Former Chief Executive Officer of the National Petroleum Authority (NPA), Alex Mould, says structural problems within the local petroleum industry are partly responsible for the hikes in fuel prices at the pump.
Narrowing down on the payment mechanisms in the industry, he noted that there are currently too many days given as credit to Bulk Oil Distributors and Oil Marketing Companies in the country.
Explaining his point, he said that while petroleum products shipped into the country are normally sold to consumers within 60 days, suppliers are given 120 credit days.
This he says causes OMCs to “play with the money and when there is a spike in foreign exchange, foreign exchange losses occur.”
Speaking on JoyNews’ PM Express, he explained, “The BDCs buy fuel from their suppliers and the international markets. There are maybe not more than 4 major suppliers that supply 90% of all of our petroleum products in West Africa, not only Ghana, the whole of West Africa. We’re talking about Trafigura, Vitol, Glencore and British Petroleum (BP).
“These suppliers sell petroleum products and give credit to the buyers either through a letter of credit or a supplier’s credit. The problem is they give them too many days as credit. When a cargo of petroleum products which is about 35,000 metric tonnes arrives in the country, it is sold within a week and as such they should be able to collect the money and repatriate the money to the supplier within a month.
“These suppliers because of market forces give up to a 120 days credit, that means that the BDCs land the product in the country, sell the product to the Oil Marketing Companies, and the Oil Marketing Companies are also given unnecessary long credit.
“People play with the money and when there is a spike in foreign exchange, foreign exchange losses occur. I don’t see why anybody will give 120 days for a product that can be sold, money collected, foreign exchange obtained within 60 days. This is one of the problems we face in the industry.”
Alex Mould has therefore called on the NPA to fix the structural problems in the industry by instilling discipline.
“NPA needs to ensure that there is a cross default mechanism that any BDC or Oil Marketing Company that delays in making payments is put on the blacklist and is not supplied products by anybody. This will bring some discipline into the industry,” he said.