Identifier
Created
Classification
Origin
05ACCRA1284
2005-07-01 15:47:00
CONFIDENTIAL
Embassy Accra
Cable title:  

GHANA'S PRESIDENT KUFUOR RAISES CONCERNS ABOUT

Tags:  EFIN ECON GH 
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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
-------
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
--------------

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
--------------

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