Petroleum sector players require urgent support

It has been a little over a year since the policy to deregulate the prices of petroleum products was implemented.

Started in July 2015, one of the key objectives of the policy was to promote competition in the sector by encouraging new entrants, especially Ghanaian private sector players.

This competition was intended to lead to efficiency in the system such that the efficient operators will pass the gains of their efficiency to consumers in the form of product quality, service quality, low prices among others. 

Thus, fixed ex-pump prices were to be removed so Oil Marketing Companies (OMCs) could set their own prices and compete among themselves.

In spite of this laudable idea which informed the formulation of the policy, all is not well with the operators in the downstream sector either with the bulk oil companies or the oil marketing companies. 

Three challenges –covert subsidies, indebtedness to banks and low margins – continue to hamper the operations of companies in the downstream petroleum sector, forcing almost a quarter of licensed fuel retailers and wholesalers to become idle last year.

Of the 188 licensed Bulk Oil Distributors (BDCs) and Oil Marketing Companies (OMCs) in the country, 42 were inactive, while 111 managed market shares less than one per cent according to data gleaned from the National Petroleum Authority (NPA) and the Chamber of Bulk Oil Distributors (CBOD).

As a result, a bulk of the business – about 70 per cent – was handled by 15 of the BDCs and OMCs, majority of which are pioneers in their respective sectors. Of the 42 inactive companies, 11 are BDCs while 31 are OMCs.

To ensure that there is fair competition among all players in the sector under this era of deregulation, it is important that the government takes steps to immediately pay any genuine outstanding debts owed the BDCs after the auditing exercise by Ernst and Young. This is because this situation is creating unfair advantage to the new BDCs which do not have the burden of the legacy debts hanging on their necks.

The GRAPHIC BUSINESS urges the government to appreciate the fact that most of these BDCs are indigenous private operators which supported the government to implement its policy during the difficult era of heavy government subsidy. Therefore, they should be supported to stand rather than allowing them to collapse. 

The NPA should also vigorously pursue consolidation measures in the industry. It is true it has done well by encouraging indigenous private participation in the industry and this should continue.

However, the industry is currently made up of a lot of players with very weak financial and infrastructure base and also very small market share. This situation makes them very vulnerable for take-over by foreign players who are good at beating the system by getting unpatriotic local people to front for them. 

Thus, if this issue is not quickly addressed frontally, the gains made so far by having indigenous players controlling greater market share now will be lost with time to foreign players which will take us back to the era before deregulation when multinationals controlled a bigger market share.

Therefore, the NPA should use ingenuous regulatory measures with some incentives to make the existing small indigenous players see the need to come together to form bigger entities.