The Association of Oil Marketing Companies (AOMCs) on Tuesday revealed that increases in fuel prices had impacted negatively on the operation of downstream oil marketing companies.
“The reality on the marketing field is OMCs make very low return on their investment, therefore when fuel prices are increased, what it means is that the OMCs require additional capital to lift the same quantity of fuel at the new price.
“For example, for petrol, if an OMC lifts 1,000,000 litres in a month at GH¢1.0886 per litre, the total amount required to lift such quantity of fuel is GH¢1,088,600.
“If the price is increased to GH¢1.3127 per litre (15 per cent increase), an OMC requires GH¢1,317,700 to lift the same quantity of fuel which in effect requires additional capital of GH¢224,100,” Mr Kwaku Agyemang Duah, AOMC Industrial Coordinator told the Ghana News Agency in an interview in Accra.
He said: “Cost of sales increases by 20.59 per cent without a corresponding increase in margin. An added upshot of fuel price increase on OMCs is that cost of capital also increases”.
Mr Agyemang Duah explained that the OMCs’ had the option to decide whether to finance with debt or equity…”Financing the GH¢224,100 with equity would require payment of dividend annually – either preference or ordinary shareholders to shareholders.”
“Moreover, in Ghana, most of the OMCs’ are not listed on the Ghana Stock Exchange (GSE) so cost of marketing the shares of unlisted companies will also be high”.
The AOMCs Industrial Coordinator said, “If the OMCs’ decide to finance the extra capital requirement with debt, it has to pay monthly interest on the loan…we should not forget the fact that some loans come with restrictive covenants.
“With reference to our example, assuming an average interest rate of 25 per cent, the OMCs’ will pay GH¢56,025 as interest on the loan.
“It is pertinent to note that a significant number of OMCs’ cannot raise the GH¢224,100 additional capital to finance their operations looking at their financial position so they would like to trade with the available working capital.
“An OMC which used to lift 1,000,000 litres at GH¢1.0886 will lift 829,283 litres at GH¢1.3127 per month”.
Mr Agyemang Duah said since the OMC did not get an increase in margin, it was expected that it sold more products to make up for the lost margin but in such a situation, the cost of sales went up while there was financial constraints on how much litres it could lift to sell at a reduced quantity of 829,283 litres.
He explained that when fuel prices were increased, the regulatory authority expected that products would be sold at the prevailing new prices which meant that the prices quoted on the dispensers had to be changed overnight and also billboards.
“It also cost OMCs GH¢200.00 per machine to contract expert to their various stations all over the country to replace the old prices with the new prices…not forgetting the distance and the time constraints.
“Increase in fuel prices results in general price increase of goods and services which in effect increases the general cost of operation by an OMC without a corresponding increase in margin.
“Increase in operating cost which is a recurrent expenditure would have to be financed with the existing margin including the fact that employees would expect an increase in salaries and wages since increase in fuel prices affect the standard of living of the ordinary Ghanaian, especially their colleagues in the public sector are enjoying the almighty single spine,” the Industrial Coordinator stated.
Mr Agyemang Duah said the imperative factor with the issue of fuel price increase was the fact that it did not make OMCs effective distributors.
He suggested that the way forward was for OMCs to obtain an increase in margins to be able to recover their cost and operate effectively by sending products to every part of the country.