Ghana’s dynamic downstream sectorDecember 6, 2021
Mustapha Abdul-Hamid, CEO of the National Petroleum Authority (NPA), talks to The Energy Year about recent developments in Ghana’s petroleum downstream sector, the NPA’s long-term objectives and the country’s advantages as an exporter within the region. The NPA is Ghana’s downstream regulator.
How is Ghana’s energy industry currently regulated?
Prior to 2005, this industry as a whole was regulated by the Energy Commission. If you have an Energy Commission that is regulating virtually everything in the energy industry, it makes it quite nebulous and cumbersome. In 2005, the National Petroleum Authority Act 691 was promulgated to give the downstream petroleum industry better focus, and better regulation.
Currently, we have a regulator for the upstream, which is the Petroleum Commission; a regulator for the downstream, which is the National Petroleum Authority; and the Energy Commission, which regulates other aspects of the energy industry (such as the electricity market, renewable energy, etc.).
Can you give us an update on the recent developments in Ghana’s downstream sector?
The petroleum downstream sub-sector is growing, and it is getting more competitive by the day. Between 2005 and 2008, there were only three BDCs [bulk distribution companies] in Ghana, but now that number has ballooned to about 42. The population and its demand for petroleum products has increased, and consequently there is a need for supply to match that demand.
From 2005 to 2009, consumption in Ghana was about 2 million tonnes, while now we are consuming around 4 million tonnes. The number of oil marketing companies [OMCs] has also ballooned to about 172. The NPA is regulating the industry efficiently and according to the rules, as well as applying appropriate sanctions where necessary, and people are happy to join our industry.
What is the NPA’s strategy to improve the regulatory framework of Ghana’s downstream sector?
Plans are well advanced to repeal and replace the National Petroleum Act of 2005 because the industry has improved since then. For example, in the gas sector we might move from filling cylinders at gas-filling stations to a cylinder-recirculation model, where we will establish exchange points for people to just go and drop off their cylinders and buy filled ones. This is not captured by the law, as it exists, and this is why there is a need for us to review it, to accommodate all of these modern changes.
What are the NPA’s long-term objectives?
We plan to ensure a very efficient and well-managed downstream petroleum industry, and we want to increase the industry’s share of Ghana’s GDP. Its current share is 6%, which is about GHS 22.2 billion, equivalent to around USD 3.9 billion. If we strengthen our regulatory capacity, we will be able to completely eliminate the revenue leakages in the payment of taxes.
The OMCs have a 45-day credit period to pay their taxes, levies and margins that they collect on behalf of the government, which has been subjected to abuse. Many of them now owe the government huge amounts of money that they are unable to pay, so we lock up their businesses. If they then go bankrupt, they will evade the debt as well, and this is not considered a criminal act.
It is a civil offense, meaning that you can only sue them in court and get a court order to sell their properties in order to pay back the debt. By reviewing the National Petroleum Act, we want to change this situation, and reduce the 45-day credit period to a shorter period that will still not be burdensome for OMCs. By improving this whole scheme, we will increase government revenue and our contribution to Ghana’s GDP.
Our final goals as regulator are to move from our 6% contribution to 8-10% of Ghana’s GDP, to ensure the full implementation of the cylinder-recirculation model, and to ensure that there is a fair regulatory environment in which businesses can flourish.
How is the NPA planning to support the launch of the Petroleum Hub Development Corporation?
The passage of the Petroleum Hub Development Corporation law will contribute to the energy minister’s vision of improving Ghana’s refining capacity to position the country as the petroleum hub for West Africa. The first phase of the project involves the investment of about USD 12 billion into the industry, which will go into establishing a refinery and a petrochemical plant as well as other ancillary infrastructure.
The NPA is adopting processes to reduce the bureaucracy involved in licensing operators, or players, who want to come into the petroleum hub, because the bureaucracy will frustrate them. Instead of having companies go to various government agencies such as the Environmental Protection Agency for an environmental assessment permit, or to the National Fire Service for a permit to say that their operations are safe, the National Petroleum Authority has a multi-stakeholder committee that will serve as the main hub for co-ordinating each permit or licence in one step.
How does the Authority plan to boost local content development in Ghana?
We have announced that the new local content policy has been approved by Cabinet and the Ministry of Energy has directed the NPA to be guided by its provisions. It states that the importation of refined petroleum products into Ghana, and their distribution and sale within the country, and other downstream trading activities will be reserved exclusively for Ghanaian enterprises. We expect this policy to give local companies a very big push, in allowing us to attract and retain more value in the economy.
The industry used to be wholly managed by multinational companies, while now we have close to 65% local participation, and equity, in the market. However, the multinationals still control quite a sizeable portion, which is about 35%. Local companies should be able to expand their capabilities within the industry. Multinationals can still participate in infrastructure development where Ghanaian capacity is not high enough.
How would you assess Ghana’s comparative advantages in terms of exporting within the region?
Ghana has a situational advantage, being a coastal country, while landlocked countries are disadvantaged in this regard. They have to come here to lift fuel and to import it. We export LPG to Togo, as well as gasoline to Burkina Faso, Mali, Niger and other markets.
Our main comparative advantage lies within the quality of our fuel, which is the best in the entire West African region because our sulphur content is very low and reduces carbon emissions. Ghana is a benchmark for the new ECOWAS [Economic Community of West African States] regulation on sulphur content, and this is an additional advantage we have. We are down at 50 ppm, while some other regional countries have as much as 3,000-5,000 ppm, some even 10,000 ppm.
What are the main challenges associated with this discrepancy in sulphur content in the region?
The fuel of countries that are still at 3,000-10,000 ppm is cheaper, and this undermines Ghana. Our price is not yet competitive due to the non-adherence to and the non-convergence of a common standard or benchmark for fuel quality. This hampers or inhibits the quantity of fuel that we can export to our neighbouring countries.
Is Ghana in need of more fuel storage infrastructure?
We have enough storage space in the country today to accommodate all our domestic fuel needs. We have storage to stock up to an average of six weeks of consumption, whereas previously we only had between two and three weeks. The NPA determined that as a requirement for obtaining a BDC licence, you must also build storage infrastructure, and this has led to an exponential growth in storage.
However, the new Takoradi port oil jetty will encourage more storage in the area. Previously, we operated at a depth of 8 metres, while the new jetty has 14 metres, and can accommodate bigger vessels with up to 15,000 tonnes of capacity. The private industry is moving towards new storage required in the area.
What are the expected effects of the two-month removal of the Price Stabilisation and Recovery Levy on the downstream sector?
The fundamental reason for that initiative is to bring relief to the Ghanaian people because the petroleum industry is the driver of Ghana’s economy. When petroleum product prices are up, it affects transport and the cost of food, because the farmer will have to pay more to transport the goods to the towns for sale. The zeroing of the price stabilisation and recovery levy will help us to reduce the burden of high international prices of petroleum products on Ghanaian consumers.
What is the role of digitalisation and new technologies in the NPA’s agenda?
There is a national agenda to digitalise the Ghanaian economy and to make technology the basic driver of all sectors. We have the automatic tank gauging system, the electronic tracking system and the Enterprise Relational Database Management System (ERDMS).
Technology helps us to monitor the entire supply chain of the petroleum industry, from importation until the consumer, to ensure that the quality of fuel that goes into a consumer’s car in Ghana is the same as what came into the country. Technological developments ensure that people declare the right taxes that they have to pay, and don’t let them cheat the system.
The combination of stable governmental policies and the NPA’s regulatory efficiency is setting us on the right path to make Ghana the preferred investment destination in West Africa.