US embassy cable - 05ACCRA552

C O N F I D E N T I A L  ACCRA 000552 
 
SIPDIS 
 
 
TREASURY FOR ALEX SEVERENS, LUKAS KOHLER 
PASS TO MILLENNIUM CHALLENGE CORP WASHDC 
 
E.O. 12958: DECL: 03/17/2010 
TAGS: EFIN, ENRG, ETRD, KMCA, GH 
SUBJECT: AMBASSADOR MEETS GHANA'S NEW ENERGY MINISTER, MIKE 
OQUAYE 
 
 
Classified By: Ambassador Mary C. Yates for Reasons 1.5 (B and D) 
 
Summary 
------- 
1. (C) The Ambassador used a March 14 courtesy call on new 
Energy Minister Mike Oquaye to inquire about the status of 
petroleum sector deregulation and highlight USAID technical 
assistance to the energy sector and West Africa Gas Pipeline. 
 Oquaye confirmed the GoG would halt the deregulation process 
to prevent further fuel price increases.  This will 
complicate the March/April IMF mission, since petroleum 
deregulation is an IMF priority.  End Summary. 
 
Delays in Petroleum Sector Deregulation 
--------------------------------------- 
2. (C) Minister Oquaye confirmed comments Post heard from 
Bank of Ghana sources that the GoG will NOT/NOT allow 
additional fuel price increases (on top of the 50 percent 
increase on February 20), despite higher world market prices. 
 Oquaye made it clear that the GoG had hoped for world 
petroleum prices to decline after the February decision. 
Instead they have increased roughly 15-20 percent, and 
Cabinet Ministers have agreed further price hikes in Ghana 
are politically untenable at this time. 
 
3. (C) Oquaye noted that the GoG obtained Union, transport, 
and other stakeholders' support for the initial increase, 
partially by agreeing to cross subsidize kerosene and other 
fuels that the poor generally use.  He added that following 
the outcry in the press and two NDC-led demonstrations -- 
both peaceful -- on March 8 and March 17 protesting the price 
hikes, there is no support for additional increases.  (Note: 
the March 17 demonstration attracted 5,000 people, quite a 
bit larger than the minor and unimpressive March 8 protest, 
but still well below the turnout the NDC had hoped for. End 
Note) 
 
4. (C) Oquaye explained that the overarching goal of 
petroleum deregulation is to ensure full cost recovery in the 
petroleum sector, and remove the GoG from the supply and 
financing of the country's petroleum requirements.  In 
practice, this is supposed to relieve the GoG from 
subsidizing the Tema Oil Refinery (TOR).  Under the new 
regime, the private sector will participate in a competitive 
tender to import refined petroleum.  The winning (lowest) bid 
sets the base price for petroleum, upon which the GoG will 
apply various taxes and levies, thereby determining the final 
retail price for all importers, including TOR. 
 
5. (C) The first tender under this process is scheduled for 
late March/early April.  Oquaye stated that this tender would 
undoubtedly result in price increases at the pump, since 
world prices have risen over 15 percent from the level used 
to calculate the 50 percent increase in February.  To avoid 
this, Oquaye said the GoG had decided to pursue one of two 
options: 1) postpone the tender and have the parastatal Bulk 
Oil Storage and Transportation Company (BOST) release 
strategic reserves; or 2) allow the tender to proceed but cap 
retail prices.  Under this second scenario, the GoG would 
divert petroleum taxes to cover the differential for TOR 
(and, ostensibly, private oil companies). 
 
6. (C) Oquaye recognized that full implementation of 
petroleum deregulation is the IMF's priority, and he praised 
the relationship with the IMF and other development partners. 
 He reassured the Ambassador that this was an interim measure 
and the GoG would not go back on the principle of market 
determined fuel prices.  The Ambassador responded that it was 
critical that the GoG obtain Parliamentary approval of the 
implementing legislation and regulations (a pre-condition for 
IMF Board approval).  The deregulation law and regulations, 
in draft stage, together should legally remove the GoG from 
the price setting process, leaving price determination up to 
the application of a transparent pricing formula. 
 
7. (C) Comment:  Post's contacts at the Bank of Ghana (BoG) 
warned about GoG attempts to avoid implementing the promised 
deregulation.  BoG sources say the internal discussion is now 
focused on how to deal with the IMF, which will conduct its 
third review under the Poverty Reduction and Growth Facility 
March 28 to April 16.  The IMF's priority is for Ghana to 
institute a transparent, market-based pricing system, mainly 
because it such a system would in theory resolve the IMF's 
two-year impasse with the GoG over government subsidies to 
TOR (over USD 200 million per year). 
 
8. (C) Comment Continued:  The GoG has avoided serious reform 
to the energy pricing system for over two years, always in 
the hope that world energy prices would come down.  If the 
 
 
GoG refuses to allow a price increase, as Oquaye stated, this 
would be the fourth time the GoG has failed to live up to its 
commitment to the IMF since President Kufuor announced in 
September 2003 that the GoG would deregulate the petroleum 
sector.  This action would complicate IMF staffs' goal of 
completing the review and submitting it for IMF Board 
approval in May.  The GoG already needs waivers for missing 
domestic debt targets in 2004.  The GoG's plan to divert 
petroleum taxes to subsidize TOR would further annoy the IMF, 
since the anticipated one trillion cedi increase in revenues 
from petroleum taxes are required to cover the GoG's planned 
25 percent increase in government salaries.  End Comment. 
 
USAID Technical Assistance to Energy Sector 
------------------------------------------- 
8. (C) The Ambassador noted that both the USAID-Ghana and 
USAID-West Africa Regional Program (WARP) continue to provide 
technical assistance on energy sector issues.  USAID-WARP has 
taken over from USAID-Ghana in providing TA to help Nigeria, 
Ghana, Togo, and Benin meet the next critical milestone for 
the West Africa Gas Pipeline (WAGP):  the March 31 
"Construction Commitment Date."  WARP has extended the 
current NEXANT technical assistance contract to March 30, 
2006, and will focus primarily on supporting the WAGP 
Authority.  WARP is also providing TA to the West African 
Power Pool project (to interconnect 14 West Africa countries' 
electricity grids).  USAID-Ghana is providing technical 
assistance and training to strengthen Ghana's energy 
regulatory framework, especially the gas regulatory framework 
to get ready for WAGP gas in 2007. 
 
9. (C) Oquaye welcomed the Ambassador's suggestion to arrange 
a combined USAID Ghana and WARP briefing on their respective 
TA programs.  (Comment:  USAID/ECON will use this briefing to 
suggest Ministry priorities for the next year for WAGP and 
energy sector in general.  End Comment) 
 
BIO DATA 
-------- 
10. (SBU) Energy Minister Mike Oquaye (AKA Professor Aaron 
Michael Oquaye) is a Member of Parliament for Dome-Kwabenya 
in the Greater Accra Region.  Oquaye became involved in 
politics in 2002 when he ran for National Chairman of the 
NPP.  President Kufuor preferred Herona Esseku, and instead 
appointed him to serve as Ghana's Ambassador to India.  He 
served in India from April 2003 through January 2005, a 
period of significant expansion in the Ghana-India 
relationship.  Oquaye claims to be fiercely pro-American.  He 
studied in the U.S. on a Fulbright scholarship in 1997 (in 
Virginia), and says he has also visited the U.S. several 
times under the IV program and as a visiting scholar (Note: 
he also studied in London on a Rockefeller Scholarship and 
earned his Ph.D. at the University of London.  End Note) 
Oquaye's background is in political science and he does not 
yet have a good grasp of the energy sector.  Nevertheless, he 
claimed the President put him at Energy "because of all the 
challenges" in that sector. 
YATES 
 
 
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