Downstream competition in Ghana

How competitive is the Ghanaian oil marketing sector?
The rate at which new players are coming into the market is faster than the market growth rate. We had 4% of the market but that has declined to 2% because there are more players now, both big and small multinationals as well as local companies. You can still see the market shares of companies like Total, Shell and Vivo declining. That’s been the challenge of the industry today.
The regulator has tried to come out with some guidelines on the siting of fuel stations, but that hasn’t been fully implemented. Service stations are located within a 50-metre radius of each other. It doesn’t make sense.
We entered deregulation in 2015, which has led to some companies collapsing. Not everyone can survive price wars. This has led to some companies folding up with others being taken over by the much stronger ones. Some alliances or mergers are happening. There’s a constant flow of fuel and petroleum products, but deregulation has not really worked out well for the smaller players in the market. People have had to give up their margins so their prices could be competitive.

How would you assess government policy on local participation in the market?
Look at it carefully. Under the local content policy, we are supposed to give 50% of our shareholding to a local company. Some of us have tried, but it’s been difficult getting a Ghanaian company to even come up with the capital required to acquire 50% of shares. How can you ensure that? In any case, even if you get 50% local participation, there’s another condition in the local content policy. Unless you’re 100% Ghanaian owned, you cannot sell mining fuel and you cannot sell to the quarries. That’s a B2B business; you’re talking about 35% of your business. How do you ensure that this local shareholder gets decent returns on their investment? He’s investing 50% yet you’re restricting him from participating in some aspects of the market.
How can we go further in localising operations? We think it is more of a nationalisation policy than local content policy from that perspective. The combined market share of Vivo, Total, Puma and Engen is 30%. 70% is owned by local companies, so what else is there? Our point is that the market forces have always played out to shape the industry. Eight years ago, Total was the market leader with almost 40% of market share. Today they have 11% market share. How did that happen? It is the market forces that ensured the market share structure changed. This will continue to go on until the market finds its own level.
We are saying don’t push it; it’s very anti-foreign direct investment. The government is putting conditions in place that will force the ones that have invested already to leave the country. We have so many investors. Puma, for example, has set up a cylinder bottle refilling plant. Much money has been sunk in there, and it will have to leave that investment. That’s our plea.

Should the government focus on revamping current refineries or developing new facilities?
At the end of the day, you have to look at the market dynamics. For example, let’s look at the market potential first. If Tema refinery is retooled and the capacity is expanded, they are looking at about 300,000 barrels per day. Today it is 45,000 barrels per day. If it goes up to 200,000 barrels per day, would that be sufficient to meet the market demand? The answer isn’t clear enough but if you want to create a situation whereby you have petroleum here and you also export products to other countries, are the economies going to work? Where are you going to bring the crude? Is it from Jubilee or are you going to bring it from other jurisdictions? You’re looking at the transport cost, cost of refining and so on.
How would you compare to Europe, where probably they have economies of scale that are able to refine at relatively cheaper costs? At the end of the day, how would you compare with other jurisdictions? That’s a question that needs to be answered. One is capacity: Do we have sufficient capacity, or will it bring about an insufficient capacity to sell to the local market before we start looking at exports? Remember importing finished products also has an impact on your foreign currency reserves. Many factors need to be considered before we do that. My take is that the refinery needs to be retooled. It needs to be expanded; possibly there should be private participation there. It shouldn’t be left for the government to run.

How would you assess the Ghanaian market?
If you look at the size of Ghanaian market, it is a place where every player wants to be. You’re looking at the market size of 4 billion litres of petroleum product. It’s the right place to be. In terms of the market size, Ghana remains a very good investment destination.
Once the structure is corrected, by which I mean the legal framework, economic framework, and so on, Ghana will be a wonderful place to do business. It’s a very friendly country. The government is also trying to strengthen some of the institutions and trying to go digital so you can really start a business and pay your taxes within a relatively shorter period. It’s a good destination for any investor to look at. Not just in petroleum but in other sectors as well as infrastructure development and the shipping environment. Many opportunities are here.

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