NPA addresses ACEP’s concern on the introduction of price floors for the downstream petroleum sector

The National Petroleum Authority (NPA) has issued a press release to address issues raised by the Africa Centre for Energy Policy (ACEP) on the introduction of price floors for the downstream petroleum sector.

In a release from ACEP on April 4, it said the move by the NPA is expressly outside the plethora of functional activities prescribed by the NPA Act (Act 691), 2005.

ACEP argued that the NPA's decision reflects a deepening of regulatory failure to effectively protect the consumer and the industry

The centre in its release advised the National Petroleum Authority to stop what it describes as excessive appetite for regulatory fees.

“It is time for the NPA to realise that sustaining 200 OMCs and 30 BIDECs cannot be at the expense of the consumer. The excessive appetite for regulatory fees to sustain their growing staff is impeding the organisation's creativity and efficiency. Currently, 15 percent of registered OMCs supply 90 percent of the market.

“Over 160 OMCs supply only 10 percent of the market but pay the required regulatory fees. Businesses must survive in the downstream sector on the merits of their business acumen and not on the basis of the NPA’s wishes,” ACEP said in its press release.

Today, the National Petroleum Authority has issued a press release stressing that it is clear from ACEP’s release 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.

It explained that 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).

“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,” the release by NPA signed by the Corporate Affairs Directorate said.

Below is a copy of the NPA release:
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.

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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 NIPA 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.

Signed
Corporate Affairs Directorate
Monday 8th April, 2024