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Woes of petroleum sector players deepen as 42 now inactive

Three challenges –covert subsidies, indebtedness to banks and low margins – continue to hamper the operations of companies in the downstream petroleum sector, forcing almost a quarter of licensed fuel retailers and wholesalers to become idle last year.Of the 188 licensed bulk oil distributors (BDCs) and oil marketing companies (OMCs) in the country, 42 were inactive, while 111 managed market shares less than one per cent, according to data gleaned from the National Petroleum Authority (NPA) and the Chamber of Bulk Oil Distributors (CBOD).

As a result, a bulk of the business – about 70 per cent – was handled by 15 of the BDCs and OMCs, majority of which are pioneers in their respective sectors.

Of the 42 inactive companies, 11 are BDCs while 31 are OMCs.

Despite being unable to operate for the entire year, the GRAPHIC BUSINESS learnt that all the companies renewed their licences at fees ranging from US$300,000 for BDCs to GH¢20,000 for the OMCs per company, per annum.

Govt’s indebtedness 

This means that about 173 of the fuel traders, representing 92.02 per cent, failed to operate or gain appreciable market shares last year, mainly as a result of lack of financial muscle and expertise to operate in a keenly competitive industry.

Although the NPA did not comment on the development, the Chief Executive Officer of the CBOD, Mr Senyo Hosi, blamed the issue in the BDC business on the indebtedness of some of the companies to banks in the country.

“A part of it is because of the freezing of credit lines by some banks due to the heavy indebtedness of the BDCs to them,” he said and pointed at the government as the biggest culprit.

“The government’s level of indebtedness to the BDCs is just too much and no bank wants to lend to them anymore,” Mr Hosi said.

Despite receiving some GH¢1.07 billion in payments from the government last year, the Chamber said GH¢1.78 billion of government’s debt to BDCs still remained.

Unfair competition 

In addition to the indebtedness, the chamber’s CEO said part of the constraints faced by petroleum service providers (PSPs) had to do with the profit margins in the business.

“The business has not been profitable for a very long while now,” he said.

With the current arrangement where state-subsidised fuel from the Bulk Oil Storage Terminal (BOST) is sold to GO Energy, the BDC subsidiary of stated-owed GOIL, Mr Hosi said not many BDCs could mobilise the needed resources to be able to stay afloat.

GO Energy, which was established in 2014, ended last year as the industry leader, with a market share of 22.14 per cent.

Given that GO Energy in turn sells to GOIL for onward retail to the general public, Mr Hosi said the impact of the “covert subsidies is even more pronounced in the OMC market, where GOIL commands 18.2 per cent market share.”

“As it stands now, BOST is subsidising GO Energy and GOIL and because of that they are making profit when the others are not,” he said.

BOST was established to store strategic petroleum products but has in recent years doubled into the wholesale of petroleum products, mostly to counterpart state-owned enterprises, including GO Energy and the Tema Oil Refinery (TOR).

Licensing 

Mr Hosi also criticised the current licensing regime which allows many companies into the BDC business but fails to inspire value addition through the entry of new players.

“There needs to be a review of the entire licensing regime to make sure that people who come into the industry are people who add value to the industry,” he said.

“The BDC industry is primarily designed for players to import products to augment TOR’s output, provide competition for the refinery’s output and provide a bulk off-take for that output. So if you are not really importing, what value are you giving the industry?” he quizzed.

He was, however, confident that the government’s plans to thoroughly enforce industry requirements such as the GH¢30 million equity capital, the dedicated 40,000 cubic meter storage and the US$60 million trade facility would “prove a major compliance challenge for all BDCs.”

“This situation may force a reduction in the number of BDCs from the current 44 to between eight and 15,” he said and explained that a shrink in numbers could help inspire prudence and consolidation.

Financial challenges

The CEO of the Chamber of OMCs, Mr Kwaku Agyeman-Duah, explained that the inactiveness of some of the companies was more of a financial problem that could only be addressed by the affected players.

“It’s like every business. You know, someone sees others doing the business and also wants to join but you need to keep up, especially with the nature of our business,” he said with reference to the volatile nature of prices of petroleum products.

Inactive OMCs in 2016 (21.5% of total)

1.Apex Petroleum

2.Aspem Petroleum

3.Avos Oil and Gas

4.Baffour Gas Company

5.Bano Oil Company

6.Benab Oil Company

7.Cent Eastern Gas

8.Capstone

9.Cornoil Petroleum

10.Da Oil Company

11.Deliman and Company

12.Finest Oil Company

13.Finest Gas Company

14.Glasark Oil Company

15.Gulf Company

16.Nak Oil Company

17.Infin Ghana

18.KI Energy

19.Lily Gold Energy

20.Morgaz Petroleum

21.OJK Company

22.Omega Energy

23.Petro Afrique Gh

24.Petrocell Ltd

25.Riema Company

26.Sheelm

27.Spirits Petroleum

28.Thomcof Energy

29.Trigon Energy

30.Triple A LP Gas

31.Warren Oil Company

Inactive BDCs in 2016 (25% of total number)

1. Oilchannel

2. Springfield

3. Dominion

4. Peace

5. Dome

6. Maranatha

7. Redfins

8. Oiltrade

9. Firm Energy

10. Nation Services

11. Rhema Energy

 Source:  http://www.graphic.com.gh/business/business-news/woes-of-petroleum-sector-players-deepen-as-42-now-inactive.html
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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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