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Wednesday, 23 November 2016

Resolving Nigeria’s fuel supply challenges using the Ghanaian model

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Barely few years after Ghana commenced crude oil production from the Jubilee Field, the country has resolved its fuel supply challenges and commenced exports to Nigeria and other West African countries. Ejiofor Alike writes on how Ghana attained this feat and lessons for Nigeria

Not a few people were surprised to read recent reports that Ghana had commenced the exportation of refined petroleum products to some neighbouring West African countries, including Nigeria.

The exports which were reportedly carried out through their state-owned Bulk Oil Storage and Transport (BOST) Company (the equivalent of Nigeria’s Pipelines and Products Marketing Company (PPMC), was announced by the country’s Minister of Petroleum, Mr. Emmanuel Amah –Kofi Buah, at a press briefing during which he also reportedly spoke of plans to extend supplies to Liberia in the coming months.

Ghana’s vision, according to the Petroleum Minister, was to eventually become the hub for the distribution of petroleum products in the West African sub-region.
He also added that the country had achieved capacity to guarantee its energy security for the next two decades.

The irony in the story was all too glaring- Nigeria, one of the top 10 hydrocarbon -rich nations on earth, was reportedly importing refined products from a neighbouring country with, at best, a nascent oil exploration and production industry.
Beyond the unbelief and surprise that greeted the news, the story of how a relatively fringe player in the petroleum business overcame the odds to supply refined petroleum products to its vastly resource-richer neighbour offers enduring lessons in successful public sector enterprise.

Pioneering role of two Ghanaian state-owned firms
According to reports, two Ghanaian state-owned enterprises – BOST and the Tema Oil Refinery (TOR) – were behind the feat achieved by the country’s domestic downstream oil sector.
The more interesting story, however, is how the two companies were transformed into key revenue earners for their country. Up till two years ago, BOST and TOR just like the Nigeria’s refineries, suffered from the regular afflictions of most public sector firms in Africa- poor management, poor funding, outdated equipment, epileptic operations and even poorer productivity, thus transforming these into mere storage depots for 3rd party petroleum products.

THISDAY gathered that before the new transformation, BOST’s total storage capacity of 425 million litres for petroleum products was grossly under-utilised and except for the main import terminal called the Accra Plains Depot, all other five depots were abandoned by the country’s oil marketers forcing BOST to temporarily suspend their operations of those depots in September 2013.
Coincidentally, in the same 2013, BOST had also reportedly incurred liabilities to its 3rd party clients in excess of $60 million (N28.5 billion) as a result of “inefficiencies and mismanagement at the storage depots”.

TOR’s operational circumstances were reportedly more dismal. The refinery’s two plants had suspended operations since 2009, on account of funding constraints which had made it “impossible for its management to raise letters of credit (LCs) for crude oil imports”, among other operational challenges, according to reports.

Nigeria has about 21 depots but most of the depots have also been abandoned as vandalism has made it difficult for petroleum products to be pumped via pipelines to these depots.

Following these issues, the Ghanaian government made an attempt to privatise the refinery, a move that generated serious industrial unrest and suspicion both within the organisation’s labour unions and the country’s organised labour which launched a “Save Tema Refinery” campaign that effectively scuttled the move.

Similar opposition has been mounted by Nigerian oil workers against the proposed sale of the NNPC’s refineries.
However, revival for both organisations in Ghana started in late 2013 when President John Dramani Mahama appointed a new managing director for BOST, Mr. Kwame Awuah- Darko.

He adopted a new approach to the restructuring of BOST for greater effectiveness and took the decision to outsource the operations of all the BOST depots to an independent terminal management company with experience in the management of such facilities in other countries and the willingness to invest in the BOST depots

Involvement of a Nigerian company

Following their selection process, a Nigerian company, TSL Logistics Limited, was successful in its bid to invest in the upgrade and subsequent operations of the BOST Depots. Although, officials from TSL declined requests for interview for this story, we gathered from oil and gas industry sources in Nigeria that they are regarded as one of the largest and the most professional logistics operators in the downstream sector of Nigeria with expertise in terminal management, trucking and marine support services..

Expectedly, the selection did not come without its challenges, especially from indigenous operators in the Ghanaian downstream oil sector, specifically the Bulk Distribution Companies. The Managing Director of BOST, Mr. Kingsley Kwame Awuah-Darko, was reported in the Ghanaian papers as saying that government’s decision to outsource the operations of the terminals to an independent operator like TSL Logistics was to avoid the conflict of interest issues it would face if such a facility was outsourced to the local BDCs.

He also reportedly said that all laid-down procedures were followed in BOST’s dealings with TSL Ghana, “adding that the company (TSL-Ghana) has been given 12 months to meet standards spelt out by BOST or have their contract abrogated”, according to the Ghana News Agency reports.

Success story

Success was soon to follow the bold move by the Ghanaian government. At the end of the pilot run, the BOST MD at a press conference in Accra stated that since BOST engaged TSL, it had stopped experiencing product losses, in fact, BOST had recorded gains in excess of $8million during the pilot run. These statements received further affirmation by the Ghanaian Minister of Petroleum during a 2015 inspection of the BOST facilities in Kumasi to ascertain the progress made by the government since they handed over the management of the depots to TSL. In his words “The Ministry and BOST had not regretted making the decision to collaborate with TSL Logistics and would not mind to do it again.”
The renewed BOST went on to record further success in 2015. It is reported that BOST generated close to $30 million in trading profits for the year 2015, a complete reversal of its fortunes prior to the change in its operational strategy.

Awuah-Darko’s successful turnaround of the fortunes of BOST informed the decision by President Mahama to appoint him to also head Tema Oil Refinery (TOR) effectively doubling as MD of both institutions.

Awuah-Darko immediately set to task utilising the same strategies that made him successful at BOST to get TOR to resume operations and he put in place a crude processing agreement between BOST and TOR, which would see TOR refine crude oil supplied by BOST.

The agreement sealed, TOR resumed operations on February 2016 and the results were immediate, according to reports. Within two months of operations from February 16 to April 20, 2016, the company reportedly posted a profit $800, 000. 00 from its operations, the first positive result in seven years.
It had also processed a total of one million barrels of crude oil supplied by BOST within the period and was also expecting a profit of $1.5 million from the second batch of crude oil it was contracted to refine for BOST between May and August 2016, reports say.
Awuah-Darko reportedly said the “crude oil purchase agreement with TOR was part of measures by BOST to move away from importing finished products at huge costs”.
“We set out a two-year turnaround programme; Operation 24”, according to Awuah-Darko, “which involved specific measurable targets and by July this year, we had exceeded those targets”.
By rolling out its ambitious plans to dominate the downstream petroleum business in the West African sub-region, it is making a strong statement of intent that raises serious questions for its better-endowed neighbours such as Nigeria. The company says it plans to supply Burkina Faso through underground pipes from their facility in Buipe in the near future.

One of the official policy decisions that appears to have helped the success stories of the two state-owned companies was the Ghanaian government’s decision to deregulate its petroleum sector.

According to the country’s Petroleum Minister,
“Ghanaians have been empowered to be at the forefront of the industry and a liberalised petroleum downstream sector with strong private sector participation where product availability, competition, better customer service and lower prices are making Ghana the preferred destination for doing business in the sub-region.”
BOST’s CEO says the deregulation has had a very positive effect on petroleum product prices in Ghana.
“At the beginning of the year, we had fuel prices at 18.5 cedis per gallon for petrol, by the grace of God today, its 11 cedis per gallon. For the first time in the history of this country, prices are being felt on the local markets”.
The Petroleum Minister further said “the restructuring of BOST has resulted in a turnaround in the performance of this strategic national asset which is now successfully fulfilling its mandate of ensuring the availability of petroleum products”.

Aside from its plans to dominate the sub-regional downstream petroleum space, Ghana also reportedly has ambitious plans for its Gas business with the Ghana Gas Company (Ghana Gas) having completed an extension of its pipeline to the battery limit of the West African Gas Pipeline Company (WAPCo)’s Metering Station at Aboadze. Reports say Ghana Gas is awaiting WAPCo’s interconnection of this pipeline as part of its strategy to, in the long term, “provide the opportunity for Ghana to realise its vision to utilize gas for the other industrial uses, beyond power generation, such as fertilizer and petrochemicals”, the Minister said.

Lessons for Nigeria

The success of this Public/Private Sector partnership model in Ghana certainly raises a compelling case for its application in Nigeria, given the humongous challenges that have beset the country’s downstream petroleum sector over the years, with over 70 per cent of the country’s foreign exchange earning reportedly dedicated to the importation of refined petroleum products.
Amidst recent reports of the N127.73 billion loss sustained by the Nigerian National Petroleum Corporation (NNPC) for the first eight months of 2016, of which the country’s refineries accounted for N47.69 billion, it is clear that the country is in need of urgent solutions to its age-long challenges of ensuring adequate domestic supply of petroleum products and turning around the fortunes of the refineries in the overall interest of the economy.

Exploring the restructuring model applied by Ghana for BOST’s counterpart in Nigeria, the PPMC and the country’s perennially-epileptic refineries, may prove the turning point towards a vibrant, export-capable downstream petroleum sector in the country, given the success recorded in such operations by an indigenous player in the sector in a neighbouring country.

17 comments:

vinna saviour said...

Issorite

Eddy Ogbunambala said...

Ok

OSINANL said...

K

Chizzy Liz said...

****************************Na today ?????? Abeg evryone should give up on 9ja !!!!!!!!! Who still wan read dix wey u write !!!!!!!!! ?????????

Chizzy Liz said...

****************************Na today ?????? Abeg evryone should give up on 9ja !!!!!!!!! Who still wan read dix wey u write !!!!!!!!! ?????????

Uju Phil said...

Nice one...

Ogenah Boris said...

Not even interested

Henry Avbuere said...

How did we come to this sorry state. We have always been trying to learn from others. Very soon we will start to learn from goats and insects. so unfortunate

Anonymous said...


WHEN YOU ARE BEEN RULED BY GOATS AND COWS THAT IS WHAT YOU WILL GET.

Vivian Reginalds said...

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Juliet Iwuno said...

It is well! Linda take note!

John Oche Salifu said...

Naija why u? what Naija has tried was better to this idea.

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Iphie Abraham said...

Chei! My dear country



So na ghana we wan learn from








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