ACEP Reiterates Opposition to Gasoline Price Floor Amid OMC Price Wars

Introduction

The debate surrounding the regulation of the downstream petroleum sector in Ghana has intensified as the Africa Centre for Energy Policy (ACEP) calls for the immediate abolition of the gasoline price floor policy. Amidst ongoing price wars among Oil Marketing Companies (OMCs), ACEP argues that the regulatory price floor is not only illegal but also detrimental to fair competition and consumer welfare. This article explores the implications of the price floor, the arguments presented by ACEP, and the broader impact on the energy market structure.

Key Points

Background

The Introduction of the Price Floor

In 2024, the National Petroleum Authority (NPA) implemented a price floor policy for the downstream petroleum industry. This regulation established a minimum retail price for key fuels, including gasoline (petrol), diesel, and Liquefied Petroleum Gas (LPG). The stated intent was likely to stabilize the market and ensure that companies did not engage in “predatory pricing” or sell fuel below cost, which could compromise quality or financial stability.

Current Market Dynamics

The downstream sector in Ghana has experienced significant volatility, characterized by “price wars” among various Oil Marketing Companies (OMCs). These price wars involve aggressive undercutting of fuel prices to attract customers. While this often results in lower prices at the pump, some OMCs have recently petitioned the government to abolish the price floor, arguing that falling global fuel prices should allow them to pass savings directly to consumers without regulatory interference.

Analysis

Legal and Regulatory Inconsistencies

ACEP’s primary criticism rests on the legal foundation of the NPA Act, 2005 (Act 691). The think tank argues that the price floor directive is inconsistent with the provisions of this Act. By imposing a minimum price, the NPA is arguably stifling the market forces of demand and supply. ACEP contends that the policy is a symptom of regulatory failure rather than a solution to market challenges. Instead of addressing the root causes of unethical practices, the NPA is resorting to broad protectionist measures that shield underperforming entities.

Impact on Competition and Efficiency

A major concern raised by ACEP is the distortion of competition. Price floors reward inefficiency. When a regulator guarantees a minimum price, companies with high operational costs and poor management are protected from the pressure to improve or exit the market. Conversely, efficient companies that could offer lower prices are penalized. This creates an environment where competition is stifled, and innovation is discouraged.

The Problem of Substandard Products

ACEP links the price floor to the proliferation of substandard and illicit petroleum products. When regulatory fees are high and price floors are set to cover these costs, there is a strong incentive for some OMCs to cut corners. They may import inferior fuel or engage in tax evasion to survive. ACEP argues that the NPA’s “broad protectionist measures” fail to target the specific players engaging in unethical practices, effectively allowing bad actors to hide behind the shield of regulated prices.

Market Concentration and Inequality

Perhaps the most striking data point provided by ACEP concerns market concentration. Approximately 15% of OMCs control nearly 90% of the market volume. Meanwhile, over 160 OMCs scramble for the remaining 10%. Maintaining a complex price regulation system to protect this fragmented “long tail” of small, inefficient companies comes at a cost. ACEP argues that this cost—borne by the consumer through inflated prices—is too high a price to pay for sustaining an inefficient market structure.

Practical Advice

For Policymakers (NPA)

To foster a healthy downstream sector, the NPA should consider the following steps:

• Abolish the Price Floor: Allow market forces to determine prices, provided that quality standards are strictly enforced.
• Enforce Quality Standards: Shift focus from price controls to rigorous testing and inspection of fuel at depots and retail stations to eliminate substandard products.
• Simplify Regulatory Fees: Review the fee structure to ensure it is not burdensome, which drives companies to cut corners.
• Targeted Enforcement: Instead of blanket regulations, use data analytics to identify and sanction specific violators of ethical and legal standards.

For Consumers

• Verify Quality: Always check for the NPA’s quality certification stickers on fuel pumps.
• Monitor Prices: Take advantage of legitimate price differences between OMCs, but be wary of prices that seem suspiciously low, as they may indicate adulterated fuel.
• Report Malpractices: Report any suspected sale of substandard fuel or meter tampering to the NPA or ACEP.

For Oil Marketing Companies (OMCs)

• Focus on Efficiency: Streamline operations to lower costs rather than relying on regulatory protection.
• Diversify Revenue: Move beyond fuel retail to other services (e.g., lubricants, convenience stores, renewable energy) to remain viable in a competitive market.

FAQ

Conclusion

The call by ACEP to scrap the gasoline price floor highlights a critical tension in the downstream petroleum sector: the balance between market regulation and free competition. While the NPA aims to stabilize the market, ACEP presents compelling evidence that the current price floor does the opposite—fostering inefficiency, legal non-compliance, and higher costs for the public. A shift toward data-driven legislation, strict quality enforcement, and fair competition appears to be the necessary path forward to protect consumer interests and ensure a robust energy sector.