The Centre for Environmental Management and Sustainable Energy, a policy research and advocacy centre with a focus on the energy sector in Ghana, has raised concerns over challenges associated with premix subsidies.
The Cente argued that the premix subsidies are unsustainable and overburdening the government.
CEMSE fears the increasing cost of premix fuel subsidies is placing a significant burden on the government budget.
In a statement issued by CEMSE, the premix subsidy has cost the government of Ghana about Ghc1.4 billion from 2014 to 2022, with an annual average cost of Ghc163 million.
The Centre highlighted that the cost of the subsidy is projected to increase between 2023 and 2026 from about Ghc802 million to Ghc1.074 billion, representing about a 33% increment from previous years.
It was the view of CEMSE that the government would have difficulty finding the resources to continue funding the subsidies.
“The PIAC report of 2022 indicates that the government in 2022 alone paid about GH¢573.73 million, covering an outstanding GH¢142.17 million in 2021 and GH¢431.55 million in 2022. At the end of 2022, there were arrears of about GH¢37.14 million to the BIDECs. It is projected that between 2023 and 2026, the premix fuel subsidy program will increase from about Ghc802 million to Ghc1.074 billion, representing about a 33% increment.
The government’s ability to fund this subsidy depends on increasing the PSRL or an increase in the consumption of petroleum products. Dependence on the latter could fail in a volatile market where higher ex-pump prices of petroleum products have been observed to inversely impact consumption. This implies that the subsidy regime is unsustainable as the government may find it difficult to fund it in the future,” the statement said.
Another concern raised by CEMSE was the overpayment of subsidies based on projected subsidies in the budget.
“Surprisingly, the premix fuel supply, as reported by the National Petroleum Authority, has declined from about 104 million litres in 2021 to about 34 million litres in 2023, representing about a 67% decline. Additionally, the government decided to share the subsidy with fishing communities by paying 50% of the cost of premix, previously fully subsidizing the product. However, the subsidies paid for premix keep ballooning, often exceeding what was budgeted by threefold.
For instance, the government projected to allocate Ghc247,678,856 for subsidies on petroleum products in 2021 but ended up expending Ghc561 million in that year, as indicated in the 2021 ESLA report. The variance between projected and actual expenditure was over 100% more than projected. Similarly, in 2022, the government projected to allocate Ghc326,482,442 but ended up expending Ghc431.55 million, as indicated in the ESLA report of 2022, representing about a 32% variance from the projection. Although the government has yet to explain these huge variances in various years, it is believed that some state actors could be overpricing the subsidies to their benefit at the expense of Ghanaians and fishing communities, CEMSE said.
It concluded by declaring that “…the premix fuel subsidy is not sustainable as allocations to these subsidies are increasing yearly into billions of Ghana cedis by 2026. The government may not have the resources to sustain this expenditure portfolio. Additionally, premix fuel is being hoarded, diverted, and sold above the subsidized price, as published by the National Petroleum Authority. Lastly, the subsidy has not improved the welfare of fishing communities. Therefore, we conclude that the premix fuel subsidy should be scrapped because it has not addressed the income inequality gap in fishing communities. An output subsidy would be more effective in improving total farmer income than the input subsidy scheme”.
By: Rainbowradioonline.com/Ghana
