Government has reacted to the falling crude oil prices on the world market by opting to review its petroleum pricing formula as well as budget estimates after oil prices hit a five-year low -- now selling below the US$50 mark.

The 2015 budget estimates petroleum prices at US$99.37 per barrel using the Petroleum Revenue Management Act, which is calculated using a 7-year moving average that leads to total estimated revenue of US$1.2billion.

Although the Finance Minister in presenting the 2015 budget to Parliament acknowledged the adverse impact of the pernicious slide in crude oil prices -- which dates as far back as June 2014 -- on government’s budget estimates, he was optimistic the commodity will recover.

But addressing journalists in Accra last Friday, Mr. Terkper said the falling crude oil prices will have a mixed effect on the trade balance and may have negative implications for the current account and reserves.

“With the continuous decline in crude oil prices since September 2014, the estimated Petroleum Benchmark Revenue price of US$99.376 per barrel for 2015 may not be achieved, and this can have negative implications for the Budget execution,” he said,

The Finance Ministry, he said, will convince Cabinet to consider a review of the petroleum pricing formula to take into cognisance prevailing record low prices while taking steps to mitigate the impact of the price decline on the economy.

“I would like to emphasise that we will send a report to Cabinet on the impact of the reduction in crude oil prices on the economy and the necessary adjustments that should be done to ensure that we achieve our fiscal consolidation objectives,” he said.

Worrying trend

Energy policy think-tank Africa Centre for Energy Policy (ACEP) is worried that the situation could expose the 2015 and 2016 Budgets to “serious price vulnerabilities because the Stabilisation Fund would have been significantly depleted in 2015, such that it cannot provide its expected cover if crude prices remain lower than a third of the benchmark price of US$99 per barrel”.

According to the energy policy think-tank, government will still miss the estimated US$1.2billion revenue target for 2015 even if oil production is increased by more than 10 percent over current levels of 105,000 barrels per day.

It therefore sees government falling heavily on the Stabilisation Fund, which has been capped at US$250million.

Another think-tank, the Natural Resource Governance Institute (NRGI), has done a simulation which suggests that if the Brent crude oil price were to trade at US$70 per barrel throughout 2015, as opposed to the US$99 per barrel benchmark price, actual petroleum revenue to the government would fall short by 31 percent or US$430million.

As compared to budget figures, however, the shortfall is projected at 23 percent or US$281million.

The NRGI indicated, however, that the Annual Budget Funding Amount will be protected under a US$70 per barrel price scenario -- but said the shortfall would affect GNPC negatively, allowing it to withhold US$52million less in revenues (a 25 percent reduction).

“The accumulation of revenues into the two petroleum funds would slow dramatically under the US$70 scenario: by our calculations, US$24million would accrue to the Ghana Heritage Fund in 2015 and US$56million would accrue to the Ghana Stabilisation Fund (in both cases this figure is 74 percent lower than what would be obtained in a US$99 scenario).”