Case study: Petroleum Downstream: report by Ministry of Mines and Energy One of

Case study: Petroleum Downstream: report by Ministry of Mines and Energy
One of the objectives stated in the Ministry of Mines and Energy′s White Paper on Energy
Policy is to ensure the security of energy supply to support the growing demand for energy
services. Energy supply plays a pivotal role in all developed and developing countries. Namibia
has no refinery capacity and therefore imports all her refined products from the international
oil market through the Walvis Bay harbour and rails in lubricants as well from South African
refineries and other sources.
There are 4 main legal Acts controlling the strategic petroleum products and the participants in
this market. According to these Acts prices of the mentioned fuels in the Acts are controlled,
but prices of all other petroleum products are left to be determined by market forces. The retail
prices of all petrol grades are gazette at each price adjustment but diesel prices are controlled
only at the wholesale level and therefore are not gazette. The government plays no active part
in the supply and distribution of petroleum products other than to control prices of petrol and
diesel in an effort to enable the private sector to do business beneficial to the country as a
whole. Imports are monitored by the Ministry of Mines and Energy while the Ministry of Trade
and Industry issues the necessary import permits.
The Stakeholders / Major Players
The National Oil Company, NAMCOR, controls the exploration activities for oil and gas
upstream by way of a bidding process while the international oil companies do the actual
exploration. The Namibian government through the Ministry of Mines and Energy facilitates a
privately run downstream oil business. At the moment there are five oil companies involved in
the marketing of petroleum products in Namibia, namely; Puma Energy Namibia, NAMCOR,
Engen Namibia, Vivo Energy Namibia and Total Energies Namibia. These five companies
supply the products to the whole market.
a. Under which type of market structure would you place the petroleum downstream
services and why? Justify your answer using any four characteristics of the market.
[6 Marks]
b. Explain any two possible causes of price hikes in these products in Namibia.
[4 Marks]
c. How would you describe the price elasticity of demand for petroleum products and
why? [5 Marks]
d. Concerning the given case, discuss the supposed pricing decisions in such markets
about the actual scenario in our Namibian market. [10 Marks]
e. Apply the economic theory on price determination to illustrate and explain how
petroleum products would be priced if market forces could be left to operate without
government intervention.