Petroleum price regulation was implemented in Ghana with the ratification of the National Petroleum Authority Act, 2005 [Act 691] that further established the National Petroleum Authority (NPA) as the regulator for the downstream petroleum industry whose key directive is to control, supervise and oversee the operations of the industry and to create a Unified Petroleum Price Fund (UPPF) for price unification in the industry. This transpired against the context of a time-frame in which petroleum products were imported, marketed and priced under state control. The study’s findings showed that the financial performance of the OMCs which was measured using ROE was higher during the period of price regulation between 2013 and mid–2015 (June 2015) compared to the deregulation periods (i.e. mid–2015 to 2019). However, the OMCs’ gross sales have dramatically appreciated relative to the regulatory era during the deregulation phase. The study recommends refinement of the pricing methods to ensure that it accommodates and addresses the issues posed by major downstream industry stakeholders in order to ensure the sustainability of the margins of the sector and thereby improve the financial and overall operational efficiency of which is expected to have a trickle-down effect on the economy.
Table of Contents
Introduction
Financial Performance and Price Regulation
Empirical Review/Evaluation
Research Methodology
Design of the Study
Data Collection
Data Analysis
Results and Data Analysis
Petroleum Price Regulation and its Effect on Return–On–Equity (ROE)
Petroleum Price Regulation and its Effect on Gross Sales
Descriptive Statistics
Descriptive Analysis of the Co-factors
Test for Normality
Regression Analysis
Conclusion and Recommendations
Research Objectives and Focus
This study aims to evaluate the impact of petroleum price regulations on the financial performance of oil marketing companies (OMCs) in Ghana, specifically examining Return-on-Equity (ROE) and gross sales trends within the context of regulated versus deregulated market periods.
- The influence of government price regulation on firm-level financial performance.
- Comparative analysis of ROE during price regulation (2013-2015) and deregulation (2015-2019).
- Assessment of the relationship between price controls and gross sales growth.
- Identifying strategies to mitigate cost and operational inefficiencies in the downstream sector.
Excerpt from the Book
Petroleum Price Regulation and its Effect on Return–On–Equity (ROE)
In this section, the research determines the relationship existing between the regulation of petroleum prices and the oil marketing company’s Return on equity from the period of 2013 to 2019. The findings for this analysis are presented below:
One of the objectives of the study was to ascertain how price regulation impacts the Return on equity of oil marketing companies in Ghana, with a focus on Star Oil Company (SOC) Limited. The study establishes the relationship existing between petroleum price regulation and Return–On–Equity (ROE) from 2013 to 2019. Data to this finding is illustrated as follows in table–1 and figure–1:
Table–1 and figure–1 illustrate the trend analysis of the association between price regulation and Return–On–Equity (ROE). As seen in the table and graph, it can be deduced that the Return–On–Equity (ROE) for Star Oil Company (SOC) Limited decline from 46.57% in 2013 to 31.78% in 2014, and increased sharply to 69.50%. Further, from 2015, there was a sharp decline from 31.78% to 23.71% in 2016 and 6.08% in 2018. However, there was a significant rise in ROE in 2019, which rose to 32.12%. The increase in the organisation’s Return–On–Equity (ROE) can be attributed to the efficiency of the company in creating profit and increasing the value of shareholders.
Summary of Chapters
Introduction: Provides the background and justification for studying the impact of petroleum price regulations on the downstream industry in Ghana.
Financial Performance and Price Regulation: Defines key financial metrics and discusses the theoretical role of price regulations as a shield against market volatility.
Empirical Review/Evaluation: Reviews existing literature and case studies regarding the effects of price caps on oil and pharmaceutical industries in other nations.
Research Methodology: Outlines the event study design, data sources (Star Oil Company), and the statistical tools used to analyze financial variables.
Results and Data Analysis: Presents the findings on ROE and gross sales trends, demonstrating the fluctuating performance of the company across regulatory periods.
Descriptive Statistics: Details the mean, standard deviation, and normality tests for the financial performance data collected.
Regression Analysis: Examines the statistical correlation and variance between petroleum price regulations and company financial outcomes.
Conclusion and Recommendations: Synthesizes the study's findings and suggests corporate strategies like hedging and cost-reduction to improve operational efficiency.
Keywords
Petroleum price regulation, Petroleum price deregulation, Oil marketing companies, Return-on-Equity, Star Oil Company Limited, Trend analysis, Ghana, Financial performance, Gross sales, Market structure, Profit margins, Price volatility, Import Parity of Prices, Event study, Regression analysis
Frequently Asked Questions
What is the core focus of this research?
The research explores the impact of government-led petroleum price regulation on the financial performance of oil marketing companies in Ghana, specifically analyzing the Star Oil Company Limited.
What are the central themes discussed in the work?
The work focuses on price controls, regulatory frameworks, organizational financial efficiency, and the comparison of performance metrics during regulated versus deregulated economic periods.
What is the primary research question?
The study seeks to ascertain how petroleum price regulations influenced the Return-on-Equity (ROE) and the trend of gross sales for oil marketing companies between 2013 and 2019.
Which scientific methodologies were employed?
The researcher utilized an event study design, incorporating Chi-square tests, trend analysis, and multiple regression analysis to evaluate financial variations.
What is covered in the main body?
The main body covers the theoretical basis of financial performance, a review of empirical studies, data collection from annual financial statements, and the specific statistical testing of performance variables.
What defines the study's scope?
The study is characterized by its focus on the downstream petroleum sector, the utilization of secondary financial data, and the application of economic theories regarding price ceilings and market competition.
How did price deregulation affect the Star Oil Company’s ROE?
The study found that ROE rose significantly immediately following deregulation in 2015 but subsequently declined, suggesting that firms faced challenges in maintaining shareholder dividends under the new market conditions.
What specific recommendations does the author make for OMCs?
The author recommends that OMCs should focus on hedging against inflation and interest rates, reducing direct costs like labor and power, and seeking better management of finance costs to improve overall profitability.
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- Mohammed Issah (Autor:in), Dr. Riverson Oppong (Autor:in), 2020, An Assessment of Petroleum Price Regulations on the Financial Performance of Oil Marketing Companies in Ghana, Part II, München, GRIN Verlag, https://www.grin.com/document/979620
