Ghana’s Gold for Oil Program
The Gold for Oil policy introduced by Vice President Dr. Muhamudu Bawumia last year is described as the first policy to address the balance of payments crisis facing Ghana.
According to the vice president it is the “most important macro-economic policy to deal with the exchange rate depreciation, and fuel and food inflation crises.” Oil importing companies would not have to approach the Bank of Ghana for forex to import oil. It would reduce the need for about USD4.8 billion annually, resulting in significant savings on the prices at the pump, the Vice President stated.
At the commissioning of the new head office building of the Bulk Oil Storage and Transportation Company Limited (BOST) Bawumia mentioned that the policy enabled the government to ‘stem the tide on the spiraling rate of forex.’ The Gold for Oil route was chosen because of the challenges Ghana faced with the depleting forex reserves at the central bank in the face of the dire need for oil companies to import petroleum products. “Currently,” the Vice President said, “50 to 60 percent of Ghana’s oil is generated from the Gold for Oil policy.” He promised Ghanaians of more of such innovative approaches to bring the economy back to life.
The rate of depreciation of the currency [the cedi] translated into higher prices of food, transportation and fuel. In the process, as the vice president stated, “We have to think outside the book box? to see how to prevent Ghana from getting into a situation where we’re unable to buy fuel.” Ghanaians will recall the bauxite for cash deal with China where a similar barter system was adopted to obtain Sino-Hydro funds for some major infrastructural projects in Ghana. The Gold for Oil, according to the proponents is a foreign exchange asset.
Those opposed to the program do not, however share the measure proposed by the vice president. They claim that if fuel prices are dropping, it is not because of the Gold for Oil policy. They base their claims on price, quantity and fuel type. Making their presentation in March 2023, they said that since January 2023 when the program started only two consignments of oil of 40,000 each had been delivered. The government’s claim that prices have fallen therefore cannot be tenable. Dr. Theo Acheampong, an economist and political analyst also states that the government stated cost is relatively higher than oil from other sources.
Quantitatively, even if the policy renders the product cheaper it is not impactful. Also, 80,000 metric tons couldn’t meet the oil demands of Ghanaians even for two weeks. Paul Ofori, Head of Research and Training at the Chamber of Petroleum Consumers (COPEC), agrees saying Ghana’s demand for oil per day is approximately 11,500 metric tons and 80,000 is not enough to affect prices at the pump.
From the fuel type perspective the only fuel brought in so far is diesel and it alone cannot help reduce prices of oil products. There is too much of rhetoric and no figures to substantiate, they say.
Edwin Provencal, Managing Director of BOST admits that some private bulk distribution companies (BDCs) have been importing petroleum products at cheaper prices than imports under the Gold for Oil program. The Chamber of Bulk Oil Distributors (CBOD), the representative body of the BDCs point out, however, that the Gold of Oil program has produced what “might have been an unintended consequence that denies the foreign exchange they [BDCs] need from the Central Bank to import oil at competitive prices.
The Chief Executive of CBOD, Dr. Patrick Kwaku Ofori opines that if the BDCs received similar treatment as BOST under the Gold for Oil they could ensure energy security and a lowering of prices of petroleum at the pump. While BOST buys its products at USD 50 per barrel, some BDCs obtain their oil at USD45 per barrel, according to Provencal of BOST. Provencal adds that the BDCs make it possible for BOST to go to international markets to negotiate for competitive pricing under the Gold for Oil and it contributes to the reduction of prices at the pump.
In defense of the Gold for Oil program, Provencal says that BOST’s preferential treatment is only temporary to deal with the forex debt crises, and once they are resolved normalcy will be restored. Amandla shares Patrick Ofori of COPEC’s thought that the reduction in forex allocations to the BDCs from the central bank could result in increased costs at the pumps as the BDCs to import cheaper products under the Gold for Oil. The preferential treatment for BOST threatens the financial stability of most BDCs.
Amandla queries what it would take for the playing field to be leveled for all petroleum importers. If importation under the Gold for Oil by only BOST is accruing USD4.8 billion, isn’t it likely the till will be much fuller than it is now? Well, what is good for the gander is good for the goose, they say, and Ghana will be the winner, ain’t it?
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