US embassy cable - 05ACCRA1284

C O N F I D E N T I A L SECTION 01 OF 03 ACCRA 001284 
 
SIPDIS 
 
EB/IFD/OMA (FCHISHOLM) 
TREASURY FOR LUKAS KOHLER, ALEX SEVERENS, JOHN RALYEA 
 
E.O. 12958: DECL: 06/30/2010 
TAGS: EFIN, ECON, GH 
SUBJECT: GHANA'S PRESIDENT KUFUOR RAISES CONCERNS ABOUT 
U.S. VIEWS ON GHANA'S DEREGULATION OF PETROLEUM SECTOR 
 
REF: ACCRA 1162 
 
Classified By: Ambassador Mary C. Yates for Reasons 1.5 (B and D) 
 
Summary 
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1. (C) Ambassador Yates met June 29 with President Kufuor, at 
his request.  Kufuor complained about reports that the U.S. 
had attempted to delay the June 20 Board review of Ghana's 
IMF program over concerns on petroleum deregulation. 
Ambassador reassured Kufuor that the USG had supported 
Ghana's IMF program at the Board meeting, even while raising 
concerns that deregulation was incomplete.  She noted the 
U.S. was not alone in raising such concerns, and pointed out 
that high world oil prices seemed here to stay, so Ghana 
needed to find a long-term solution to deal with the adverse 
economic impact.  Kufuor assured that the GoG would fully 
implement the deregulation plan, including market-driven fuel 
pricing.  However, he pleaded for consideration of the 
hardship Ghanaians face, arguing that hiking fuel prices now 
would give ammunition to the opposition and could destabilize 
Ghana and his government.  End Summary. 
 
2. (C) President Kufuor called in the Ambassador on June 29, 
purportedly because he wanted to respond to perceived Embassy 
concerns about Ghana's petroleum deregulation plan (see 
Reftel for Embassy position on problems with petroleum 
deregulation).  He had assembled a large team to participate 
in the meeting, including Finance Minister Kwadwo 
Baah-Wiredu, Special Assistant and Secretary to the President 
Ambassador D.K. Osei, Chief of Staff and Minister for 
Presidential Affairs Kwadwo Mpiani, and Press Secretary 
Kwabena Agyepong.  Ambassador was accompanied by EconChief 
Chris Landberg. 
 
3. (C) Instead of focusing on Embassy concerns, he 
concentrated on reports he had received that the U.S. 
Treasury Department had attempted to delay the June 20 Board 
review of Ghana's IMF program.  According to these reports, 
Treasury argued that Ghana had not fulfilled its commitment 
to allow automatic adjustment of petroleum prices and 
eliminate fuel subsidies.  Kufuor argued that postponement of 
the Board meeting would have damaged Ghana by further 
delaying essential IMF, World Bank and bilateral 
disbursements. 
 
4. (C) Ambassador Yates reassured Kufuor that the U.S. 
Executive Director had supported Ghana at the June 20 IMF 
Board meeting on the Third Review of Ghana's Poverty 
Reduction and Growth Facility (PRGF).  Indeed this had been 
the position the Embassy had recommended back to Washington. 
She noted, however, that the USED had questioned whether 
Ghana had fulfilled its commitment to eliminate fuel 
subsidies by ensuring full cost recovery in the petroleum 
sector.  The Ambassador also commented that several other IMF 
Board members had raised concerns about implementation of 
petroleum deregulation and other aspects of Ghana's IMF 
program, such as the three waivers Ghana had required. 
 
5. (C) The Ambassador said the USG joined the IMF and other 
development partners in congratulating Ghana for the 
politically difficult decision it made in February 2005 to 
increase fuel prices by 50%.  The USG also agreed with the 
IMF's overall positive assessment of Ghana's economic 
performance.  However, she noted the Embassy and U.S. 
agencies, including Treasury, were concerned about how Ghana 
planned to deal with record high world oil prices.  She said 
her Economic Section had been doing its job and asking tough 
questions, and the subject was also central to a high-level 
Treasury visit on May 20 (led by David Loevinger, Treasury 
DAS for Africa, Middle East, and Asia).  Based on the 
Embassy's work and the Treasury visit, the USED had 
recommended to IMF staff that they continue to monitor 
petroleum deregulation -- with the goal of ensuring full cost 
recovery -- under the fourth and subsequent PRGF reviews. 
 
6. (C) Kufuor countered that the USG should not worry about 
his government's strong commitment to petroleum deregulation. 
 Nevertheless, he gave a somewhat mixed signal on whether the 
GoG would be able to meet its IMF commitment to end fuel 
subsidies and achieve full cost recovery.  On the one hand, 
he argued the GoG had almost finished setting up the new, 
autonomous National Petroleum Authority (NPA), established 
under the National Petroleum Act that Parliament passed June 
14.  The NPA, headed by a Chairman who "is not a party (NPP) 
man," would have full responsibility to organize fuel tenders 
and set prices (according to an agreed formula).  Kufuor even 
stated that the GoG would "use the NPA as the fall guy" when 
prices rise. 
7. (C) On the other hand, Kufuor agonized over the damage 
higher fuel prices would have on the public, and on 
Ghanaians' support for his government.  He argued that 
raising prices now in response to near $60/bbl world market 
prices would destabilize Ghana and undermine his government. 
He noted that the opposition party, NDC, and especially its 
founder and Kufuor's leading domestic critic, ex-President 
Jerry Rawlings, is unrelenting in its criticism of the NPP 
for higher fuel prices and IMF-supported economic policies. 
Rawlings claims NPP policies are responsible for lower living 
standards for ordinary Ghanaians.  (Note:  Kufuor went on at 
some length about the common man's poverty and the 
embarrassingly low salaries in Ghana.  He said he and his 
cabinet are constantly discuss mechanisms that would help 
raise salaries.  End Note) 
 
8. (C) Kufuor brought out a newspaper article from 2000, 
quoting then President Rawlings stating "let's adjust fuel 
prices to face realities."  He said this was proof that 
Rawlings and the NDC were just using the dire situation Ghana 
currently faces to score political points.  (Comment:  Kufuor 
provided a copy to Ambassador and after a close read we note 
that he did not highlight the part of the article that 
mentions strong criticism from the NPP -- then in the 
opposition -- of Rawlings call for higher prices; so, the NDC 
might argue that turnabout is fair play.  End Comment) 
 
9. (C) Given political realities, and also in light of the 
low wages that most Ghanaians earn, Kufuor argued the GoG 
could only survive gradual price liberalization.  He pointed 
out that high fuel prices have a disproportionately negative 
impact on low-wage countries, and pleaded for the USG to 
understand that the GoG would have to bring the Ghanaian 
people along "step by step."  He assured Ambassador that 
Ghana would fully implement petroleum deregulation, including 
price liberalization, but over time.  "We are getting there," 
he said, but "bit by bit."  He asked for USG support "for its 
good friend Ghana," pointing out that it serves no one's 
interest to undermine all the positive reforms his 
administration has undertaken. 
 
Comment 
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10. (C) President Kufuor was still on a high from his recent 
U.S. trip and meeting with President Bush.  He began his 
remarks with a strong expression of appreciation for this 
meeting and also for the G8 Finance Ministers agreement on 
debt relief.  He then turned to his concern about U.S. 
perceptions of Ghana's implementation of petroleum 
deregulation. 
 
11. (C) One extraordinary result of this meeting is that 
Kufuor indirectly admitted that his government might not be 
fully committed to allowing prices to rise in response to 
higher world prices, despite GoG assurances to the IMF to the 
contrary.  The IMF argues that the autonomous NPA will ensure 
prices are set to cover costs and avoid the need for 
government subsidies.  However, Kufuor clearly believes the 
Ghanaian public is not ready for more price hikes and is 
worried about social unrest and political attacks from the 
NDC.  So, it is unclear that Kufuor would support (or even 
allow) an NPA decision to raise prices, even though price 
increase are clearly necessary with world crude prices 
roughly 25% higher than the level the GoG used to calculate 
the 50% increase in February. 
 
12. (C) The GoG's strategy to date has been to make promises 
to the IMF in the hope world prices would fall, thus 
alleviating the need for retail price hikes.  It seems to be 
sinking in among GoG officials that prices are likely to stay 
at current high levels for the foreseeable future, or go 
higher.  Finance Minister Baah Wiredu commented that Ghana is 
seeking support from the IMF to deal with higher world 
prices.  He pointed out to EconChief following the meeting 
that Ghana is importing close to $500 million more in oil per 
year over a few years ago.  (Note:  this is almost equal to 
total annual grant assistance to Ghana.  End Note) 
 
13. (C) Post hopes the GoG will allow the NPA to operate 
autonomously, which would resolve this issue.  However, Post 
also agrees with Kufuor that another large price hike could 
cause problems for the GoG.  Although public protests to date 
have been on the light side, the chorus of criticism against 
the government's economic policies is growing.  Since the end 
goal is for Ghana to have a liberalized petroleum sector, 
with full pass through of world prices to local retail 
prices, we may have to recognize that this may take longer 
than expected.  We should endeavor to keep the GoG on the 
reform path, but not necessarily punish the GoG for following 
a more gradual path.  End Comment. 
YATES