Identifier
Created
Classification
Origin
05ACCRA552
2005-03-18 13:57:00
CONFIDENTIAL
Embassy Accra
Cable title:  

AMBASSADOR MEETS GHANA'S NEW ENERGY MINISTER, MIKE

Tags:  EFIN ENRG ETRD KMCA GH 
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181357Z Mar 05

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FM AMEMBASSY ACCRA
TO SECSTATE WASHDC PRIORITY 8140
INFO DEPT OF TREASURY WASHDC PRIORITY
CIA WASHDC PRIORITY
USDOC WASHDC PRIORITY 0396
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
-------
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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