Govt to wash hands off pricing of petroleum products

The government has decided to wash its hands off the pricing of petroleum products.

This means that the Bulk Oil Distribution Companies (BDCs) and Oil Marketing Companies (OMCs) will, before August 2015, price their own products.

The strategy, which is the final phase of Ghana’s petroleum downstream deregulation policy, will result in the cessation of subsidies on fuel products.

The government’s indebtedness to the BDCs as a result of subsidies currently stands at more than $800 million.

The Chief Executive of the National Petroleum Authority (NPA), Mr Moses Asaga, in an interview with the Daily Graphic in Accra Monday, clarified that “the increment or decrease of petroleum prices will no longer be the preserve of the government but will be determined by market forces that will take into consideration the international price of crude oil, the foreign exchange rate, the fall or rise of the cedi, import duties, taxes and other factors.

“This means the government will no longer be involved in the pricing of petroleum products and therefore the perennial issue of subsidies will come to an end,” he said.

Rationale

Explaining the rationale behind the liberalisation of the petroleum downstream sector, Mr Asaga told the Daily Graphic that the full implementation of the deregulation of the petroleum downstream sector would promote competition among market players.

“Prices will vary and will be lower because the BDCs and the OMCs will be competing with one another for a wider market share. The petroleum downstream sector will in no time turn out like the telecoms sector, where there is so much healthy competition.

“The issue of colossal subsidies which put a huge financial burden on the government, he said, would also end and thereby result in the re-channeling of finances into other sectors of the economy, Mr Asaga said.

Timeline

Mr Asaga did not give a specific date by which the new policy would be implemented but said it would be implemented before August 2015.

According to him, the NPA was currently holding meetings with stakeholders, including the BDCs, the OMCs and transporters.

“We have met the BDCs and scheduled a meeting with the OMCs this week. Some portions of the NPA Act will have to be slightly amended to contain the new situation or pricing,” he said

Sanctions

Touching on moves to ensure that consumers were not short-changed, he said: “There will be sanctions on BDCs and OMCs that will go beyond the average price indicated. The punishment will be the suspension of operating licences. In the event that the quality of products is found to have been compromised, it will result in the withdrawal of licences after a third warning.”

He said the Petroleum Product Market Scheme (PPMS) Unit, which was set up at the NPA two years ago, “will be strengthened to become a very strong department in the new dispensation to further do away with incidents of adulteration and sale of inferior products.

“The failure rate or quality, which used to be 30 per cent of product quality, has been reduced to two per cent since the introduction of the PPMS. We will tighten it to 0.5 or 0.1 per cent,” he added.

Debt

On the debt the government owed the BDCs, Mr Asaga said, “We hope to isolate this debt and deal with it once and for all.”

He said Nigeria was currently facing acute fuel shortage because of debts the government owed the BDCs there, adding that in the case of Ghana, “we have managed the system prudently to forestall product shortages so far”.

Control

He explained that Cabinet was aware of the new measure and further indicated that there were checks and balances in place to ensure that the interests of consumers were protected.

“The NPA will make sure that prices quoted by the BDCs and the OMCs are within the approved and expected ranges. We will make sure they do not take undue advantage of the consumer.

“Each OMC will have to indicate its ex-pump price and it is expected to submit it to the NPA for publication. This will enable consumers to have a choice, depending on the price of products,” he said.

Quality

Asked how the NPA would ensure that the quality of products was not compromised, Mr Asaga said: “The NPA will tighten its quality control measures to ensure that the inspection and testing of petroleum products meet the standard specification of the NPA and the Ghana Standards Authority (GSA) before they are discharged at the port.”

History

The deregulation of the petroleum downstream sector started with the establishment of the NPA, which decided to deregulate the industry that used to be controlled by the Tema Oil Refinery (TOR), the Bulk Oil Storage and Transportation (BOST) Company Limited, the Ghana National Petroleum Corporation (GNPC) and a few multinational companies.

The BDCs were introduced in the process. 

They were initially four, but the number has now increased to 27.

The OMCs, which were less than 10 some decades ago, have increased to 120, out of which 70 per cent control the retail market.