Ghana will cut electricity subsidies for mining companies from July 1, as record oil prices threaten to eat into the country's budget and growth rate, finance minister Kwadwo Baah-Wiredu said on Thursday. Mining companies were paying about 11 cents (per kilowatt hour), that was too low, Baah-Wiredu told Reuters in an interview on the sidelines of a conference.
Ghana is Africa's second-biggest gold producer after South Africa, and has a bauxite mine operated by Rio Tinto.
From 1st July they will be paying about 22 or 23 cents. They have agreed, they understand, we need to remove these imbalances.
Economists have cited utilities subsidies as a factor in a weakening cedi currency which has lost 12.5 percent of its value against the dollar in the past three months.
Ratings agency Fitch mentioned subsidies as a factor in Ghana's growing fiscal deficit when it downgraded its outlook for the country to stable from positive in February.
Ghana's government bought Alcoa's 10 percent stake in the inactive 200,000 tonne/year VALCO aluminium smelter last week and plans to relaunch the industry with a new bauxite mine and alumina refinery.
Baah-Wiredu said it would be possible to sell on a stake in the industry.
There are major investors from Brazil and Norway who are interested, they want to come in as quickly as possible.
Oil prices as high as $140 a barrel were far above the government's expectations and made it harder to meet the country's targets for growth around 7 percent and for a fiscal deficit of 4 percent of GDP, Baah-Wiredu said.
Government figures show Ghana had a fiscal deficit at 8.1 percent of GDP as of April 2008, though International Monetary Fund calculations were even higher.
But Baah-Wiredu said the figures were lower excluding oil and one-off expenditures.
If you discount the oil, the deficit is about 5 percent.
Baah-Wiredu said improvements in agriculture, construction and the services sector would help to alleviate the negative impact on the economy of high oil prices. Oil reserves discovered in Ghana last year are due to start flowing in the first quarter of 2010. The state oil company doubled its output estimate for the project earlier this month to 120,000 barrels per day.
However, imports to help spur sectors like mining and infrastructure were contributing to Ghana's large current account deficit, which Baah-Wiredu said was running at 11 percent of GDP.
If you ask me 'What is your major problem?' I would say the current account deficit, he earlier told the conference.
Global price rises were also contributing to high inflation in Ghana, running at an annual rate of 16.9 percent in May.
The Bank of Ghana raised interest rates by 175 basis points to 16 percent last month to try to control inflation, and Baah-Wiredu said more hikes were likely.
Obviously the central bank will adjust interest rates, he said.
(Editing by Ron Askew)