While Moroccan politicians often invoke inflation and adverse geopolitics to justify rising fuel prices, Morocco’s market watchdog is currently arguing that extortionate practices, and a lack of political will to implement market reforms, “may be to blame” for the skyrocketing gas prices.
In light of the persistent rise in prices since 2021, Morocco’s Competition Council released a report. According to the report, price inflation in local markets is due to external price pressure, as well as predatory practices from companies that are taking advantage of the current state of the market.
Predatory practices and market monopoly
Despite the council’s recommendations in its 2019 report, few Moroccan companies continue to hold monopoly power over the fuel market. This creates the perfect conditions for predatory practices including price fixing — an illegal practice whereby companies agree to change the price of products or services in synchrony.
As politicians continue to brush aside the council’s recommendations, three energy companies, SMDC Afriquia, TotalEnergies Marketing Maroc, and Energy Vivo currently control 52% of fuel imports in Morocco.
The monopoly power is more prominent since the eight largest energy companies in the country control almost 85% of fuel imports, data from the report shows.
The report sheds light on much of the 2020 paradox in Morocco’s fuel market; at the height of the COVID crisis, fuel prices in Morocco were at business-as-usual levels, while fuel prices dropped in the international market mirroring the drop in demand on the backdrop of lockdowns.
In February 2020, crude oil dropped to $22 a barrel, its lowest level in over two decades. As expected, gasoline prices equally dropped to $0.13 per liter. Meanwhile in Morocco, gasoline prices remained largely unchanged and even increased from MAD 8.5 ($0.8) to MAD 12.9 ($1.2) in April of the same year.
Fuel prices in Morocco compared to the international market
Between 2018 and 2022, the relationship between fuel prices on the national and international levels had especially been a peculiar one. Put in simple terms, fuel prices in Morocco only correlate positively with international prices when the latter is on the rise or is experiencing a slight decrease, but when prices drop, Moroccan fuel companies continue to sell at a premium price.
In 2018 and 2019, the change in fuel prices at the pump mirrored that taking place around the world. Domestic fuel prices dropped by 4% and 3% respectively, corresponding to the backdrop of the 10% drop in international crude oil prices.
Since 2020, however, fuel prices in Morocco have become detached from those on the international market, and impossible to predict based on the trends within the international market.
The issue of rising domestic fuel prices was further exacerbated by the closure of a crude oil refinery plant in Mohammedia, Economist Mohammed Jadir told Morocco World News. “The Mohammadia refinery plant used to cover 50% of the national need for refined petroleum. Today, the country exports all of its needs for refined oil.”
The council notes that while COVID-19 was bringing the global economy to a near halt, crude oil prices collapsed by 34%, even after shipping prices of diesel equally regressed by 36%. In Morocco, however, prices only dropped by a moderate 12%, indicating that the international trend had little effect on determining prices.
In their analysis of the relationship between national and international fuel prices, the council explains that “market players move to raise prices at the pump as soon as prices rise on the international market. But in the case when they drop, they aim to first sell off the previous reserves they bought at a higher price.”
The council adds that by doing so, “market players in the fuel industry tend to consolidate their profit margins or even increase them.”
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Fuel companies’ profit margin
While profit margins for international energy companies were shrinking in 2020, profit margins of energy companies in Morocco actually increased, with some companies recording their widest profit margins in four years.
Moroccan energy company Winxo is a prime example of the trend. The company’s profit margin reached almost 10% in 2020, up from 7% the previous year. Vivo Energy Maroc also increased its profit margin in 2020 to 5%, a 2% year-on-year increase.
While profit margins have slightly decreased a year later in 2021, they remained overall much higher than in 2018. “The report clearly indicates that fuel companies maintained stable profit margins. However, at the height of the covid-19 crisis, these companies took advantage of the drop in oil prices in the international market and boosted their profit margins to up to MAD 1.5 ($0.15) per liter of gasoline, which is something unacceptable.”
Explaining how these practices could be ended, Jadir adds that “the government should have a number of mechanisms set in place to monitor the market and investigate the price-fixing allegations”
Regulatory ambiguity is limiting competition and fueling monopoly
According to the council’s recent publication, the current legal frameworks regulating the fuel distribution market are vague, and lack “clarity,” and “precision.” The energy ministry holds a subjective authority in processing and evaluating applications from new investors seeking to launch operations in Morocco.
The competition council even goes as far as to state that the process of evaluating new investor applications is not transparent, and undermines the market’s competitiveness.
In addition to ambiguous laws, the minimum conditions set by the market authority make it especially hard for new players to join the space. For all new investors wishing to become fuel suppliers in Morocco, they should have a minimum of 30 gas stations once they launch operations. This requires significant capital and blocks out many prospective investors.
The financial burden does not end there. All new investors should also have enough storage capacity to hold a minimum of 2,000 cubic meters of fuel reserves. According to the council’s estimate, the storage requirements alone could cost investors an average of MAD 8 million ($722,000) without counting the cost of the real estate.
On the issue of market regulations, Jadir reckoned that “the fuel market in Morocco is regulated with outdated laws as they date back to 1973. Despite liberalizing the market in 2015, there were no further efforts to implement that liberalization by drafting proper regulations.”
SOURCE: Morocco news
