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‘How weak regulations undermine investments in downstream sector’

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Energy experts across African countries and other international players are calling for effective regulations that can address inherent challenges in the downstream segment of the continent’s petroleum industry.

Noting that non-market pricing structures, complex supply chains, smuggling and adulteration of products were among the pressing issues that could hamper investments in the African downstream oil sector, the experts insisted that projected gains attributable to the sector may remain elusive unless the continent embarks on full deregulation of the sector along with coordination and harmonization of policies to enhance the market environment.

The various stakeholders spoke at a virtual event led by the African Refiners & Distributors Association (ARDA) under the 2021 ARDA Virtual Work Group Workshop Series with this edition focusing on the “Role of Regulators in ensuring Compliance with AFRI Fuels Roadmap.”

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Currently, the African Union and ARDA are working on the introduction of harmonized, pan-African cleaner fuel AFRI-6 (10 ppm Sulphur) specifications for gasoline and gasoil/diesel across the continent by 2030.

ARDA is encouraging all its members to invest in near-term upgrades for their refineries and associated facilities to enable them to meet AFRI-6 specifications directly; thereby future-proofing their facilities by ensuring their productions meet global clean fuel specification standards.

Speaking at the event, ECOWAS’ Director of Energy, Bayaornibe Dabire, disclosed that the range of fuel specifications in the sub-region spans from 50 ppm Sulphur in some countries to 10, 000 ppm Sulphur in others.

The need for harmonization, according to him, led to the issuance of ECOWAS Directive C/DIR.2/09/20 last year, which covers exhaust gas and particulate emission limits for two-wheeled, light and heavy vehicles.

Dabire stressed that any improvement in fuel specifications without alignment with vehicle emission limits would not have the desired effect, and stated “Member States shall prohibit the imports of gasoline and diesel, which does not comply with the harmonized fuel specifications.”

From January 1, 2025, Dabire said only gasoline and diesel that meet the harmonized fuel specifications can be marketed within the ECOWAS region, adding that waivers would be provided for refineries within the region to remain operational while they introduce measures to comply with the Directive, he noted.

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Dabire disclosed further that the age limit for importing vehicles into the ECOWAS region has been set at five years for light-duty vehicles, two-wheel motor vehicles, tricycles and quadricycles and 10 years for heavy-duty vehicles, adding that a period of 10 years would be granted to countries that have not yet adopted the age limits to gradually comply.

ARDA’s Executive Secretary and Chief Executive Officer, Anibor Kragha insisted that effective regulatory frameworks remain critical for development of the sector, especially as Africa’s population is projected to increase significantly over the next two decades.

The growth in population, to him, would in turn lead to increased demand for petroleum products. Kragha also shared the core components for effective regulation, which include clarity on the regulator expected to create the rules and dispenses consequences, clarity on targets (individuals or organisations) to which the regulations apply, definition of what the rule or regulation demands of the targets and finally, the consequences for non-compliance.

Director, Pricing, Planning & Research at National Petroleum Authority (NPA) in Ghana, Alpha Welbeck, showed how activities are monitored digitally across the value chain from offshore to retail, providing end-to-end visibility of operations and reducing the tendency for companies to cut corners or make abnormal profits.

Chief Executive Officer, National Oil Ethiopia, Tadesse Tilahun, stated that effective regulatory support has not yet been fully addressed in Ethiopia thereby leaving the downstream sector vulnerable to unfair trade practices and multiple supply and distribution challenges.

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Managing Director, CITAC Africa Limited, Gary Still, who noted at the virtual event that political considerations rule prices of petroleum products in most African countries, said that while there were arguments both for and against deregulation of the downstream sector, the ultimate goal should be to encourage investments and avoid inefficiency.

Head, Strategy & Business Development at Rainoil Limited, Emmanuel Omuojine said that price controls in Nigeria had resulted in lost investments in the downstream sector while smuggling of gasoline had persisted due to significant price differences between Nigeria and its neighbouring countries.

In addition, Omuojine said the opportunity cost of funds used for subsidies had detracted from funding of other key areas of the Nigerian economy like healthcare, education, transport and power.

As such, he stated that there was a need for deregulation of the downstream sector in Nigeria to maximize benefits from the industry.

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