fiscal risks of having to subsidize petroleum products when international crude oil prices are increasing substantially or frequently.

It also introduces some transparency and predictability in the pricing of petroleum products such that consumers are able to know when changes in prices will be passed on to them and when the mitigation fund can come to their rescue.

Also, due to the fact that the Price Mitigation Fund is accumulation of levies paid by consumers, there is increased accountability as consumers become concerned about the utilization of the funds. This is unlike the many levies that are currently being paid by consumers without knowledge of the extent of accumulation of funds through such levies (e.g. Energy Fund levy, Exploration levy, etc).

On the other hand, the mitigation fund shifts responsibility for financing consumption subsidies to consumers who pay the mitigation levy through pump prices of petroleum products or forgo windfalls for the purpose of accumulating the mitigation fund.

The Africa Centre for Energy Policy (ACEP) was established in 2010 to contribute to development of alternative and innovative policy interventions through high-quality research, analysis and advocacy in the energy and extractives sector in Africa.

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