The National Petroleum Authority (NPA) has responded to concerns raised by the Africa Centre for Energy Policy (ACEP) regarding its decision to implement a price floor for petroleum products starting April 16, 2024.
In a press release, the NPA clarified that the price floor aims to address issues related to unhealthy price competition among Petroleum Service Providers (PSPs) and ensure the sustainability of the petroleum downstream industry.
The NPA explained that the decision to introduce price floors was reached after thorough assessment and consultation with key stakeholders in the industry.
The aim is to protect the interests of both consumers and PSPs by ensuring that costs such as fixed costs, taxes, levies, and statutory margins are adequately covered.
Contrary to concerns raised by ACEP, the NPA emphasized that the price floors will not hinder competition among PSPs or result in higher prices for consumers.
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PSPs will still have the freedom to determine their profit margins, as per the existing price deregulation policy. The NPA assured that variations in prices will continue to reflect the competitive nature of the industry.
To enhance transparency, the NPA committed to publishing the price floors prior to each pricing window for public reference.
Additionally, the Authority highlighted existing measures, such as the Petroleum Product Marking Scheme and Electronic Cargo Tracking System, to address industry challenges such as the influx of illicit products and tax evasion.
The implementation of the price floor is part of the NPA’s Amended Pricing Guidelines rolled out on April 1, 2024.
Despite industry concerns raised by stakeholders such as the Chamber of Bulk Oil Distributors and the Chamber of Petroleum Consumers, the NPA remains confident that the policy will meet industry expectations and contribute to the sustainability of the petroleum downstream sector.
As the implementation date approaches, the NPA assured stakeholders of its commitment to addressing any outstanding concerns and ensuring a smooth transition.
RE: ACEP RESPONSE TO NPA’S DOWNSTREAM SECTOR PRICE REGULATION
Reference is made to ACEP’s Press Release dated 4th April 2024 on the above subject matter. The Authority appreciates ACEP’s concerns on sections of the amended Pricing Guidelines for Petroleum Products, particularly with regards to the setting of Price Floors for the deregulated products.
The Authority has noted that ACEP’s main concerns about the price floors is that it “discourages competition and punishes consumers at the pump”. It is clear from ACEP’s paper that its concerns emanate from the fact that it did not have adequate information regarding the rationale behind the price floors and the mechanism for setting them. The Authority therefore wishes to respond as follows:
1. Prior to the implementation of the Price Deregulation Policy in July 2015, the NPA was responsible for the determination of Ex-Refinery Prices for BIDECs and Ex-Pump Prices for OMCs/LPGMCs. By this, the NPA controlled the margins of these PSPs.
2. Due to the challenges posed by price control such government interventions in pricing by subsidising products for consumers and its inability to pay these subsidies in time, PSPs were unable to fully recover their costs as per the pricing policy in Ghana.
3. The implementation of the price deregulation policy removed subsidies from petroleum products and allowed PSPs to independently set their margins in the price build-up (PBU).
4. NPA continues to provide the PSPs with the pricing formula to be used in setting their prices for every window before they independently put in their margins (and FX rates).
5. The ability of PSPs to independently determine their margins and FX rates is what results in the price competition that exists amongst them.
6. NPA is mandated by its Act to protect the interest of consumers and Petroleum Service Providers (PSPs) alike and uses its policies and regulations to achieve this mandate.
7. A multi-stakeholder committee was established in 2021 with representation from all key stakeholders in the industry to assess the price deregulation policy which has been in operation since July 2015. One of the major concerns that emerged from the committee’s work was the inability of PSPs to sometimes fully recover their costs due to unhealthy price competition that sometimes occurs amongst them.
8. The proposed solution to the above concerns is to set “price floors” for BIDECs and OMCs/LPGMCs which take into consideration only the fixed costs, taxes, levies, statutory and distribution margins in the Prescribed Petroleum Pricing Formula. These are costs that apply to all PSPs.
9. The NPA is mindful of the price deregulation policy and how it promotes competition amongst players in the petroleum downstream industry. Hence, the price floors that will be set by NPA will exclude the margins of the PSPs. They are at will to determine their margins just as they currently do and as is expected of them under the price deregulation policy.
10. As already mentioned, variations in prices results from the freedom PSPs have been given to independently set their margins under the price deregulation policy. The amended pricing guidelines does not prevent the PSPs from doing this, hence, the competition that exists amongst PSPs will continue.
11. The Authority shall publish the price floors prior to the start of each pricing window for the information of the public for ease of reference.
12. The Authority already has put in place measures such as the Petroleum Product Marking Scheme (PPMS), Electronic Cargo Tracking System (ECTS), Fuel Monitoring System, among others to address other industry issues raised by ACEP such as the influx of illicit products through approved and unapproved routes, tax evasion, among others.
