Oil marketing companies call for upward adjustment

Business page August 4/2008

Story Charles Benoni Okine

THE Association of Oil Marketing Companies (OMCs) has called for an upward review of the margins paid to its members for lifting of petroleum products for the market to avoid a looming cash flow crisis within the sector.
Although the association did not state any particular level of adjusted margin, it said the increase would enable members to meet their operational costs, which kept rising by the day.
The Chairman of the OMCs, Mr Agyemang Duah, told the Daily Graphic in an interview that members of the association might be forced to close down some of their outlets and cut down on their staff numbers as some of the cost control measures.
Since the sector was deregulated about three years ago, the number of OMCs have increased to about 40 and the numbers still keep rising.
Each of the companies is currently paid GH¢6.5 per litre for any of the petroleum products lifted.
There is a consensus in the industry that the growing numbers of operators in the sector have drastically reduced the volumes carried by each of the players, and this is impacting negatively on their margins and the economies of scale associated with lifting larger volumes.
“Those who are able to brave the storm may also be tempted to cut costs by not adhering to safety and environmental issues, a situation that might spell doom for the country in the near future,” Mr Agyemang Duah stated.
He cautioned that some of the major or big players which were mostly multinationals with large numbers of employees might be forced to wind up their operations if they continued to post loses.
Although multinational oil companies have recorded huge profits as a result of the rising oil prices, such profits are mostly associated with upstream operations rather than with the downstream.
Mr Agyemang-Duah, who is also the Managing Director of the recently listed GOIL, said the half-year results posted by most of the major OMCs in the country showed negative profits, mainly as a result of their high operational costs.
“Many of the players rely on the banks for facilities and the high interest rates are affecting us,” he said.
He said the association had been in talks with the National Petroleum Authority (NPA) to secure a better deal going forward, but that had yielded little results, and expressed the hope that the authority would take lifeline actions in due course to save the industry from collapse.
The Chief Executive Officer of the NPA, Mr John Attafuah, also empathised with the concerns of the OMCs, describing it as “most unfortunate”.
He agreed that competition in the industry had significantly reduced the volumes carried by each OMC, a situation that was also negatively affecting their profits.
However, he said, most of the OMCs had also become inefficient and that had forced their operational costs up and affected their turnovers and profits.
He said should the authority review the margins upward, the market would look more attractive to more OMCs to even worsen the situation.
To Mr Attafuah, a drastic cut in operational inefficiencies will save the situation for the OMCs, and urged them to take a critical look at that while the authority considered other innovative ways to help them out of their predicaments without shifting costs with regard to inefficiencies to customers.