The Debate: Should Ghana Scrap the Fuel Price Floor?
Ghana’s fuel market is currently experiencing a price war. Some argue that the National Petroleum Authority’s (NPA) price floor, which sets a minimum price for fuel, should be removed. They say that lower prices prove the market is working, and regulation is the obstacle. The idea is simple: remove the price floor, let competition flourish, and consumers will benefit.
However, this argument misses key realities. Fuel markets are not like other markets. Removing the price floor could actually harm consumers in the long run. This article explains why. First, Ghana’s fuel market has features that make unrestricted price competition damaging over time.
Second, experiences from other countries show that removing price controls without strict rules often leads to market concentration, not competition. Third, the price floor, while not perfect, addresses real problems, and no better alternative has been suggested.
What Ghana’s Fuel Market Really Looks Like
There are about 200 companies licensed to sell fuel in Ghana. But the market is mostly controlled by a few large players. Star Oil leads with just over 10% of the market, followed closely by GOIL with about the same share. Together, the top 20 companies sell over 70% of all fuel, while the remaining companies share the rest.
Despite many sellers, most fuel sales are concentrated with the big companies. The bigger companies have a huge advantage because they have access to much larger credit facilities, ranging from $40 to $80 million. This allows them to import fuel directly. Smaller companies often have credit lines below $3 million and cannot
import directly.
Instead, they buy from the bigger companies or intermediaries, often paying 2 to 4% more. This puts them at a disadvantage right from the start, no matter how good their customer service or how efficient their operations.
This financial imbalance means big companies can afford to sell fuel at very low prices, even at a loss, for long periods to push smaller competitors out. This kind of pricing, called predatory pricing, is harmful to healthy competition.
What Has Actually Happened in Ghana?
Star Oil expanded rapidly in the past two years, increasing its number of fuel stations by a third. During periods when fuel prices fell, Star Oil offered some of the lowest prices in the market, squeezing competitors. Meanwhile, GOIL, TotalEnergies, and Vivo Energy saw their market shares shrink. These are established companies with strong brands and operations, yet they couldn’t or wouldn’t match Star Oil’s low prices.
If big, well-funded companies can force out such competitors, smaller sellers will have almost no chance if the price floor is removed. Many would likely go out of business.
What Does International Experience Teach Us?
Looking at other countries helps us understand what could happen. In Kenya, fuel prices were deregulated in 1994, and competition seemed healthy at first. But by 2008, just five companies controlled almost 90% of the market. Smaller sellers either shut down or were bought by bigger ones. When fuel supply problems happened in 2009 and 2010, the government had to bring back price controls to stabilise the market.
Zambia experienced a similar story. After deregulating fuel prices in 2008, market concentration increased, and rural areas suffered because small sellers left. Regulations were reinstated to protect supply and rural consumers. South Africa’s market is very concentrated, but regulation prevents large companies from abusing their power. This has helped keep smaller sellers alive.
In contrast, countries like New Zealand and the United States have seen successful deregulation, but only because they have strong institutions to monitor and enforce competition rules. Ghana currently lacks these institutions.
What Does the Price Floor Do?
The price floor sets a minimum fuel price based on costs plus a reasonable profit margin. It stops companies from selling fuel below cost just to push others out. It does not stop companies from competing on price above the floor, nor does it block competition in service or branding.
Since the price floor started in 2015, the number of fuel sellers has increased from about 170 to over 200. Star Oil, which has grown to become the market leader, openly credits the price floor for its success. The floor has also improved fuel availability in rural areas.
What If We Remove the Price Floor?
If the price floor is removed now, without stronger institutions, the big companies will likely cut prices aggressively. Smaller companies, unable to match such pricing due to their higher costs, will be forced to close or sell out within a year or two.
Market concentration would rise sharply, and rural fuel availability would suffer. Prices could become less predictable, often rising quickly during supply problems but falling slowly, harming consumers in the long run.
If the price floor is removed only after building strong competition authorities, laws, and enforcement systems, Ghana could maintain a healthy, competitive fuel market. But this requires years of investment and political commitment, which Ghana currently does not have.
Addressing Common Questions
Critics ask why we should protect inefficient companies. The price floor does not protect inefficiency. It prevents companies with less financial strength from being crushed by rivals selling below cost. This ensures competition is based on quality and efficiency, not who can afford to lose money the longest.
Consumers may enjoy lower prices during price wars, but over time, prices tend to rise, and services decline, especially in rural areas. This
leaves consumers worse off overall.
Some suggest the NPA maintains the price floor to protect its own power. While regulatory capture is always a risk, the NPA’s budget does not depend on the price floor. The evidence shows the floor
supports market diversity, new entry, and fuel availability.
What would convince me to support removing the price floor?
First, Ghana must have a competition authority capable of monitoring the fuel market and enforcing anti-competitive practices. Second, there must be clear laws against predatory pricing. Third, research should
show that smaller companies are genuinely inefficient, not just undercapitalised. Fourth, a well-monitored pilot program in Greater Accra should prove that deregulation won’t cause market failure. Fifth, there must be rules to prevent big companies from buying out all smaller competitors after deregulation. None of these conditions exists today.
The Better Way Forward
The best path is gradual reform. In the first phase, Ghana should build strong institutions, pass competition laws, and gather reliable data. In the second phase, the price floor can be removed in Greater Accra only, with close monitoring to ensure no harm comes to competition or consumers.
In the third phase, if the pilot succeeds, deregulation can be expanded nationwide with safeguards in place. This cautious, evidence-based approach protects consumers and the market’s health over time.
Conclusion: Fuel Markets Are Special
Fuel markets are unlike others. Fuel is essential, affects inflation and food prices, and is controlled by companies with very different financial strengths. Without careful management, markets quickly become dominated by a few big players, harming consumers and service quality.
The price floor may not be perfect, but without it or strong competition laws, Ghana risks fewer sellers, higher prices, and worse service, especially in rural areas.
Calls to remove the price floor ignore these realities and do not offer better solutions. The fact that Star Oil grew under the price floor and now wants it gone is a sign of business strategy, not market health. We must debate honestly, with facts and clear plans. Removing the price floor now would likely harm consumers. Ghana should build strong institutions first and reform carefully.
In the end, decisions about fuel prices must be guided by evidence, not popularity.
