The Chamber of Bulk Oil Distributors has gathered intelligence of the Government’s intent to issue some form of waiver or permit to British Petroleum (BP) to hold title of petroleum products onshore Ghana. This is in clear violation of the local content policy, the National Petroleum Authority (NPA) licensing regime and regulations and the sanctity of the Bulk Distribution Company (BDC) License construct. It stands to hamper the growth of the local industry.
In light of this, the CBOD has petitioned the NPA to review the policy stance that promotes these developments in order to forestall the erosion of all the gains made to grow indigenous capacity and ownership and of the sector.
Below is the CBOD petition to the NPA.
PETITION AGAINST THE PERMISSION FOR INTERNATIONAL OIL COMPANIES TO HOLD TITLE ONSHORE GHANA
We have gathered intelligence both locally and internationally of Government’s intent to consider the issuance of some form of waiver or permit for British Petroleum (BP) to hold title of petroleum products onshore Ghana in clear violation of the local content policy, the NPA licensing regime and regulations and the sanctity of the Bulk Distribution Company (BDC) License construct.
We are concerned about these reports and the implications to the growth of the local industry.
We respectfully, wish to appeal to your offices to review the policy stance promoting these developments so as not to erode all the gains made as a country in the effort to grow indigenous capacity and nurture indigenous growth and ownership of this strategically important and security sensitive sector.
1.0 Background
The BDC function was introduced in 2007 partly as an intervention to enable local entrepreneurs to build capacity to manage the international supply chain, finance and trading of petroleum products in USD per metric ton from refineries all over the world to the depot racks on shore Ghana in pesewas per litre. To this end, licensing was solely granted to local entrepreneurs. Hitherto, the entire trading chain was fully managed by international traders with locals just as agents.
This intervention successfully led to local entrepreneurs investing in infrastructure and the development of skills of Ghanaians to progressively deliver this value proposition. Prior to the introduction of the BDC role, supply to the market was solely driven by the IOTs with most tenders often priced at a premium of $105/mt. The BDC function moved IOTs from shore to the offshore trade with BDCs delivering products at the same premium of $105/mt. In effect, at the same financial cost to the country, the BDC function yielded higher economic, financial and social returns to the economy through more jobs, local skill development and investment in infrastructure. Today, BDCs deliver products to the market at premiums lower than $60/mt.
Prior to 1998, the oil marketing sector was fully controlled by foreign entities like Shell, Total, BP, ELF, Agip etc. Indigenous entrepreneurs first entered the oil marketing space in 1998, with the advent of Allied Oil. Between then and 2004, other indigenous Oil Marketing Companies also joined the industry. Owing to the objective of fully deregulating the sector, it was clear that in the absence of a BDC function, International Oil Marketing Companies riding on the back of their integration with their parent companies will annihilate the local Oil Marketing Companies. This situation had major security and socio-economic implications for the country. As a result, the BDC function that required all Oil Marketing Companies to buy from the BDCs at the government determined price served as a major leveller to ensure the fair growth of all Oil Marketing Companies. As at date these OMCs have employed tens of thousands of Ghanaian youth and developed skills in the management of the sector.
In 2017 and 2018, various International Oil Trading Companies (IOTs) embarked on efforts to integrate forward and derail BDC efforts to integrate backward by procuring Oil Trading Licences which would have allowed them to import finished products and sell to BDCs in-tank and in effect Ex-rack. Coupled with internal hedging mechanisms that accrue to IOTs who are also investing in the upstream sector of Ghana, the aspirations intended for Ghana as a country through the BDC function would have been affected and gains totally eroded. The BDCs would have at that point, failed to localise the knowledge and control of the supply chain from ex-refinery anywhere in the world to ex-rack in Ghana. Local BDCs would in effect become totally irrelevant and defunct as they will not be delivering any value when they buy ex-rack from suppliers and selling ex-rack to OMCs. In addition they will be unable to localise and control the skill of the international petroleum trading. As a Chamber we petitioned your office and governing board and to which Government responded by retiring the OTC license and passing the local content policy.
The pioneers of the BDC industry evolved from being IOT agents, in-tank traders, ex-ship traders to tank farm owners. They are now expected to grow into ex-refinery (International) traders with all supply chain and trading skills which can be applied to their Ghana trade and other markets in West Africa, all in natural fulfilment of Government’s quest to make Ghana a downstream hub.
The first setback to the full realisation of the BDC function vision was the burdening of BDCs with enormous government debt which eroded BDC capital and weakened access to finance to grow the trade. This set back led to a reversal of gains such that BDCs could hardly trade ex-ship and had to revert to in-tank trades. With the BDC debt issues resolved amidst a USD432mn haircut granted to Government, the industry is progressively strengthening to realise the full effect of its value proposition. It is therefore expected that over the next couple of years, local BDCs should be capable of integrating backward as IOTs. Nurturing the forward integration of IOTs will make it impossible to optimise the BDC role. This will make the vision of building Ghana’s own BP, SAHARA, Vitol, Glencore etc dead. Posterity will not judge your regime right should this happen on your watch.
In addition, just as these IOTs could have delivered at lower premiums but opted to operate at supernormal profits on the back of our ignorance as a country, so it is that as they move to make the BDC role dysfunctional, they will turn the Ghanaian market into an oligopoly eventually increasing the cost to the country and consumers.
Policy should rather be positioned to enable the BDC function transcend its current depot operations, credit management and ex- ship trade to ex-refinery international trade.
2.0 The BP Proposal
2.1 Our Understanding
Our intelligence suggests that BP seeks to import products into Ghana, store and hold title in depots and sell to OMCs through BDCs or to BDCs. This will imply BDCs will purchase products ex-rack and sell ex-rack to OMC and render BDCs totally unnecessary. Our understanding is that they argue that holding title onshore will enable them deliver comparatively cheaper prices (in terms of supplier premiums and not FOB prices which are the main cost component). This is possible as the risk profile for stocks held by IOTs onshore will be considered comparatively low, thereby yielding marginal savings which may be passed on to the market. Also, as title holders, they remain better positioned to continue various hedging and paper trading while stocks remain in their custody to boost profits.
2.1 Our Review
1. The promise of lower prices may be accurate but totally immaterial to consumers despite its significance to the low margin trade of BDCs. For example a USD5/mt saving translates into a 2 pesewa per litre reduction in petrol prices for consumers marking a 0.4% reduction. But for BDCs, a USD5/mt represents 50% of the gross profit margin (not BDC Premiums) required to breakeven.
2. The BP proposal when approved will unfairly render other IOTs, who do not have the permission to hold title onshore Ghana and benefit from its economic advantage, uncompetitive. This will lead to the uncompetitiveness of their customer BDCs and their OMCs. Thereby thrusting huge losses and stimulating the bankruptcy of the non-BP BDCs.
3. The further consequence of this is that BP, who is currently the most dominant IOT supplying Ghana, will in effect become a NPA-made monopoly. As is typical with traders the monopoly will in turn translate into a price abuse as competitor IOTs are wiped out of the Ghana market.
4. To avoid the unfair NPA-induced superiority in favour of BP and the creation of a consequent monopoly, all IOTs must be allowed to also hold title onshore Ghana to even out the playing field.
5. Allowing IOTs to hold title onshore Ghana is the exact replica of the previous initiatives to procure OTC licenses. It is a step to integrate forward to the detriment of the local BDCs and derail opportunities for BDCs to integrate backward. These efforts by IOTs have mainly been a proactive move to inhibit the growth of BDCs into IOTs for the Ghana market. As stated in the previous sections, such a proposal usurps the BDC function and vitiates the original intent to grow locals to control the supply chain from ex-refinery to ex-rack. It rather empowers IOTs to further affirm control on the local supply chain. BP, as the IOT, in this case will control the petroleum trade from refinery, ex-refinery, ex-ship and now ex-rack. This situation will yield the eventual annihilation of the BDC function and BDC who account for the NPA’s largest source of revenue. The Ghana market will then be fully controlled by foreign traders. This poses both an economic and security risk to Ghana and shows no policy prudence. We ought to be reminded that similar structures clandestinely introduced by Government served as the trigger for the surge in the menace of the illegal petroleum trade which has cost Ghana over Ghs2.79mn between 2016 and 2018.
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Our Recommendation
1. IOTs have for a long time longed to be legally placed in the regulatory structure of the downstream hence their efforts to establish themselves in various structures both legitimately and illegitimately. We absolutely identify with their constraints and recommend a licensing regime for them as IOTs with only the legal mandate to supply BDCs ex-ship Ghana. This will grant them locus within the regulatory space and provide them cover, guidance and local opportunities for redress to operate in Ghana.
2. The NPA and Government must maintain a no onshore title privilege for IOTs and must commence the full implementation of the local content policy.
3. Government ought to acknowledge the contributions BDCs have made to the industry as well as the concessions to the legacy debt situation of USD432mn and position policy to help BDCs revive and assert their place in the supply and trading chain.
Conclusion
H.E. Nana Akuffo-Addo, President of the Republic of Ghana in a speech said, “We shall measure our progress by the happiness which our people take in being able to manage their own affairs.” It is our humble expectation that policy and regulatory actions, in respect of our petition, will not render the President’s aspiration for Ghana a mere Speak-of-Poetry acted by Prose. We count on your genuine commitment to Mother Ghana to do what is not just in the myopic interest of a few but rather that which sets Ghana stronger for the future.
