How To Explore Opportunities In The Downstream Sector

The most topical issue being discussed at all levels on the African downstream petroleum industry is the transition to low Sulphur fuel. This drive to move from “Dirty Fuels” to “Cleaner Fuels” has resulted in most countries opting to tighten the specifications for gasoline and gasoil. In line with ARA’s AFRI 4 specification, Ghana, Nigeria, Kenya and a host of other African countries have specified Sulphur levels for diesel imported at 50 ppm maximum, with a view to meeting the specification of 10ppm in the medium term.

The clarion call for African countries to move to cleaner fuels presents an opportunity for investments in domestic refineries to meet national specifications, allowing the downstream to be supportive of the development goals of African economies.

Following the sustained lower oil price environment of the last three years, there has emerged what I call “Petro-democracy” in which citizen’s demand for greater accountability from their Governments and players in the petroleum industry. In some countries, the demand for domestic prices to follow a symmetrical trend with international prices led to downward adjustments in prices.

For some countries, the governments had the opportunity to introduce market based policies such as price deregulation and reduction or removal of price subsidies.

This involves allowing the forces of demand and supply to dictate prices with a view to fully recover the cost of investments made by service providers.

Nigeria, for example, has deregulated the pricing of gasoil while steps are far advanced for gasoline prices to be deregulated. Ghana has, largely, fully deregulated the industry with the exception of RFO and Premix fuel which are still being regulated by government. Elsewhere, Kenya and South Africa have deregulated their pricing regimes which have catapulted the industry to that of a market-driven one.

A number of other African countries, pressured by the increasing subsidy payments, have put mechanisms in place to deregulate the industry and relieve government of the burden of unsustainable subsidy payments.

This bold decision to fully liberalize petroleum product prices has energized the sector, resulting in competitive pricing, better service delivery and improving the enabling environment for private sector-led investments in the sector. I wish to call on the Nigerian Government to make efforts at reaching full price deregulation given that it is the largest market for products; and any failure on its part can be very distortionary on the sub-regional market we all envisage.

Furthermore, we must make efforts to sustain the gains from these policies by creating financial buffers and increasing strategic reserves to stabilize the markets when the fundamentals change in favor of higher prices. At the same time, we must put in place policies that punish domestic cartelization and other forms of anti-competitive behaviours. This will make deregulation policies become effective instruments for increasing public confidence in our free markets, and prevent us from returning to the days of subsidies and under-recoveries, which have had very negative long-term effects on many economies.

Africa suffers acute infrastructure deficit in our petroleum industries. This has led to our over-dependence on the refineries of other continents. Our petroleum industry infrastructure such as ports, jetties and tank farms are not only inadequate but are in deplorable states. This has increased cost of importing products and helped build an offshore black market which is not regulated and from which our governments do not earn any tax income.

It is therefore quite refreshing to note that a major development in Nigeria relating to the proposed $12 billion investment in a 650 thousand barrel per day has caught the attention of the world. This massive private sector initiative has sent hope to other African countries on the viability of investing in a huge refinery.

For countries in the West African sub-region, this development will force the opening of a sub-regional market with a West African Price Index. This is because, with Nigeria’s imports of products likely to reduce, the cost of imports from Europe and Asia by smaller consuming countries is expected to increase, as Nigeria’s large petroleum imports will no longer subsidize the cost of imports by sub-regional neighbours. This makes Nigeria a natural source country for products as prices will become competitive and associated with lower freight costs.

The development in Nigeria reinforces my conviction that there is strong basis for shared infrastructure in our sub-regions, as this could integrate our industries, lower cost of business and reduce the prices of petroleum products.

Transportation of fuels across the continent is largely by bulk road vehicles. It increases, substantially, the cost of petroleum products for our people. It is possible working with the private transportation companies in our markets to build enduring Private-Public partnerships to build the railways and the pipelines that will cost-effectively deliver petroleum products across the regions whiles building substantial economic value for the states, the business and the people across this continent.

Developing an African market no doubt imposes greater demand for skills. We have a relatively younger population compared with other continents, and who are ready to take their rightful places in the petroleum industry. We must therefore readjust our educational curriculum and open new centers of excellence to provide relevant skills to our youth and to prepare them for a very demanding industry.

One of the greatest challenges to the downstream petroleum industry is perhaps our inability to match the upstream industry in the area of safety and security. Operating at the very end of the petroleum value chain, our proximity to human populations, their health and safety; and consequently, their property, the requirements for improved safety standards place on us the duty to be more responsible. Recent petroleum related explosions in Ghana remind us vividly about the enormity of the challenge.

In spite of the dangers of poor safety and regulatory regimes, our regulators continue to allow political and special interests to undermine their enforcement of safety regulations; putting the lives and property of people in line; and consequently, projecting the petroleum industry as insensitive, irresponsible and only motivated by profits. Ladies and gentlemen, we must act now!

Whilst, poor safety standards and enforcement remain important challenges, our response to these offers us a renewed opportunity for investments, job creation and information-technology advancement

There is no doubt that the petroleum safety industry is a big one. For example, personal protective equipment, or PPE, is a $33.3 billion industry globally. I would like to therefore encourage industry players to take the bold step of formulating industry safety standards through industry associations and peer review each other and where necessary delist your peers who are not keeping with your standards. This will not only complement the role of our regulators but will embolden them to take decisive disciplinary actions against offending industry players based on industry recommendations.

The vision of the Government of Ghana for the downstream petroleum industry is to ensure that the industry becomes a Petroleum hub in the sub-region. The government of Ghana is currently developing a Downstream Petroleum Infrastructure Masterplan, aimed at enhancing the pace of infrastructure sourcing with a regional context in mind.

Our unique geographical position, democratic stability and security require that we provide leadership in building an integrated infrastructure to serve the sub-regional petroleum industry. The National Petroleum Authority Act, passed in 2005, has also created a reliable legislative and regulatory regime that has delivered for the country a downstream industry, whose contribution to the economy has grown more than four-fold, with private players – both local and international – forming a major part of the industry.

It is my pleasure therefore to invite you all especially the private sector; to take advantage of Ghana’s favourable petroleum market environment and invest in infrastructure such as oil jetties, pipeline and distribution infrastructure, refineries and gas processing plants, storage and loading gantries, among others.

This conference offers platform for collaboration across our region, to harmonize policies, and opportunities to allow the African downstream to deliver the infrastructure and services required by our economies. And I have an unshaken belief that the petroleum industry will continue to be the anchor for the transformation of our continent.

Once again, I thank the organizers for the excellent organization and to you; distinguished ladies and gentlemen, I thank you for participating in this Pan-African gathering of downstream industry experts, businesses and stakeholders.