OMCs snatch Off Over C109.2 Bn From Dealers

Special Report By Dickson Gbogblor & Livingstone Pay Charlie

Key Oil Marketing Companies (OMCs) in the country are conniving to deprive Ghanaian petroleum dealers their due margins on sales. The notable companies are Total Petroleum Ghana Limited (TOTAL), Ghana Oil Company Limited (GOIL) and Shell Ghana Limited (Shell). The practice by the cartel goes on on daily basis in flagrant disregard of the rules concerning margins made by the National Petroleum Authority (NPA).

The NPA, the statutory regulatory agency tasked with overseeing and monitoring the petroleum downstream industry in Ghana to ensure efficiency, growth and stakeholder satisfaction has come up with a separate marketer/dealer margins of which the OMCs are supposed to receive GHc 0.0587/litre whiles the dealer margin is GHc 0.0461/ litre. This was effective January 4, 2011.

However, OMCs in the country are not paying the agreed margins to their dealers.

And the NPA is yet to take any serious action on the continuous fleecing of poor Ghanaian dealers.

Monitoring reports by Capitaline clearly show that the NPA’s rules governing the Margin Split/Computation of New Margins (OMC and Dealer) have been dumped in the dustbin.

A study by this paper has revealed that TOTAL has snatched off about GHc 3,672,000 million (?36,720,000,000 billion) belonging to its over 200 dealers.

GOIL on the other hand has also run away with about GHc 2,754,000 (?27,540,000 billion) belonging to its about 200 dealers. Shell also grabbed from its oil dealers about GHc 4,500,000 (?45,000,000,000). A total of about GHc10,926,000 (?109,260,000,000) has been ripped off by these three OMCs into their bossom. An interview request put in by this paper to GOIL, TOTAL, Shell and the NPA for them to respond to the charges is yet to attract positive attention from any of the entities.

These figures were churned out from the average number of Dealers these major OMCs have (on the average 200 dealers per company) across the country, also considering what the OMCs pay to their dealers, the amount of litres they are supposed to sell per month and the number of months OMCs have denied dealers equitable funds.

These huge sums of monies are margins due oil dealers from the sale of petroleum products that the OMCs are supposed to pay. Several attempts by various oil dealer associations of these OMCs to make them see reason to comply with NPA’s directives and pay their funds have hit the rocks.

Sources say the NPA has on several instances called on the OMCs to act in accordance with the directives but to no avail. The NPA in a letter, dated March 17, 20011 to the Association of OMCs after several pleas from the dealers reminded OMCs that the computations for the margins took into consideration, among other factors such as “25 percent interest rate on debt (up to 5 years) and 20 percent interest rate on Overdraft facilities per annum.”

And it is not clear why the OMCs are not ready to heed to the directives of the industry regulator.

NPA has separated dealers’ margin from the OMCs’, making it impossible for the OMCs to determine any worthless amount for the dealers in their business relationship.

The quest of the NPA to sanitize the petroleum downstream business and ensure fairness to all partners (OMCs and Dealers) has led to the introduction of a module that directed that both “OMC and Dealer use equity (40%) and debt (60%) to manage their operations.” According to the NPA, the model applied for the margin split between the OMCs and Dealers fixed the Return on Equity (ROE) at 20 percent. The NPA explains that the “profit margins are varied for OMCs (@ 33 percent cost) and Dealers (@ 6 percent cost) to achieve the ROE of 20 percent”. It also reflected on the assumption that each retail outlet sells 150,000 litres of fuel per month, when operating not less than 30 retail outlets across the country (Mandatory). The supposition is that an OMC sells 4,500,000 litres of fuel per month (ie. 30 X 150,000). The OMCs continue not to see rationale behind NPA’s computation with the excuse that their investment portfolio in aiding dealers to set up fuel pumping stations does not reflect the margin NPA has allocated to them, hence the possible non-compliance with the directive.

The OMCs further argue that their investments span from land acquisition to construction of retail outlets including office, forecourt, canopy, underground tanks pumps generator as well as maintenance of facilities and funding of holding stock.

Investigations conducted by CapitaLine reveal that Total Ghana is paying its dealers 55.75 percent (GHc 0.0257), while GOIL is paying 67.46 percent (GHc 0.0311) of the margins approved by the NPA. OMCs Argument Tenable?

In setting the margins for OMCs, the NPA took cognizance of OMCs depreciation cost of its investment in the retail station including cost of land, the cost of holding stock financed by OMCs, administrative cost running an OMC including annual NPA license fees. The NPA also recognized OMCs cost of providing guarantees to maintain a supply relationship with a BDC and compensate the OMC for taking risk to invest by providing for a 20 percent Return on Equity. However, the dealers’ margin (GHc 0.0461), which is even less than the OMC margin (GHc 0.0587) by 21.47 percent covers the cost of financing such investment, operating and maintaining such investment and the financing cost of working capital invested by the dealer in the trading. The NPA also recognizes the operational and administrative cost of running a retail outlet such as electricity etc and the cost of annual Ministries Metropolitan Municipal and District Assemblies operating permit fees and the risk taken by the dealer to invest by providing for a 20 percent Return on Equity.

Intuitively, both OMCs and Dealers are not enthused with the margins allocated to them by the NPA because both parties think the margins are on the low side.

Base on the assumptions raised above over financing and commitment components of OMCs and Dealers, the Board of NPA has approved that “the OMC margin per litre is GHc 0.0834” and that of “the Dealer margin per litre is GHc 0.065”, which in total represent about 80 percent above the existing integrated margin.

The Board has indicated that the margin increase should be implemented over a maximum period of 18 months in three phases – The first Tier will be about 70 percent of the approved margin for each PSP; the 2nd Tier will be about 85 percent of the approved margin for each PSP; and the 3rd Tier will be the full 100 percent of the approved margin for each PSP.

Both OMCs and Dealers have welcomed this increment but the former is not complying fully with directives.