Impact of Bulk Procurement System (BPS) and Price Regulation on Profitability of Oil Marketing Companies in Tanzania

Abstract

The aim of this study is to analyse the impact of price regulation and BPS on the profitability of OMCs. Four Companies that were in the operation before and after the introduction of price regulation and BPS used for analysis. In order to maintain confidentiality, these companies will be anonymously named as Company “A”, Company “B”, Company “C”, and company “D”. The study covers a period from 2011 to 2013. Secondary data from audited financial statements and management reports were collected and analysed. Profit margin and return on investments were calculated to establish the profitability of oil companies. Data collected was analyzed using SPSS. Regression model and trend analysis of profit margin before and after the introduction of price regulation and BPS was also carried out. The study found that after the introduction of price control and bulk procurement system company “B”, is the most affected in its financial performance compared to other companies. In addition, the study found that, there is a relationship between dependent and independent variable. The study concluded that introduction of price control and BPS slightly reduced the profit of OMCs. However, it stabilize the price and ensure sustainable profit to OMCs at the sometimes protect customer and create an equal playfield for all OMCs. The study recommends that EWURA as a regulator should investigate further to improve suitability and applicability of price cap formula. The investigation should focus on protecting the profitability of wholesalers and retailers without jeopardize the welfare of the customer and the economy at large. On the other hand, the study recommends that OMCs should strive to reduce operational costs so as to increase their operating profits. The OMCs should make sure that they work efficiently by minimizing their operating expenditures so as to increase their profitability. The importing company should use money market to hedge against the risk of rising international oil prices as this constitutes a significant proportion of their direct costs.

Keywords: Bulk Procurement System (BPS), Price regulation, petroleum products, profitability, OMCs