Government has proposed the introduction of a petroleum levy to help restore the country's economy following the effect of the Covid-19 pandemic on economies worldwide.

Caretaker Finance Minister Mr Osei Kyei-Mensah-Bonsu made this known Friday, March 12 while delivering his presentation on the 2021 Budget Statement.

According to him, Ghana has over the years faced difficulties with the economy arising from high excess capacity payments in the energy sector.

The difficulties, he said, resulted from the Power Purchase Agreements (PPAs) signed by the John Mahama-led government and this new levy will help pay for the excess capacity charges brought on by the cost of the contracts with the PPA.

"Despite the substantial progress made by the Akufo-Addo Government, there is the need to find additional resources to cover the excess capacity charges that have resulted from the Power Purchase Agreements (PPAs) signed by the previous Government which required payments for capacity charges even when the plants involved were idle or unutilised."

"Mr. Speaker, it has become very necessary for Government to consider a review of the energy sector levies. The Energy Sector Recovery Levy of 20 pesewas per litre on petrol/diesel under the ESLA is hereby submitted to this House for approval".

He added that although President Akufo-Addo during his first term of office abolished excise taxes and reduced the special petroleum tax from 17.5 percent to 13 percent to mitigate the impact on domestic petroleum prices, the introduction of this new proposed levy is "due to the difficulties faced by our economy arising from higher excess capacity payments in the energy sector, which have not reflected in electricity tariffs."

It has been purported that part of the country's economic woes is the issue of paying for unused power due to the signing of PPAs which is draining the state of its financial resources.

According to the current Government, the PPA agreements was a hasty decision by Mahama in an attempt to end dumsor.

Government says it presently pays over $500 million a year for unused electricity, emphasizing that the tariffs agreed were not competitive and have contributed significantly to the build-up of debt in the sector and oversupply of energy.

Meanwhile, Kyei-Mensah-Bonsu stated that the proposed levy if approved by Parliament will help pay off the debt in the energy sector.

According to him this 20 pesewas taxation on the price per litre of petrol/diesel, representing a 5.7% increase of petroleum product prices at the pump is inclusive of a sanitation and pollution levy.

"Mr Speaker, I should note that on the basis of existing world crude oil prices, the implementation of the two proposed levies for sanitation and pollution as well as to pay for excess capacity charges, would result in a 5.7% increase in petroleum prices at the pump," he added.

Mr Kyei-Mensa-Bonsu indicated that the proposed levy will include a sanitation and pollution levy.