Experts in the energy sector have warned of an impending energy security threat due to the country’s dollar liquidity challenges.
This liquidity crunch, according to experts, have limited Oil Marketing Companies’ (OMCs’) access to the forex currency, especially the United States Dollar needed to import petroleum products into the country.
Russian invasion of Ukraine last year has exasperated an already precarious situation, causing prices of crude oil on the international market to rise.
Coupled with the depreciation of the cedi; and the country’s current debt crisis, which has made it difficult to access the international capital market for fund, portends greater danger as analysts point to a potential crises if efforts are not made to avert it.
The country currently imports about 130,000 tonnes of gas oil and about 100,000 tonnes of gasoline each month. This comes at a cost of about US$220 million a month.
This means that the country needs over US$2 billion to be able to sufficiently import its petroleum products in a year.
Although the Bank of Ghana used to auction dollars to the OMCs for the supply of petroleum products, these auctions have stopped due to the deterioration of the country’s foreign exchange reserves.
This has forced these OMCs to look elsewhere for dollars at a higher rate. This, coupled with the increasing prices of oil on the international market, translates to higher prices at the pumps, which tend to pile more pressure on consumers.
Speaking in an interview with the Graphic Business, an energy expert with one of the multinational OMCs said two factors accounted for the country’s energy security threat.
“First is the macro-economic situation which has been accelerated by the Russia invasion of Ukraine. The war has created a spike in prices, which means that what the country had to spend to import oil products have gone up.
“This situation has accelerated the current crisis, which is the current account deficit and a debt crisis,” he stated.
Security of supplies
He said the country was now faced with the problem of security of supplies of oil products to meet the growing demand.
“To ensure that supplies reliably arrive in Ghana, we must be able to pay the fair market price. Ghana is a deregulated market, which means prices at the pumps can move or down, but we price the products in cedi so if the foreign exchange is not allowed to move based on the market then there will be problems.
“Today the ability to access foreign exchange is very constrained. We used to go regularly to the Bank of Ghana’s for dollar allocations but we are not receiving them anymore so we have to buy dollars elsewhere at higher rate.
He said this forces the OMCs to also sell at higher prices at the pumps because they also have to factor what the next foreign exchange rate would be into their prices.“What we are unclear, as a market player, is the benefits of the policy. 80 per cent of gold production comes from the big miners and out of this, they sell 80 per cent to refineries outside the country and sell 20 per cent to the government.
“The Bank of Ghana pays the mines in cedi for the 20 per cent and sell the gold in dollars and these dollars are given to the OMCs to buy oil. So in reality, the gold for oil was already in existence,” he explained.
He said what could make a little bit difference was the gold that comes from the small scale miners, which are sold to the Precious Mineral Marketing Company (PMMC).
“However, the gold that comes from the small scale miners are just about 20 per cent of the country’s gold production. So, it cannot make any massive impact,” he stated.
He said the only way the policy could make a massive impact was if the prices of gold should increase astronomically, something which was not possible at the moment.
Gold for oil policy
To help address the situation, Vice-President Dr Mahamudu Bawumia announced in December last year that Ghana had concluded talks for the operationalisation of the gold-for-oil policy.
He indicated that under the deal, which was similar to a barter, Ghana would receive cheaper fuel in exchange for gold.
The first consignment of policy arrived at the Tema Port in the second week of January and discharged into the receptacles of the Bulk Oil Storage and Transportation Company (BOST).
The 41,000 metric tonnes of petroleum products were delivered by SCF YENISEI.
Commenting on the policy, the energy expert said barter transactions were always inefficient, hence the reason why the world moved to the use of currencies for trading.
“When an economy moves into barter, it always comes with inefficiencies, but sometimes it’s the right way to go because there is no alternative,” he stated.
He said it was not yet clear how this policy would, however, solve the country’s energy security challenge and the rising prices of fuel at the pumps.
“What we are unclear, as a market player, is the benefits of the policy. 80 per cent of gold production comes from the big miners and out of this, they sell 80 per cent to refineries outside the country and sell 20 per cent to the government.
“The Bank of Ghana pays the mines in cedi for the 20 per cent and sell the gold in dollars and these dollars are given to the OMCs to buy oil. So in reality, the gold for oil was already in existence,” he explained.
He said what could make a little bit difference was the gold that comes from the small scale miners, which are sold to the Precious Mineral Marketing Company (PMMC).
“However, the gold that comes from the small scale miners are just about 20 per cent of the country’s gold production. So, it cannot make any massive impact,” he stated.
He said the only way the policy could make a massive impact was if the prices of gold should increase astronomically, something which was not possible at the moment.
Impact to be felt soon
In an interview on the sidelines of the MPC press conference, the Director of Financial Market at the Bank of Ghana, Stephen Opata, said the impact of the Gold-for-Oil policy would be felt at the pumps only if the country was able to import about 50 per cent of fuel consumption through the policy.
He said the first consignment of the fuel shipment under the policy represented just about 20 per cent of national consumption; hence, its inability to make any difference in the pump prices.
He said as the programme gains momentum, Ghanaians would begin to see the impact on prices of petroleum products at the pumps.
“The quantity brought in was about 20 per cent of diesel consumption. As we buy more quantities and the programme gains momentum, we will see the impact at the pumps. If we start buying about 50 per cent of the consumption through the policy, then we will start seeing the impact.
“I expect that in February, if we are able to pick up the momentum, we will see that the purchasing mix will be tilted more towards the gold for oil and, therefore, if we are efficient with it, then it will start impacting at the pumps,” he stated