Gold-for-oil programme: Experts doubt its feasibility

The gold for oil programme is likely to be still born as emerging issues suggest that it has a very slim chance of success.

Vice President Dr. Mahamudu Bawumia had announced government’s plan to swap gold for oil as a way of keeping the price of petroleum products low.

He described the policy as the first of its kind since Ghana’s independence.

But key stakeholders, 3Business has spoken to, cast doubts on its feasibility. The gold for oil policy is supposed to be a fallout of the mission to the Emirates by government delegation in search of a cheaper source of petroleum products.

Though the idea is still at its incubating stage the announcement by the Vice President has drawn many to share their views and concerns.

Ghana currently does not own a mine and cannot lay claim to a significant volume of gold.

To make this gold for oil work, it has to rely on the benevolence of both large scale and small scale miners.

The large scale miners have existing agreements with government and cannot be compelled to do otherwise. Government can only persuade them. But these miners are in business to make profit for their shareholders. There is only a limited volume of gold they can sell to the government even if they want to, because they have their own commitments to meet. Indeed, selling their gold to the government for cedis when their costs are mainly in dollars will be too much of a sacrifice for many of them, not to mention that selling to their regular buyers will earn dollars.

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The other option for the government is to buy from operators in the small-scale mining sector. But these operators also have their principals who actually pre-finance their mining operations. 3business sources in the gold export business, say the gold for oil policy is not feasible. They explain that they have investors who give them dollars to undertake mining and purchase of gold and are required to sell the gold back to these principals. They explain that compelling them to sell their gold to government for cedis, will mean they breaking their contractual agreement with their investors, an option they cannot exercise.

They say any attempt to compel them to sell their gold to the government will only result in the smuggling of the commodity to neighbouring countries to facilitate their exports to their investors and sponsors.

It appears the gold exporters are so incensed by this decision that they intend to hold a crunch meeting tomorrow to take a position on the matter.

Stakeholders, 3businesses have spoken to describe the policy as not well thought through and a knee jerk reaction.