Premix fuel is the only subsidized fuel product by the government of Ghana after the collapse of government subsidy programme in 2015.

The intention of government to keep the premix subsidy is to support the fisheries sector grow and improve the welfare of workers in the fisheries value chain by reducing the production cost of fishing, as well as ensuring the Ghanaian fish consumer gets probably affordable fishery products. The premix fuel subsidy is a cross subsidy where government taxes other petroleum consumers through the Price Stabilisation and Recovery Levy (PSRL) instituted in the Energy Sector Levy Act (Act 899) of 2015.

 The PSRL has increased from 12 pesewas per litre on diesel and 14 pesewas on petrol per litre in 2015 to 14 pesewas per litre on diesel and 16 pesewas per litre on petrol in 2021 (ESLA 1064, 2021). The PSRL was increased by government to have additional revenue to cover the cost of subsidy because the consumption of premix was on the surge.

Challenges associated with premix subsidies

Unsustainable subsidy regime

The premix subsidy has cost government of Ghana about GH¢1.4 billion from 2014 to 2022 with an annual average cost of GH¢163 million. The PIAC report of 2022 indicates that the government in 2022 alone paid about GH¢573.73 million covering an outstanding of GH¢142.17 million in 2021 and GH¢431.55 million in 2022. As at end year 2022, there was an arrears of about GH¢37.14 million to the BIDECs. It is projected that between 2023 and 2026, the premix fuel subsidy programme will increase from about GH¢802 million to GH¢1.074 billion representing about 33% increment.

The ability of government to fund this subsidy depends on increasing the PSRL or an increment in the consumption of petroleum products. Dependence on the latter could fail in a very volatile market when higher ex-pump prices of petroleum products have been observed to have inverse impact on consumption. The implication is that the subsidy regime is unsustainable because government could find it difficult funding it in future.

Diverting of premix products

Although Government is subsidizing premix fuel in Ghana, costing other petroleum product users, evidence from deduced from public documents show a significant volumes of the premix fuel is diverted into other markets, with high probability of ending up in vehicles as Gasoline (petrol).  In 2023, the Ministry of Fisheries and Aquaculture Development (MFAD) projected to supply 78 million litres of premix fuel but the outturn was 21 million litres. Contrary to this, the National Petroleum Authority indicated that premix consumed in 2023 was 34 million litres indicating a shortfall of about 13 million litres compared to the data from MFAD. The implication is that 13 million litres of premix fuel was diverted into the market as other petroleum product by blending with other petroleum products. Premix blended products sold in the market affect the quality of the product sold on the market and destroys machinery.

Over pricing of premix fuel at the fishing communities

Further, historical evidence supports that premix fuel have not always been sold at subsidized price because of artificial shortage created by hoarders. Joynews in 2019 reported that hoarders were selling the product at GH¢15 per litre, 100% more than the subsidy price of GH¢7.30 per litre. The practice of artificial shortage has not changed because research from the field indicated that there is shortage of premix fuel at fishing communities and for that matter, hoarders are selling the product above the maximum price of GH¢5.93 as at the 1^st Window of August, 2024.

A market survey revealed that in Buipe in Savannah region a litre of premix was Ghc6.8 per litre (15% higher than subsidized price) and in Central region, Salt Pond was Ghc7.8 per litre (32% higher than subsidy price), Biriwa was Ghc10 per litre (67% higher than subsidy), Apam was Ghc8.80 per litre and Kormantse was Ghc7.6 per litre (28% higher than the subsidy price). The research further reveals that some cartels sell the barrel (drum) of premix at Ghc3500 and a litre at Ghc14, which deviate from the purpose of the subsidy. The implication is that the fuel subsidy is enriching some recalcitrant at the expense of the country.

Not improving the welfare of fishing communities

Lastly, the premix subsidy regime has not done so much in improving the welfare of fishing communities. The Trade Union Policy for Decent Work in Fishing Sector of Ghana published in 2024 reports incidence of dwindling catch, dwindling income health and safety problems, hazardous working conditions and accidents. The report further states that there has been 40% decline of artisanal fishermen in the last decade. The implication is that after pumping over GH¢1.4 billion into subsidizing the premix fuel to improve the welfare, the outcome is deterioration of the fishermen and fishing communities. Fishing communities have not benefited much from the subsidy because cartels and political cronies have mostly hoarded the product and sold above minimum prices (subsidy prices) or diverting the products to other markets.

Over-payment of subsidies based on projected subsidies in the budget

Surprisingly the premix fuel supply as reported by the National Petroleum Authority has declined from about 104 million litres in 2021 to about 34 million litres in 2023 representing about 67% decline. Also, the government decided to share the subsidy with fishing communities by paying 50% of the cost of premix hitherto subsidizing the product in fuel. However, the subsidies paid to premix keep ballooning and most cases three times what has been budgeted. For instance, the government projected to allocate GH¢247, 678,856 for subsidies on petroleum products in 2021 but ended up expending Ghc561 million in that year as indicated in the 2021 ESLA report. The variance between projected and actual expenditure was over 100% than projected. Also, in 2022, the government projected to allocate Ghc326, 482,442 but ended up expending Ghc431.55 million as indicated in the ESLA report of 2022, representing about 32% variance from the projected. Although government is yet indicate the reason for these huge variances in various years, it is believed that some state actors could overprice the subsidies to their benefit at the expense of Ghanaians and fishing communities.

Conclusion

The conclusion is that the premix fuel subsidy is not sustainable because allocation to these subsidies are increasing year on year into billions of Ghana cedis by 2026. The government may not have resources to redeem this expenditure portfolio. Also, premix is being hoarded, diverted and sold above the subsidized price as published by the National Petroleum Authority. Lastly, subsidy has not improved the welfare of fishing communities. In this regard, we conclude that the premix fuel subsidy should be scrapped because premix fuel subsidy as an input subsidy has not addressed the income inequality gap in fishing communities and for that matter output subsidy would be more effective in improving the total farmer income than the input subsidy scheme.

Recommendation

Government should scrap the premix fuel subsidy and institute an output subsidy regime where farmers are supported based on their output. This promotes efficiency in the allocation of scarce national resources as well as increase productivity among fishermen. Output subsidy also helps government to effectively track results of the subsidy programme.

Government should implement transparency and fraud measures to stop the abuse of subsidies and provide government decision makers more access to data. There should be daily reporting on supplies and consumption of premix fuel in order to reconcile these data, and mitigate diversion and hoarding of these products.

The National Security must investigate and apprehend recalcitrant who sell premix fuel above the subsidy price across landing beaches. Such action will deter people from taking advantage of the poor fisherman