Fuel prices: 63% taxes and margins makes big drop difficult – CBOD

The Chamber of Oil Distributors (CBOD) is encouraging fuel consumers to be circumspect in their expectation of a reduction in fuel prices on the local market.

This is because changes in crude prices do not directly impact the supply chain costs, as government taxes and regulatory margins, as well as OMC & dealer margins, currently account for over 63% of current pump prices.

The public has been calling for a further reduction in oil prices to reflect prices on the international markets.

This call follows an announcement by some Oil Marketing Companies (OMCs) of a reduction in fuel prices at the pumps, which cumulatively amounted to two per cent.

Despite this, some civil society organisations (CSO) called for further reduction in the ex-pump prices for consumers to reflect the sustained decline in the global crude oil prices.

According to them, there ought to be a reduction of fuel prices between 10% to 32%, compared to the 2% offered to consumers over the past few weeks

But the Chief Executive Officer of CBOD, Mr Senyo Hosi, explained that changes in crude prices do not directly impact the supply chain costs, as government tax and regulatory margins, as well as OMC & dealer margins, currently account for over 63% of current pump prices.

For the marketer’s margin, he said it represents the gross earnings due to an OMC for every litre sold as the dealer’s margin is the gross earnings due to a petroleum retailer operating under an OMC.

He explained that the margins are negotiated from time to time subject to major changes in key economic variables which are currently estimated at Ghp65.1/litre.

Mr Hosi said the crude prices impact pump prices only to the extent that it impacts the international market price of petroleum products.

Changes in crude prices, he stated, do not directly impact the FX rates.

He indicated that even though changes in crude affect international market prices of petroleum products, it does not impact it at the same rate.

“For example, crude dropped by 51% from $70 per crude barrel on January 6 to $34/ per crude barrel on March 11, 2020. Petrol and diesel, on the other hand, dropped by 47% and 40% respectively.

“Crude saw a six per cent drop in price between March 10 and 11, but diesel rather saw a 1% increase in price over the same period,” he explained.

He further explained that locally refined products should at worse be as competitive as imported products.

According to him, price fairness was subject to the refinery’s efficiency and the trading agency’s effectiveness.

A study of West African refineries, he disclosed, confirmed that Tema Oil Refinery (TOR) and other refineries operated at very high levels of inefficiency, which was being passed on to the consumer through pricing.