Last year, the Vice President, Dr. Mahamudu Bawumi announced a new government policy dubbed “Gold for Oil”.
The policy, as explained by the government, allows the government to pay for imported oil products in gold in direct barter with gold purchased by the Central Bank.
The move, which was announced by the Vice President amid the depreciation of the cedi against the US Dollar and the increase in the cost of fuel prices, was explained as an intervention to stabilize the price of fuel products as well as reduce the pressure on the Ghanaian foreign exchange. direct gold barter would be a way to pay for imported oil instead of depleting foreign exchange reserves.
The ‘Gold for Oil’ program has been implemented with the first consignment of oil arriving last month.
Here’s everything you need to know about the policy:
Introduction:
1. The Gold for Oil (G4O) Program is an initiative by the Government of Ghana to utilize the existing Bank of Ghana (BoG) Domestic Gold Purchase Program (DGP) to support the importation of petroleum products into Ghana.
2. The main objective of the program is to use additional sources of foreign exchange from the DGP BoG program to provide foreign currency for the import of petroleum products for the country which is currently about USD350 million per month.
3. The Government has started the implementation of the G4O Program where the purchase of gold in the DGP BoG Program is mainly through the Precious Minerals and Marketing Company (PMMC) and if required from aggregators and mining companies are used to purchase petroleum products.
4. This is intended to free up foreign exchange resources to meet the importation of petroleum in the country, thus reducing the pressure on the foreign reserves of the Bank of Ghana and the banking sector that comes from the request of Bulk Imports, Distribution and Exports (BIDECs) for foreign exchange .
5. The program also aims to obtain petroleum products at competitive prices through Government-to-Government (G2G) arrangements. The program will ensure that the cost of importing products from international oil traders will always be lower.
6. Reduction due to foreign exchange pressure, reduction of premiums made by international oil traders as well as efficiency gains from the value chain will reduce the price of used pumps in the country. G4O Program Process Flow and Requirements:
7. Under the program, all dore gold produced and exported by companies with small-scale concessions licensed including community mines through PMMC must be purchased by the BoG. The Ministry of Land and Natural Resources has issued directives for the realization of the program.
8. Mas dore bought to pay for oil supply to Ghana. Payment for oil supplies must be made in two channels: by means of barter trade or through broker channels.
Barter Channels:
• For suppliers who are willing to take gold in direct exchange for petroleum products, BoG will provide the same volume of gold. Banks and International Oil Trading Companies (IOTC) are required to open Gold Metal Accounts at mutually agreed gold refineries for the purpose of gold transfer.
• BoG collects refined gold in metal accounts at refineries designated by suppliers to finance shipments of petroleum products.
• BoG transfers the equivalent amount of gold based on the petroleum product supply invoice from the metal account to the supplier’s metal account upon receipt of the Quality Certificate (QC) of the supplied product and the final invoice from the Bulk Oil Storage and Transportation Company (BOST). Broker Channels:
• The BoG executes Gold Supply Agreements that sell gold to gold brokers, who provide forex cover to pay for petroleum products.
• Gold Broker buys gold dore from BoG and deposits the proceeds in BoG’s gold holding account.
• BoG transfers funds from gold holding account to Escrow Account to pay for shipment of petroleum products upon receipt of QC and final invoice from BOST.
9. BOST, a state company, operates as an off taker for petroleum products, and therefore executes an agreement with IOTCs to import petroleum products to Ghana, for sale to licensed BIDECs.
10. BIDECs buy directly from BOST with cash and or letter of credit (guarantee) from a reputable financial institution.
11. BOST and the National Petroleum Authority (NPA) ensure that cedi proceeds from the sale of imported petroleum products will be collected and deposited in the collection bank for the BoG. The collection bank must transfer the collected funds to the BoG’s G4O proceeds account within 48 hours which is then used to fund the next cycle of gold purchases.
Price of the product:
12. To ensure that the price of petroleum products imported under the G4O program shows at the pump for the benefit of consumers, the NPA will regulate the price of these products in the interim to correct market failures until the policy matures.
13. NPA will work with BOST to negotiate prices with international oil traders to ensure that the landed cost of products procured in the program is always competitive. The NPA will approve the IOTC that will be selected to supply products to BOST under the program based on the competitiveness of the bids made. BOST will enter into the supply contract only after approval is given by NPA.
14. The price at which BOST will sell products to BIDEC will be approved by NPA. The price at which BIDEC will sell the product to the Oil Marketing Company (OMC) will also be approved by the NPA.
15. The exchange rate applicable to the price of products supplied under G4O will be based on the average rate at which gold is purchased from gold exporters licensed by the BoG.
16. The NPA will implement measures to ensure that the OMCs that carry the products provided in the G4O program pass on the prices to the consumers. In this regard, BIDEC and OMC that lift and supply G4O products will sell at ex-refinery and ex-pump prices to be determined by the NPA. If there should be a large number of products supplied according to G4O and other sources, the prices of used refineries and used pumps will be calculated using a weighted average.
17. All BIDEC and OMC who want to buy products in the G4O program will be required to sign a pledge to confirm their willingness to comply with the terms and conditions to participate in the purchase and sale of G4O products.
18. To ensure that the impact of the G4O program on ex-pump prices will be significant and effectively monitored, the number of BIDECs and OMCs that will be allowed to lift G4O products will be controlled. Payment Structure:
19. BOST must pay the products provided in G4O to the Escrow Account in BoG within 60 days after receiving the products from international oil traders.
20. BIDECs will be required to pay for the products procured from BOST within 15 days of loading. Payment for the product will be in cash or by 15-day letter of credit (LC) from a reputable commercial bank.
21. BOST will be required to provide a copy of the LC from BIDEC to BoG for verification and to give assurance to BoG that payment will be made on the agreed date.
Laycan Allocation for Import Products:
22. NPA will ensure that adequate laycan slots are allocated for BOST to import products under the program.
23. The NPA will advise the BOST of the expected demand on a monthly basis.
Source: Peacefmonline.com/Ghana
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