Without a doubt, we all see whenever there is no fuel in the petrol stations how quickly the whole economy gradually grinds to a halt. People no longer travel easily and cheaply from one place to another. The cost of transportation goes up. Food prices go up. Machines do not run. Industries would quickly fold up. Jobs are lost. The unemployment rate climbs steeply, etc.
As such, whilst we understand the crunching financial stress that the government is under, at the same time it must keep in mind that its very survival depends on the availability of fuel in the market at all times.
Depreciation in the value of the Leone should not be a factor in the Central Bank’s prioritizing of foreign exchange to the oil companies at official exchange rate because fuel has a very huge multiplier effect on the rest of the economy, as well as on investor confidence.
What the oil companies say is that they are exposed to a lot of visible and invisible taxes that greatly hamper their profitability in what is a highly volatile market subject to ups and down in the international market. Even as this article is being written, Donald Trump and Iran’s palaver that threatens to flare up into open war has affected negatively the price of oil in the international market.
National Petroleum Sierra Leone Limited (NP-SL) that has been doing extremely well in terms of timely service delivery of petroleum products and customer care reports that it is going through trying times, having recorded a massive loss from January to May 2019 to the tune of over Le 96 billion (ninety six billion Leones).
It attributes this nerve-wracking financial loss to the huge difference between the actual price of PLATTS and the average purchase price of US Dollar to the Leone when matched against that of the Petroleum Regulatory Agency Pricing Formula.
NP-SL says it is currently paying an average of Le9, 000 to $1 (USD) as compared to Le8, 600 to $1 (USD) in the PRA Pricing Formula. Another challenge facing NP-SL Limited is volatility and unavailability of US Dollars to effect transactions.
It is so serious that NP-SL Limited currently owes its suppliers over $42 Million which it is challenged to honour.
Research done shows that in the past, when the industry was faced with challenges and in order to avoid fuel crisis, the Government always stepped in to subsidize the prices of petroleum products to ensure that the pump prices are at affordable level, which is now that is not the case.
Realistically, if the government cannot subsidize, then it should allow market forces to prevail so that the industry does not collapse.
As it is right now, Oil marketing companies are subsidising virtually all sectors in the industry to the detriment of its own survival.
“If the current fiscal regime is not reviewed many companies including NP will go down such a painful and dreadful route,” stated Steven Williams, a Development Consultant.
He added that sound policies must be urgently rolled out to ensure stability.
It was also discovered that the nature of NP-SL’s business is such that it imports petroleum products in US Dollars, sells in Leones and has to convert the Leones into US Dollars to repurchase on the international market.
Williams maintained that it is regrettable that the company finds it extremely difficult to purchase US Dollars in the marketplace currently.
Over the years, NP-SL received tacit support from the Central Bank even though the amounts normally received were inadequate.
It is recommended that the Central Bank develops a mechanism wherein foreign currency is provided for the oil marketing companies to enable them pay for badly-needed petroleum products.
Of course to promote transparency of goods that are brought into the country and required taxes that must be paid to Government the ASYCUDA digital software was introduced at the Port.
However what we learnt in our investigations was that the method of implementation of the ASYCUDA system has been negative on NP-SL, which is it is recommended that the relevant authorities put in place measures to ensure seamless flow of products free of interruption and long delay.
The current pricing formula dictates that the pump price of petroleum products be adjusted upwards or downwards periodically as and when the combined effect of the changes in world market prices (quoted in PLATTS) and the exchange rate (measured by the average selling rates quoted by the Oil Marketing Company, commercial banks and Bank of Sierra Leone) cause a +/- 5% change in the Leone-based landed cost of the product (s).
It was noted that prices should be changed upwards or downwards in small increments that will not create panic in the market place. The way it is currently, allows for a big jump at any time which makes it difficult for Government to effect change at the right time.
It may interest readers to note that while a litre of fuel is sold at Le7,000.00 here, in Guinea it is sold at Le9,120.00, in Liberia it is Le9,321.00, Ivory Coast sells at Le9,244.20 and Ghana at Le 9,136.44.
NP-SL is further encumbered with other charges that are not provided for in the price build up formula, and these include: Toll Gate fees, ASYCUDA processing fees, Environmental Protection Agency fees, storage fees and other fees imposed by the Petroleum Regulatory Agency.
Thus, the government to help the oil companies must review some of its policies especially those affecting vibrant companies in the country as well as ensuring that economic measures are rolled out in order for the value of the Leone to appreciate.
Failure to take drastic steps to protect locally owned companies will definitely lead to closure or restructuring with dire consequences that could take the form of labour downsizing, no-payment of taxes to government, etc.