Last year, Vice President Dr. Mahmudu Bawumi announced a new government policy of “gold for oil”.
The policy, as explained by the government, is to allow government payment of imported oil products with gold in direct exchange with gold purchased by the Central Bank.
The move, announced by the vice president amid the depreciation of the cedi against the US dollar and the rising cost of fuel prices, was described as an intervention to help stabilize the prices of fuel products and reduce pressure on Ghana’s foreign exchange. Direct gold exchange is a method of paying for imported oil instead of depleting foreign exchange reserves.
The ‘Gold for Oil’ program was implemented with the first shipment of oil arriving last month.
Below is everything you need to know about the policy:
1. The Gold for Oil (G4O) program is a Government of Ghana initiative that uses the existing Bank of Ghana (BoG) Domestic Gold Purchase (DGP) program to support the importation of petroleum products into Ghana.
2. The main objective of the program is to use additional foreign exchange resources from the BoG’s DGP program to provide foreign currency for the country’s import of petroleum products, which currently stands at USD350 million per month.
3. Government has started implementation of G4O program where gold is purchased mainly through Precious Minerals and Marketing Company (PMMC) under BoG’s DGP program and used to purchase petroleum products where required by aggregators and mining firms.
4. It is intended to free up foreign exchange resources to meet the country’s petroleum imports, thereby reducing pressure on the Bank of Ghana’s foreign reserves and the banking sector.
5. The program aims to procure petroleum products at the most competitive prices through Government-to-Government (G2G) arrangements. The program ensures that the cost of importing products from international oil traders is always relatively low.
6. The resulting reduction in foreign exchange pressures, reduction in premiums charged by international oil traders and efficiency gains from the value chain translates into lower ex-pump prices in the country. G4O Program Process Flow and Requirements:
7. Under the programme, the BoG will purchase all door gold produced and exported by companies with licensed small-scale concessions, including community mines, through the PMMC. The Ministry of Land and Natural Resources has issued guidelines for the implementation of the programme.
8. The Dor gold purchased will be used to pay for the supply of oil to Ghana. Payment for oil supply is made in two channels: through barter trading or through broker channel.
• For suppliers who are willing to take gold in direct exchange for petroleum products, BoG will provide an equivalent amount of gold. Banks and International Oil Trading Companies (IOTCs) are required to open gold metal accounts at a mutually agreed gold refinery for the purpose of gold transfer.
• BoG stores refined gold in its metal account at a refinery nominated by the supplier to fund petroleum product shipments.
• BoG will transfer equivalent amount of gold from its metal account based on supply invoice of petroleum products, on receipt of Quality Certificate (QC) of supplied product and final invoice from Bulk Oil Storage and Transport Company (BOST). Broker Channel:
• BoG executes a gold supply contract under which it sells gold to gold brokers, which provides forex hedging to pay for petroleum products.
• A gold broker buys door gold from BoG and deposits the proceeds into a BoG gold holding account.
• BoG transfers funds from gold holding account to Escrow account to pay for petroleum product shipment on receipt of QC and final invoice from BOST.
9. BOST, a state company acts as an off taker for petroleum products and therefore executes a contract with IOTCs for the importation of petroleum products into Ghana, sold to licensed BIDECs.
10. BIDECs purchase cash directly from BOST and or letter of credit (guarantee) from a reputable financial institution.
11. BOST and the National Petroleum Authority (NPA) shall ensure that cedi proceeds from the sale of imported petroleum products are collected and deposited in the collection bank on behalf of the BoG. Funds collected by the collection bank are required to be transferred to the BoG’s G4O revenue account within 48-hours, which will then be used to fund the next cycle of gold purchases.
12. To ensure that the price of imported petroleum products under the G4O program is reflected at the pumps to benefit consumers, the NPA will regulate the prices of these products at intervals to correct market failure until the policy matures.
13. NPA works with BOST to negotiate prices with international oil traders to ensure that the underground cost of products procured under the program is always competitive. The NPA approves the IOTC selected to supply products to BOST under the program based on the competitiveness of their offers. BOST signs supply contracts only after approval by NPA.
14. The price of selling BOST products to BIDECs will be approved by NPA. The price at which BIDECs sell products to Oil Marketing Companies (OMCs) is approved by the NPA.
15. The exchange rate applicable to the price of products supplied under G4O shall be based on the average rate at which gold is purchased from gold exporters licensed by the BoG.
16. The NPA will put in place measures to ensure that OMCs lifting products supplied under the G4O program pass the appropriate price to the consumer. In this regard, BIDECs and OMCs that lift and supply G4O products sell at ex-refinery and ex-pump prices determined by the NPA. In case of arrival of products supplied under G4O and other sources, ex-refinery and ex-pump prices are calculated using weighted average.
17. All BIDECs and OMCs wishing to purchase products under the G4O Program are required to sign an agreement confirming their willingness to abide by the terms and conditions for participating in the purchase and sale of G4O products.
18. To ensure that the impact of the G4O program on ex-pump prices is significant and effectively monitored, the number of BIDECs and OMCs allowed to lift G4O products will be regulated. Payment Structure:
19. BOST shall pay products supplied under G4O to an escrow account at BoG within 60 days of receipt of products from international oil traders.
20. BIDECs are required to pay within 15 days of loading for products procured from BOST. Payment for products is on cash basis or with 15-day letter of credit (LC) from reputed commercial banks.
21. BOST requires BIDECs to provide BoG with copies of LCs for verification and assures BoG that receipt of payments will be made on agreed dates.
Laken Allocation for Product Imports:
22. The NPA will ensure that sufficient Laken slots are allocated to BOST to import products under the programme.
23. NPA advises BOST on projected demand on monthly basis.
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