Scrap Fuel Price Floor to enhance competition
The Executive Director of the Institute of Public Policy and Accountability (IPPA), Paul Apreku Twum Barimah, has called on the National Petroleum Authority (NPA) to abolish the fuel price floor policy.
He argued that the fuel price floor policy undermined competition and defeated the purpose of deregulation in Ghana’s downstream petroleum sector.
Undermining competition
He maintained that several Oil Marketing Companies (OMCs) had the capacity to sell petroleum products below the minimum price set by the NPA, but were constrained by regulatory directives, which prevented them from pricing below the prescribed floor.
Mr Twum Barimah, who is also the former Member of Parliament (MP) for Dormaa East, explained that the situation had effectively limited the ability of efficient operators to pass on cost advantages to consumers, thereby weakening competition in the sector.
“I know some oil marketing companies that can sell petrol and diesel below the current rate, but because of the floor price set by the NPA, their hands have been tied,” he stated in an interview with journalists.
Mr Twum Barimah further argued that the recent volatility in global oil markets, triggered by geopolitical tensions involving the United States, Israel and Iran, had created conditions where some OMCs were able to secure fuel from relatively cheaper or safer supply routes and could potentially offer lower prices locally.
However, he insisted that the existing price floor prevented such companies from reflecting these advantages at the pump.
“The deregulation policy was introduced to promote competition and efficiency in the downstream sector. The introduction of a price floor is effectively a form of price control, which defeats that objective,” he added.
Background to Policy
The debate on the fuel price floor policy comes in the wake of the NPA’s decision in April 2024 to introduce a minimum retail price for petroleum products.
The policy was designed to curb what regulators described as “unhealthy competition” and to ensure stability within the downstream petroleum market.
However, the move has since sparked controversy among industry stakeholders and policy analysts who argue that it interferes with market forces.
Mr Twum Barimah stated that economic observers noted that in a largely homogeneous market, such as petroleum retail, where fuel products were identical across brands, “pricing remains the key competitive tool. As a result, they argue that price floors can distort natural supply and demand dynamics.”
Industry players
Industry players further pointed out that some OMCs, particularly those operating outside major urban centres, rely heavily on competitive pricing to attract customers.
These firms often exert downward pressure on market prices, benefiting consumers across the board.
However, critics argue that the introduction of a price floor removes this competitive edge and creates a uniform pricing structure regardless of efficiency differences among operators.
Analysts also warn that the policy could discourage efficiency and innovation within the sector.
When firms are unable to fully benefit from cost reductions by lowering prices, the incentive to invest in logistics, technology, and improved service delivery is reduced.
There are also concerns that smaller and emerging OMCs, which often depend on lower pricing strategies to gain market entry, may be disproportionately affected. This could limit market diversity and reduce competitive pressure in the long term.
While the National Petroleum Authority maintains that the policy promotes price predictability and protects consumers from erratic pricing, critics argue it may instead lead to higher fuel costs than would prevail under a fully competitive market.
During periods of declining global crude oil prices, a price floor could prevent reductions from being passed on to consumers, particularly affecting low-income households and transport-dependent businesses.