OMCs cry over ‘bad business’
Oil marketing companies (OMCs) across the country are struggling to survive due to high taxes, diminishing profit margins and activities of illegal fuel smugglers, the Chief Executive Officer (CEO) of the OMCs, Mr Kwaku Agyemang-Duah, has said.
Mr Agyemang-Duah first sent a distress call to the government in May 2017, claiming that more than 4,000 workers at OMC outlets risked losing their jobs, if the government did not act to save their businesses.
Speaking to the Daily Graphic in an interview in Accra yesterday, almost a year after organising a press conference to highlight the challenges confronting the OMCs, Mr Agyemang-Duah: “The average OMC barely survives on a monthly basis, as it is saddled with debts, ranging from enormous penalties accruing from delayed tax payments, which is as a result of poor sales at retail outlets, and bank loans, with compounding interests.”
Some of the challenges facing the more than 100 OMCs and 3,300 retail outlets across the country, he said, were zonal differential pricing of bulk distribution companies (BDCs), tax compliance issues, illegal fuel sales, changes in fees and permits by state institutions and minimising margins or benefits from lifting of oil products.
“The OMC business, to put it mildly, has become very unattractive due to the many issues plaguing and threatening its survival. The margins of OMCs are a key parameter in the business and any factor that causes a reduction in margins will eventually lead to the collapse of the business.
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“The payment of the salaries of many employees working at these retail outlets, as well as every other expense by the company, depends on the margin,” he said.
Looming revenue loss
There are currently more than 3,300 fuel retail outlets in the country and so the OMCs contribute to tax payments running into millions of Ghana cedis.
For that reason, the constant flow of such revenue to the government depends largely on the survival of the OMCs.
“When more retail outlets are shut down due to the inability to sustain them, it will result in a decrease in revenue for government, invariably stalling some intended projects and resulting in stagnation of the economy,” Mr Agyemang-Duah said.
He said the OMC business employed thousands of ordinary Ghanaians at the retail outlets.
“Such people are paid from this same meagre margins of OMCs in order to be able to fend for their families and save for their future.
“In the event of a shutdown of many OMC businesses, many of these people will lose their jobs, forcing them into unwarranted professions such as armed robbery,” he said.
Loss of jobs in an economy struggling to employ more graduates would generally pose a great danger to the public and breed insecurity everywhere, he added.
The spate of illegal fuel sale and its ripple effects, he stated, would lead to consumers seeking to purchase the low-cost fuel from those illegal operators in an attempt to save money.
That, he said, would compel genuine businesses to further decrease their already struggling margin in order to stay competitive and thus gradually be pushed out of business, as sales volumes would drastically decrease, contributing to the inability to be tax compliant, pay employees, as well as meet other obligations.
“The collapse of the OMC business will only lead to the loss of many jobs around the country,” he said.
Threat to banking industry
Per the overall decrease in sales volumes, the banks and OMCs had become more of “hosts and visitors”, as the latter visited the former almost regularly, Mr Agyemang-Duah said.
According to him, OMCs mainly ran those businesses on loans from the banks, with the intention to pay back with the rise in sales volumes.
“However, this intention may not be achieved with the many issues discussed above, which will only lead to the inability of the OMCs to pay back those loans, leading to non-performing loans, as the scheduled payments by OMCs will not be possible as income drastically reduces.
“This will only contribute to the collapse of the banking sector, with its many implications on the ordinary Ghanaian and the economy as a whole,” he said.
The CEO said the country needed the OMCs to be tax/levy compliant in order to amass the projected revenue in order to appropriately run the economy, but the highlighted problems threatened the actualisation of those government projections.
“When these issues are solved, it becomes a win-win for both parties, as the OMCs make good sales, leading to the prompt payment of taxes and levies and resulting in increased tax revenue for the government to achieve national development.
“But the reverse is also true.
“This is the daily life of a contemporary OMC which practically lives from hand to mouth. It borrows from bank A to do business; is not able to pay on time and so borrows from bank B to offset bank A’s loan, and the cycle is repeated.
“Since there is a tendency for non-performing loans which will result in the shut down of the banking industry, it will eventually lead to the collapse of the OMC business, causing loss of jobs, loss of government revenue and many other grave implications,” Mr Agyemang-Duah said.
Tax and levy compliance issues
The Ghana Revenue Authority (GRA), he said, required OMCs to fulfil their tax obligations about 21 days from the time products were lifted or purchased at the BDC or TOR.
That period, he said, was negatively affecting the operations of OMCs which were forced to meet the compliance period, even when surplus products were not sold, or risk paying huge penalties.
“In cases where OMCs are able to pay the tax, it may not be on time and the GRA will make them pay pecuniary and humongous penalties and interest rates, thereby plunging them further into the mire,” he stated.
Illegal fuel sales
On the issue of illegal fuel sales, Mr Agyemang-Duah said products supposedly meant for export to landlocked countries such as Mali and Burkina Faso which attracted very little tax were usually diverted and sold on the local market to consumers at relatively cheaper prices, compared with those sold by legitimate operators such as the OMCs whose prices contained full-blown taxes/levies.
Products meant for local consumption had government taxes and levies, which constituted about 51 per cent of the ex-pump price (which is the price of fuel sold at the filling stations), whereas the petroleum products meant for export to landlocked countries were without any of such governmental taxes and levies, he said.
Smugglers, he said, would make about GH¢2 per litre of fuel sold, whereas a legitimate OMC would make 20Gp per litre of fuel sold.
“Definitely, the purported exporter makes 10 times the profit the legitimate OMC will make in a month,” Mr Agyemang-Duah said, adding that the government was estimated to lose more than GH¢900 million in taxes to smugglers annually.
Fees and permits
He said in the downstream petroleum industry, the average OMC “technically” funded the operations of more than eight state institutions through the payment of fees and permits, with a lot more knocking at its door.
What unsettled OMCs, he said, were the arbitrary manner some of those state institutions increased those fees and charges in the middle of the year without any recourse to the OMCs.
Mr Agyemang-Duah pleaded with the government to take bold steps to arrest the numerous challenges facing the downstream petroleum sector to avoid the total collapse of the sector.