Fuel is one of the most used natural resources in the world. Cars, generators, and other heavy equipment all use one fuel type or the other to operate. As an input into transport machines such as vans, ferries, and taxis, fuel becomes one of the basic commodities the public generally monitors. No wonder 2021 IMF studies confirmed that fuel price increases are associated with higher inflation.
Therefore, consumers need to understand the fuel pricing structure in the Gambia. In this education article, the author discussed how fuel is priced in the Gambia.
First, let us talk briefly about the sector. Oil and gas can be divided into three subsectors.
- Upstream – exploration & production,
- midstream -transportation and storage, and
- downstream – processing, marketing, and distribution.
As fuel is a final product that falls under the downstream sector, the article will focus more on the downstream factors. Downstream refers to all activities moving petroleum products from storage depots to stations or eventual users. Currently, big dealers like PSTV, Addax, and Trafigura bring petroleum products into the country and provide them to Oil Marketing Companies (OMCs) such as GNPC, Jah Oil, Star Oil, and other players (Fortune, Halal Oil, and so on).
Gambia’s current average monthly fuel consumption is estimated to be Diesel 10,000MT and Petrol 6,000MT. The Gambia operates with two fuel storage depots: Gam Petroleum Storage and GPS, with a storage capacity of about (Diesel 20,000MT, Petrol 10,000MT) and (Diesel 15,853MT, Petrol 6,989MT), respectively.
As an importer, the Gambia uses international pricing platforms (Platts) and other national variables to determine the monthly pump price. The government determines the fuel pump price every month through its designated institutions (Ministry of Finance and Economic Affairs, Ministry of Petroleum, Public Utility Authority, and so on).
The pricing structure is summarized below, and essential variables are detailed:
- CIF Banjul: The CIF stands for the cost, insurance, and freight to Banjul; this variable represents the benchmark price (Platts NWE) and premium charged by global trading firms, such as PSTV and Trafigura, etc.
- Importer Cost: This includes the anticipated LC fees and charges that financial institutions will levy to provide financial instruments to facilitate the financing of trading activities, as well as the throughput cost charge by storage facilities to store the fuel for security prior to further transmission to selling stations or final destinations.
- Importer Margin: In addition to the premium already indicated, this margin is considered in the price structure to offer buffer gains for overseas traders. As a means of price competition or reduction by international dealers, this can occasionally be shared with local traders.
- Retailer Margin: Also known as Dealer Margin in the price structure, this indicates the gains allocated for local dealers to defray operational expenses and profit margins, among other things.
- Taxes: This refers to the government’s taxes and levies on imported fuels into the country. Vehicle license, road tax, car park fees (area councils), NRA levy, PURA fees, duties, and VAT are some of the taxes. According to the price structure, these variables add up to more than 20% of the pump price; nevertheless, taxes include fixed and variable charge rates or amounts.
The graph below depicts the monthly fuel pump prices published by the Gambia government from January 2021 to June 2023. This illustrates the erratic nature of actual prices, which are affected by volatile variables such as Platts and foreign currency rates. The next series will examine the trends of the other variables.
Finally, as a fuel-importing country, the high importation cost of fuel products can be decreased by monopolizing the importation of fuel products, which provides bargaining strength owing to volume or economies of scale. The government could also enter into bilateral agreements with producing nations via quotas or syndicates with other surrounding importing nations to attract volumes. With the acknowledgment of the free market, the retail sector will be liberalized to ensure that OMCs are supplied on extremely advantageous terms, and the competition will focus on internal efficiencies to manage costs to give consumers more competitive prices.
About the author
Salifu Bah is a chartered accountant, banker, and energy financing advocate. He is the Director of Finance of the Petroleum Commission The Gambia and has worked with regional banks and big four audit firms. Salifu is also the PR & Membership Manager of FLF.