Price floors to address unhealthy competition – NPA
The National Petroleum Authority (NPA) says the objective of setting a price floors is to address unhealthy competition in the petroleum industry.
It will publish the price floors before each pricing window for public reference.
The regulator explained that the price floors will enable Petroleum Service Providers (PSPs) to fully recover their costs.
Mindful of fostering healthy competition, the NPA clarifies that the price floors will be set excluding the margins of the PSPs.
This is crucial because the NPA is mandated by its Act to protect the interests of consumers and PSPs and utilizes its policies and regulations to achieve this mandate.
The price floors will consider only the fixed costs, taxes, levies, statutory, and distribution margins in the Prescribed Petroleum Pricing Formula for Bulk Oil Import, Distribution & Export Companies (BIDECs), Liquefied Petroleum Gas Marketing Companies (LPGMCs), and Oil Marketing Companies (OMCs).
The NPA explains that a multi-stakeholder committee was established in 2021 to assess the price deregulation policy, which has been in operation since July 2015.
One major concern highlighted from the committee’s work was the inability of PSPs to sometimes fully recover their costs due to unhealthy price competition.
The proposed solution to this concern is setting “price floors” for BIDECs and OMCs/LPGMCs, considering only fixed costs, taxes, levies, statutory, and distribution margins.
The NPA emphasizes that all these are costs that apply to all PSPs.
Despite the amended pricing guidelines, PSPs are free to independently set their margins as they currently do under the price deregulation policy, promoting competition among players in the petroleum downstream industry.
Additionally, the NPA has implemented measures such as the Petroleum Product Marking Scheme (PPMS), Electronic Cargo Tracking System (ECTS), and Fuel Monitoring System to address industry issues such as the influx of illicit products and tax evasion.
Before the implementation of the Price Deregulation Policy in July 2015, the NPA controlled the margins of PSPs by determining Ex-Refinery Prices for BIDECs and Ex-Pump Prices for OMCs/LPGMCs. However, challenges arose from price control, leading to the inability of PSPs to fully recover their costs.
The implementation of the price deregulation policy removed subsidies from petroleum products, allowing PSPs to independently set their margins.
The NPA continues to provide PSPs with the pricing formula for setting their prices before they independently determine their margins and FX rates, fostering price competition among them.
