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Fuel Subsidies: Ghana – Reforms and Lessons

Fuel Subsidies: Ghana – Reforms and Lessons. EDWARD A. AWAFO Researcher, The Energy Center, KNUST, Ghana; Author, GGBP Assessment Project (Email: awafoe@hotmail.com ) . Introduction.

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Fuel Subsidies: Ghana – Reforms and Lessons

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  1. Fuel Subsidies: Ghana – Reforms and Lessons EDWARD A. AWAFO Researcher, The Energy Center, KNUST, Ghana; Author, GGBP Assessment Project (Email: awafoe@hotmail.com)

  2. Introduction • The Energy Center, KNUST is well recognized in Ghana and West Africa for expertise in practice-oriented academic research and training in energy policy, renewable and conventional energy  technologies, and  energy  management/ efficiency and conservation. • Green Growth Best Practices (GGBP) Assessment: Conduct high-quality, fact-based assessment to identify green growth best practices around the world

  3. Background • Decarbonisation of energy systems is a central component of low carbon development • But the existence of fossil-fuel subsidies in many middle-income countries effectively restricts the potential for much needed investment in low carbon energy technologies.

  4. Reforms – from 2001 to Date! • 2001 - an effort was made to liberalize fuel prices in line with Ghana’s Poverty Reduction and Growth Programme • an automatic price setting mechanism was established which linked domestic oil prices to international ones; it was also aimed at relieving Tema Oil Refinery (TOR) of its rising debt • But towards the end of 2002, global oil prices soared and there was pressure from the public on Government to abandon the price setting mechanism • 2003 – price setting mechanism was re-introduced and fuel prices at the pump went up to 90% (incomes reportedly fell by 8.5%); there was pressure again and incidentally 2004 was election year so Government budged! 2.2% of GDP was used to subsidize and 1% used to support operations of TOR in that period • 2006 – IMF in conjunction with GoG conducted scientific survey on the impact of the implications that alterations in fuel prices had upon different sections of society – these findings were then communicated to the public using mass media. • The National Petroleum Authority (NPA) was formed, by an Act of parliament, to regulate the price setting mechanism so that Govt stays off! This is what is in place now

  5. Lessons/Experiences - Subsidy Reforms • Fuel subsidy reform is a complicated process which can evoke strong public opposition • Fuel subsidies are an inefficient means of protecting the incomes of poor households, e.g. LPG and kerosene subsidies! • Effective and targeted communications are criticalfor building a public case for fossil-fuel subsidy reform • Governments may expose themselves to high levels of protest and anger if they remove fuel subsidies abruptly; even when they try to deflect the heat, e.g. NPA case!

  6. Conclusion - Current Situation • Subsidies have been removed on LPG and gasoline to be removed this quarter. REPERCUSSIONS – poorest mostly hit, decline in purchasing power, etc.; poverty levels might worsen! APPROACH – use savings from subsidy removal to finance targeted actions to protect the poor; e.g. LEAP (livelihoods empowerment against poverty) - capital injection of USD4m in 2012 to USD 15m in 2013 to finance LEAP; another action is MASLOC

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