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Oil companies to secure guarantees as condition for licence renewal

tullow oil_0The National Petroleum Authority (NPA) is to come out with a new condition for oil marketing companies (OMCs) to retain their trading licences.  The OMCs are now to secure bank guarantees from reputable banks that will pay their bills when they default in paying the bulk distribution companies (BDCs).

Anything contrary to satisfying the condition would lead to the revocation of oil marketing licences by the NPA.

The directive, which would come into force in a fortnight, according to the Chief Executive Officer (CEO) of the NPA, Mr Moses Asaga, is aimed at ensuring sanity and improved liquidity in the petroleum trading sector.

He told the Daily Graphic in Accra that commercial banks were no longer willing to provide letters of credit (LCs) for the BDCs as a result of the OMCs huge indebtedness.

The situation, he explained, had led to the introduction of a cash and carry system by the BDCs, leading to the shortage of products in some parts of the country, with the hinterlands being the most affected.

Market share

Mr Asaga said that the BDCs were facing the liquidity crises because majority of them were fighting for market share, as a result of which they were giving out products to the OMCs without the necessary bank guarantees and any reasonable market recovery plans.

He said majority of the OMCs were thus taking advantage of the BDCs’ scramble for market share by failing to pay back after the expiration of the 90-day credit rolled out to them.

“The BDCs are partly to blame for the risky exposure to the OMCs as they have not been able to manage their credit terms and conditions responsibly,” Mr Asaga said.

“These acts have culminated in the credit crunch  thereby tying up petroleum products in the system”, Mr Asaga added.

He indicated that majority of the OMCs, had over time, invested monies belonging to the BDCs after the sale of products into micro-finance and contract businesses, resulting from the relaxed manner in which the BDCs treated their credit covers.

He asked the BDCs to shorten the length of maturing cycle for LCs for the OMCs as this would help to improve liquidity and ensure cash flow.

“They do not have to wait for 90-days. If it is brought down to 45-days it would tremendously improve liquidity in the sector and further avert incidents of shortage,” Mr Asaga said.

BoG Intervention

Mr Asaga said following the commercial banks refusal to open LCs for the BDCs, resulting from the exhaustion of their credit limits and unpaid arrears over a two-year period, the government through the Bank of Ghana (BoG) had intervened with the provision of foreign exchange (forex) cover to enable them to pay the arrears.

He was hopeful that the measures introduced would reduce the huge indebtedness in the sector.

Source: Daily Graphic

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Reporting Oil and Gas project was launched on 4th June 2009atTakoradi, Western Region, Ghana by Penplusbytes (PPB – www.penplusbytes.org) with the vision of providing a one stop online information and knowledge about Ghana’s oil and gas sector
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