Star Oil Ghana CEO, Philip Tieku, has questioned the logic behind the National Petroleum Authority’s (NPA) decision to introduce price floors in the petroleum downstream sector, insisting that such controls undermine free market competition.
Speaking on JoyNews’ PM Express Business Edition on Thursday, November 6, he said he opposed the idea from the beginning because price controls distort market efficiency and deny players the freedom to operate based on their business models and cost structures.
“When the price floor was instituted, I openly wrote against it, because I don’t really believe that in a competitive market there’s any need for a price floor or even a price ceiling,” he said.
“You want players to be able to operate their businesses efficiently, unless the regulator believes that the players in the industry do not have the right governance systems.”
He argued that if regulators think oil marketing companies cannot manage their operations responsibly, then it is an admission of poor governance within the sector rather than a justification for imposing price restrictions.
“If that’s an admission of poor governance systems in our industry and the fact that some players need to be protected, or they make bad decisions around their pricing, then that’s fine,” he said.
“But I wrote against it in principle that in a competitive market, you can’t have a price floor, but there’s a price floor.”
Mr Tieku acknowledged, however, that the only context where the policy may have some relevance is in preventing illegal fuel diversion.
“About a week ago, you saw a GRA news article where some exported products were diverted or were going to be diverted and sold in some of our stations locally,” he noted.
“When people avoid taxes on the product, they are able to or they want to sell it very quickly. And the taxes on fuel today are about ¢4.27 per litre for gasoline.”
He explained that tax evaders can exploit that margin to undercut legitimate operators.
“Such a person can drop the price to ridiculous levels, and that can have its own effects. So in that respect, that’s the only area I see the price floor as playing some role if such a person should get their hands on those products.
“They may not be able to sell lower than the price floor. But otherwise, I really don’t see the benefit of the price floor.”
Responding to suggestions by regulators that the policy was necessary to prevent the collapse of weaker oil marketing companies, Mr Tieku dismissed that argument as flawed and patronising.
“If the regulator argues that way, then it’s an admission that a lot of players in the industry don’t know their business or are not able to analyse their business in terms of costs, revenues and probability, etc.,” he said.
“But if that’s the case, then something has to be done about that, because the Bank of Ghana is not going to license clueless banks. It’s going to make sure that these are banks that have good governance controls.”
He maintained that competent companies like Star Oil have proven that profitability is possible without regulatory protection.
“As I’m sitting here, at the time the price floor was introduced, nobody could say that Star Oil was not profitable. We’re profitable. We’re not selling at a loss.”
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