OMCs lose oil pricing appeal

THE Fair Competition Tribunal has thrown out an appeal filed by 13 Oil Marketing Companies (OMCs) opposing the Energy and Water Utilities Regulatory Authority (Ewura) new oil pricing formula of 2011.

The companies also appealed against EWURA's compliance orders to four OMCS namely BP Tanzania, Engen Petroleum Tanzania Ltd, Camel Oil (T) Ltd and Oilcom (T) Ltd.

Other appellants were Total (T) Ltd, Gapco (T) Ltd, Hass Petroleum (T) Ltd, Oryx Oil Company Ltd, MGS International (T) Ltd, GBP (T) Ltd, Lake Oil Ltd, MOIL (T) Ltd and  ACER Petroleum (T) Ltd.

In its judgment, the Tribunal, under its chairperson, Judge Razia Sheikh, ruled that the appeal was devoid of any merit and was thereby dismissed in its entirety with costs.The judgment has put to rest a heated legal battle between the regulator and OMCs as the new formula last year precipitated an artificial shortage of oil, which was critical.

Among other things, the new formula removed 7.5 per cent buffer zone which OMCs were formerly (in 2009 formula) allowed for the purpose of taking care of uncertainties.It also decreased transit/ocean losses from 0.5 per cent for petrol to 0.25 per cent and from 0.30per cent for diesel and kerosene to 0.15 per cent of cost, insurance and freight (CIF) value.

The appellants, represented by IMMA Advocates, complained that Ewura erred in law by failing to take into account relevant and international benchmarks for prices, costs and return on assets in comparable industries."The respondent (Ewura) erred in law and in fact by issuing a price formula that is so low that it leaves no room for competition between the appellants thus amounting to forcing the appellants into an arrangement tantamount to price fixing," reads the appeal.

The appellants also claimed that Ewura failed to take into account the consumer and investor interests; did not protect the financial viability of the appellants and failed to promote effective competition and economic efficiency.

"The respondent erred in law and in fact by ordering the 1st, 2nd, 3rd and 4th appellants by virtue of issuing them with compliance orders to sell petroleum fuel at a loss", claimed the appellants.

Generally the OMCs claimed that Ewura's decision contravened its duties and obligations under the Ewura Act and that the formula was arrived at as a result of political manipulation and pressure.

Represented by GRK Advocates led by Zephrine Galeba, the respondent defended that the formula had taken into consideration the views collected/availed from/by all stakeholders including the appellants and other members of the public.

"…in determining  the pricing formula, the respondent had fully complied with all the relevant statutory provisions and further that the respondent had taken into account all the factors required by the law which were exhaustively discussed during the inquiry", Ewura responded.

Regarding compliance orders, Respondent maintained that it had not ordered OMCs to sell at a loss."It (Ewura) had merely ordered the four appellants to desist from their unlawful conduct of refusing to sell/supply petroleum products in accordance with the new cap prices and resume their operations," the respondent maintained.

Making the judgement, the Tribunal ruled that the respondent had properly exercised its power as a regulator when setting the new formula."The argument about financial viability (by appellants) is vague, misleading and misconceived since the appellants have not shown how the respondent could have taken this into account," the Tribunal ruled further.

The Tribunal stated that in arriving at the new formula, the respondent had considered all the factors including the consumer and investor interest, the costs of supplying petroleum products, the relevant benchmarks and other factors provided in sections 6 and 17 of Ewura Act.

"In the circumstances, for the above reasons, we're satisfied that the respondent cannot be faulted for issuing the compliance orders since it is undisputed that the four appellants had refused to comply with Ewura's decision", the Tribunal decided.The new formula also decreased financing charges from 1.75 percent CFI value to 0.25 per cent CIF value and pegged the exchange rates to those of the Bank of Tanzania.
Source: The Daily News, 
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