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NPA urged to drive mergers among OMCs

  • SOURCE: | qwesa2big
  • petrol-pumpThe Lead Consultant of Wellspring Petroleum Services Limited, a petroleum business consultancy firm, Mr Michael Bozumbil has called on the National Petroleum Authority (NPA) to vigorously pursue consolidation measures in the industry.

    Consolidation among the indigenous Oil Marketing Companies (OMCs), he said, would help them come together to form bigger entities to withstand stiff competition from foreign companies.

    Mr Bozumbil, who is also the Chief Executive Officer (CEO) of PETROSOL, an Oil Marketing Company, said the industry was currently made up of a lot of players with very weak financial and infrastructure base and also very small market share, a situation that 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.

    “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,” he said.

    He, therefore, advised that “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.”

    While recognising that the NPA had done well by encouraging indigenous private participation in the industry, it was important to push the agenda of consolidation.

    Ensuring regulatory clarity

    Mr Bozumbil explained that in a deregulated environment, regulatory clarity was very key to ensure that there was no ambiguity when interpreting guidelines.

    Therefore, the NPA, he said, should do well to ensure that the guidelines are as simple, clear and unambiguous as possible.

    “For instance, whenever the NPA comes out with new regulations or requirements, do those regulations or requirements affect only new entrants or existing ones or both? For example, currently, the NPA has raised the minimum number of outlets one should have to be licensed as an OMC to service stations. What exactly does this mean? Is it the case that only new entrants must have at least seven service stations or that existing OMCs with less than seven stations must meet the number before their licenses are renewed”, he quizzed.

    Again, one of the regulations or requirements is that for a company to be licensed as an OMC or BDC, it must show evidence of local partnership of at least 50 per cent to be held by Ghanaian citizens.

    “What exactly does this mean? Is this applicable only to new entrants or existing entrants must meet this requirement before their licenses are renewed? It is important for there to be regulatory clarity to promote easy compliance and also engender trust and confidence in the regulator,” he said.

    Growing indigenous companies

    He explained that to ensure that indigenous companies grew in the sector; the NPA should also consider reviewing the provisions of licenses to OMCs.

    “The number of stations requirement for new entrants should be raised from the current seven stations to at least 15 stations but with preference given to Ghanaian partnerships. Additionally, requirements should include demonstrable evidence of experience or track record of management team,” he said.

    Therefore, an OMC he said, should be able to source products directly to supply its stations if it has the capacity to pay without having to necessarily pass through another BDC or set up a new entity all together to use it as the vehicle for a BDC license.

    “In other countries, OMCs own their own petroleum storage depots. In fact, even some years ago in Ghana, some of the major OMCs had their own depots. Therefore, I think the decision to form a separate entity or not should purely be a matter of corporate strategy for the OMC, rather than regulatory requirement,” he said.

    He said what the NPA could do to facilitate the implementation of his suggestion was to encourage operators that will concentrate on providing only depot infrastructure services.

    Deregulation in Ghana

    Deregulating prices of petroleum products was implemented in July, 2015 in Ghana. One of the major policy objectives that has been achieved after deregulation has been the reduction of the burden of petroleum subsidies on government budget by ensuring that there is full cost recovery by Petroleum Service Providers (PSPs).

    In 2015, a dedicated petroleum downstream regulator, the NPA was established by an Act of Parliament (Act 691) to continue the process of implementing the policy, which was initially being handled by the Energy Commission and later supported by the National Petroleum Tender Board (NPTB), but this time, with a much more focused approach, and with the necessary legal backing.

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