PRA holds sensitization on New Pricing Formula for Petroleum Products

The Petroleum Regulatory Agency (PRA) in Sierra Leone last week took a significant step forward by spearheading detailed discussions at the Sierra Palms Hotel on Lumely Beach. The PRA, in conjunction with the Finance Ministry, Trade Ministry, and the World Bank, delved into the crucial Petroleum Pricing Formula Review.

The primary objective of the PRA Pricing Formula is to uphold equity, competitiveness, and sustainability in the pricing of petroleum products within Sierra Leone. Remarkably, it has been over three decades since the World Bank last constructed a Pricing Formula for the nation back in 1994.

A key point highlighted during the discussions was the assurance that post the completion of this review, there will be no further upward adjustments in petrol pump prices across the country. This pivotal meeting has attracted the participation of Oil Marketing Companies (OMCs) and various stakeholders operating within the downstream.

Addressing his audience at the Sierra Palms Resort, PRA Executive Chairman Brima Baluwa Koroma explained that Sierra Leone services a predefined price structure template to determine monthly fuel prices for consumers. Chairman Koroma noted that this price structure has not been independently reviewed or revised for several years.

“Given that the constituent parts of any price structure—FOB supply zones, ocean-going losses, revenue streams, treatment of debts owing importers, war risk, volumes sold per marketer, local freights within Sierra Leone, and uniform price by fuel type—continually change,” said Mr. Koroma, “there is a risk that Sierra Leone’s current price structure does not accurately or fairly reflect at the pump and affordability for consumers.”

In light of this, Mr Koroma revealed that the PRA has sought an independent consultant to lead a review of the Sierra Leone fuel pricing formula. He expressed excitement about partnering with the World Bank Team, which has undertaken a meticulous analysis.

The review will dissect and analyze each element of Sierra Leone’s import parity and downstream price structures, aiming to identify deviations from best practices and recommend appropriate improvements, according to Mr Koroma. The key objective is to avoid frozen prices and establish a culture of regular pricing updates based on the existing formula, implementing a fair and transparent pass-through price.

Another objective is to outline supply chain challenges in the downstream petroleum sector and propose practical steps for effective and efficient service delivery. The review also aims to promote a strong and competitive downstream industry that operates safely, efficiently, and economically, aligning with the government’s objectives.

At the meeting, Mr. Koroma emphasized the importance of considering the impact of the formula on various fuel users, including public transport (minibuses, taxis, keke), power plants (HFO/diesel), and the effects of fuel and power subsidies.

Senior Energy Economist at the World Bank, Elcin Akcura, suggested permitting price variation between fuel types. She noted that final retail prices should reflect the differences in production and transportation costs, with importation costs being the largest component in the formula. Akcura pointed out that fuels have different demand-supply dynamics, which impact prices, suggesting that fuels with higher production or transportation costs and higher demand should have higher prices to send appropriate market signals.

The World Bank also recommended transitioning from Platts Mediterranean and NWE benchmarks to Platts West Africa benchmarks for petrol, diesel, and kerosene, given the anticipated volatility in oil prices.

Honourable Veronica Kadie Sesay, Chairperson of the Committee on Trade and Industry, applauded the PRA’s efforts over the years. She urged the regulator to ensure that oil marketing companies operate in the public’s interest.

Deputy Minister of Trade, Fatmata Wurie, highlighted the review’s pivotal role in economic growth and development, with the potential to stabilize prices in the country. Deputy Minister of Finance, Bockarie Kalokoh, noted that it had been over 30 years since the last review. He expressed hope that this review would lead to a better pathway for fuel prices, emphasizing the critical role of fuel in economic growth and its impact on livelihoods.