CSOs in Energy Sector calls for reforms in petroleum downstream activities

The petroleum downstream sector of Ghana faces imminent collapse if new policies and urgent reforms are not undertaken. The seeming stability and availability of petroleum products on the market hangs on a volatile system. The Ghanaian consumer is paying for high credit and bad debt management in the current system.

In the last two decades, Ghana’s petroleum downstream has gone through transformation from regulated regime to a partially deregulated. The removal of subsidies in 2015 ushered in the policy of price determination by Petroleum Service Providers (PSPs) with limited government control in the areas of tax, levies and distribution margins. Since 2015, after the downstream was deregulated, the number of PSPs has been on the surge without adequate operational efficiency in the industry. The number of Bulk Distribution Companies (BDC) has increased from 31 in 2015 to 53 in 2024 representing more than two-thirds increment. The license renewal fees for BDCs are about US$300,000 annually and the new entrant pays more than US$750,000. Surprisingly, there are BDCs that do not import products yet could afford to pay these huge annual license renewal fees.

Another observation made is that Oil Marketing Companies (OMCs) have surged from 139 in 2015 to over 200 in 2024, with the highest growth of 19.79% (235 OMCs) in 2021. The average annual percentage change of OMCs is 5.12% compared to the annual percentage change in total consumption of about 5.15% of petroleum products. The implication is that averagely, the growth in sales of petroleum products is almost the same as the growth in number of OMCs that springs up annually, which signifies the lack of operational efficiency in the petroleum downstream. The growing numbers of PSPs especially bulk distribution and marketing companies with similar growth in supply of petroleum products does not engender efficiency and sustainability. The average annual volumes sold by an OMC in 2015 (24,724.9139MT) are almost the same as the average sales volumes in 2024 (24,990MT), which implies that OMCs are not growing as expected with respect to annual volumes sales.

Comparatively, Ghana has more numbers of Oil Marketing Companies compared to Kenya (106 OMCs) although they all sell around 5 million tonnes annually. In Tanzania, there are 60 OMCs compared to Ghana’s 213 although consumption is almost the same.

The unrestricted number of PSPs in the downstream, and lack of effective regulatory enforcement leads to under reporting of volumes or bypassing the data management systems of NPA and GRA. Also, huge numbers of these PSPs go unnoticed by the regulator, thereby leading to unregulated, sub-standard petroleum products on the market that affect petroleum users. In 2024, it is observed that some OMCs did not lift products from any of the depots, yet they had their indicative prices published by the NPA.

These companies might be
selling poor quality products to petroleum users since the source of their products are unknown.

The downstream sector operates mostly on credit facilities. Bulk Distribution Companies (BDC), who import petroleum products, are forced to give credit to the Oil Marketing Companies ranging from 14 to 90 days depending on the volume of the transaction. This credit facility is factored into the price of the petroleum we pay at the pump. The irony is that we the consumers who bear the cost of this credit, pay cash when we buy petrol or diesel from any OMC. In Ghana the consumer is paying high cost for petroleum products because of this bad credit system we practice.

We conclude that the huge numbers of PSPs have not engendered the efficiency the petroleum downstream the sector needs, which has a negative effect on the quality of products consumers purchase, issues of tax evasion, as well as poor regulatory regime.Therefore, we recommend the following:

1. Introduce regulations that will improve the financial sustainability of the petroleum value chain, to eradicate the credit system and improve liquidity for the procurement of products.

2. Increase the minimum
number of stations for OMC license from 7 to 10 stations and enforcement of this requirement. There should be punitive actions taken against the board of directors if they approve a company that does not meet this requirement.

3. Proof of funds of GHc 10 million cedis from a reputable bank to be provided for all new OMC applications.

4. Revoke the licenses of OMCs and BDCs that did not lift or import any products from any depot in the last 5 years to ensure good for business OMCs and BDCs operate in Ghana’s petroleum downstream.

These recommendations are to stop companies sponsored by politicians who see the petroleum downstream as an avenue to get easy money at the expense of ordinary consumers. These companies who do not own a single station, when given a license to trade as OMC, sell the petroleum products and do not pay the taxes to GRA, keeps the margins and levies meant for NPA and BOST. We are entreating the new management and board of directors for NPA to act swiftly to save the downstream sector.

Writers

1. Kwadwo Poku

Executive Director

Institute for Energy Policies & Research (|TEPR)

2. Benjamin Nsiah

Executive Director

Center for Environmental Management and Sustainable Energy (CEMSE)