The battle between commuters and transport operators continued yesterday Tuesday mainly in the Eastend of Freetown with some transport operators refusing to run as they were being heckled by some passengers who were still reacting to rumours of a price reduction in petroleum products.
Speaking over the UN radio yesterday the Trade Minister explained that the fuel price will only be reduced after they (government) and the Oil Marketing Companies have gone through the process which involves checking the price of petroleum on the world market and the dollar exchange rate and looking at how they affect the pricing formula which is triggered when there is a 5% shift either up or down.
All this comes about as the oil price keeps fluctuating in the world market and local consumers here feel that as soon as the petroleum price drops in the international market the pump price of fuel must almost immediately be dropped as it happens in the US and other developed economies.
According to an Oil industry executive, the pump price of petrol is reduced quickly in the Western world because they have their own refineries in their backyard where fuel is pumped out on a daily basis with the refinery owners eager to do business based on the new prices. This is also why fuel pump prices increase quickly in these countries also.
He further explained that this cannot happen in Sierra Leone since it takes within 2 to 3 months to place an order and the arrival of the product in-country as opposed to the Western countries like the USA where it takes 2 to 3 days to order and get the product.
As a result, the time lag has a direct effect on the way prices are adjusted up or down. If the prices go up, then the Oil companies will need more money to buy fresh products, and so the price goes up almost immediately otherwise the money they will use to buy the 200 or 240 thousand metric tonnes will only be able to buy less than that and lead to shortage.
On the other hand if the price goes down in the international market then it will take some 2 to 3 months for the fresh product with the reduced price to get in country and that is when the price will be reduced to reflect on the fresh product. This is true even for local petrol dealers, who will not buy the expensive fuel available at the time and sell it for the reduced price which is being quoted abroad, because they stand to lose so they will not buy.
This essentially is why the in country price of fuel cannot be reduced on a daily basis as the prices on the world market.
The oil Executive lamented that when the price of fuel was doubling almost on a weekly basis and had gone to $200 per barrel in the world market people were content to buy at the same price of Le16,500 even though that price had been the same when the world price was less than $100. “Nobody praised the Oil companies and government for keeping the prices stable and suffering the losses but now they want us to continue to lose more money by selling what we bought over $50 per barrel at below $50.”
He warned that even as people are clamouring for the prices to be reduced, any responsible government will have to watch the price of fuel in Guinea and Liberia “otherwise if we reduce too quickly businessmen from Guinea and Liberia will flood the country and start smuggling the fuel to sell for profit in those countries. The end result is that shortages will start to occur because of the 2 to 3 months time lag which is needed to bring in new products. This is because the industry keeps 2 to 3 months stock of fuel before any new consignment is brought in to the country.”
He further complained that even with all the losses they suffered their profit margin has been the same on a gallon of fuel for several years now. He however praised the fuel pricing formula which he said has been a model for West Africa over the years with Ghana and other countries now copying the liberalized trading of fuel products which leaves the government free of subsidies except during exceptional circumstances as experienced lately in the world market.
By Kelvin Lewis