Why petrol smuggling, adulteration thrive, by ARDA chief
Projections show that between now and 2040, one-in-two persons born in the world will be African. Speaking from an energy perspective, do you see the growing population as a blessing or curse considering the current level of poverty in the continent, including energy poverty?
Africa’s growing population, which is projected to exceed that of India and China by 2025, can definitely be a blessing for our continent provided the right policy steps are taken to harness the opportunities associated with the potential economic growth, infrastructure development and energy demand.
Africa will become increasingly important in the global energy landscape because our urban population will grow rapidly which in turn will drive energy demand for industrial production, cooling and mobility.
In order to harness this huge potential, Africa’s policymakers must develop and implement a robust energy transition plan that ensures near-term actions are taken to introduce affordable, cleaner fuels and adopt LPG for clean cooking to avert looming public health issues while embracing longer-term programs to address the electricity challenges with modern energy solutions like renewables.
What is your take on the African Continental Free Trade Area (AfCFTA), which became operational earlier this year?
The realization of the AfCFTA is a critical milestone for Africa and represents the first key step in Africa actualizing its own development vision – the African Union’s Agenda 2063 – which supports the continent’s industrialization and economic development and also reduce reliance on external resources.
The AfCFTA will be the world’s largest free trade area, in terms of a number of participating countries (55 Member States), since the formation of the World Trade Organization. The AfCFTA will cover a market of 1.2 billion people (projected to reach 2.5 billion people by 2050) and a Gross Domestic Product (GDP) of $2.5 trillion.
Consolidating Africa into a single trade area will provide great opportunities for trading enterprises, businesses and consumers across Africa and the chance to support sustainable development across what is presently one of the world’s least developed regions.
However, this potential will only be realised if our governments truly follow through by creating a long-term enabling environment. From ARDA’s point of view, a first step would be for West African governments to move forward quickly within ECOWAS on the mandated regional, harmonized clean fuel specifications and vehicle exhaust and second-hand vehicle limits. This would set the scene for later fiscal and trade practice harmonisation to the benefit of the whole region, and indeed, through AfCFTA, Africa.
What do you think are the implications of this development for the petroleum downstream sector in Africa?
The realisation of AfCFTA bodes very well for Africa’s Downstream Petroleum Sector. Given that Africa’s population is projected to grow significantly over the next two decades, along with increased urbanization, the demand for petroleum products to meet this increased energy demand will undoubtedly rise as well.
The challenge will be to meet this increased demand with a safe, sustainable, efficient and economic supply chain for affordable cleaner petroleum products and ensure that a robust, sustainable African Energy Transition Plan is implemented to upgrade the refineries and infrastructure across Africa and promote adoption of LPG for clean cooking in the short-term while pushing other modern energy solutions in the longer term.
What are the roles of the African Refiners & Distributors Association (ARDA) in the realisation of the objectives of AfCFTA?
ARDA is leading the drive for harmonization of cleaner petroleum products specifications across the continent via the ARDA AFRI Clean Fuels Specifications Roadmap. This roadmap promotes the adoption of cleaner fuel specifications, ultimately AFRI-6 (10 ppm Sulphur) for gasoline and diesel, by 2030 and key parameters for vehicle imports and emissions.
ECOWAS and ARDA conducted a study that recommended the regional economic bloc to adopt AFRI-5 (50 ppm Sulphur) standards for fuel imports into the sub-region by this year, with refineries in the sub-region to get waivers until the end of 2024. The recommendations of the study were adopted by the ECOWAS Oil and Environment Ministers in February 2020, with a directive issued in September 2020. Implementation is now underway in ECOWAS Member States but the rate of progress is slower than required to meet the approved deadlines, which is frustrating efforts to plan the necessary investments in refining and supply chain infrastructure.
Similarly, ARDA and the African Union (AU) collaborated on a study promoting the health and socio-economic benefits of cleaner, harmonized fuel specifications and assessed the cost implications of upgrading refineries in Africa to produce cleaner, AFRI-6 fuels. The recommendations of the study are currently under review by the AU’s Specialized Technical Committee and hopefully should be adopted soon.
Harmonized, pan-African petroleum products specifications will definitely promote AfCFTA objectives through an economic and efficient petroleum supply chain for the benefit of consumers by reducing smuggling, fuel adulteration and ultimately segregated supply chains.
Personally, what roles are you playing in ARDA and what are you doing across African countries to ensure that the potential of the petroleum industry becomes reality across the continent?
The current global energy transition movement has necessitated ARDA’s creation of a new Energy Transition Taskforce focused on developing a consistent strategy for building resilience and sustainability within the changing oil and gas operating landscape. This task force will leverage ARDA’s extensive network of Members and partners, institutional knowledge and drive thought leadership to ensure a cohesive energy transition plan and coordinated project development process developed to the highest bankability standards. The benefits of such a robust, sustainable African Downstream Energy Transition Plan are numerous for African refiners, marketers, distributors, regulators, and ultimately consumers, as well as capital providers and key players in the cleaner energy space, particularly LPG for Clean Cooking.
The first step in this process is underway as ARDA expanded its Work Groups over the last year to include LPG (in line with UN SDG-7) and Sustainable Financing to ensure that its Members and Sponsors can access critical transition funding to upgrade their facilities to produce and transport cleaner fuels in line with the ARDA AFRI Clean Fuels Roadmap.
How critical are the issues of pricing, tariff, taxation, subsidies to the realization of AfCFTA?
The key objective of AfCFTA is to boost intra-African trade and harmonize and/or eliminate the aforementioned issues – especially key regulatory areas like pricing, taxation, tariffs and non-tariff barriers – is essential to accomplishing this laudable goal. Harmonization of petroleum products standards will also ease trade between African countries and facilitate establishment of regional value chains.
Countries like Nigeria still struggle with smuggling of petroleum products. Don’t you think this problem will escalate with AfCFTA?
On the contrary, AfCFTA will promote harmonization of petroleum product specifications and associated tariffs, taxes, etc. This will reduce incentives for smuggling, product adulteration and segregation of value chains which will ultimately impact the end-consumer adversely.
Africa has no uniform regulatory and enforcement standards in the downstream sector of the petroleum industry. How exactly can these limit the potentials of AfCFTA?
Currently, African countries have eleven (11) different levels of permissible Sulphur content for gasoil (diesel) ranging from 10 parts per million (ppm) to 10,000 ppm. For gasoline, there are twelve (12) different levels of Sulphur content ranging from 10 ppm to 2,500 ppm.
This lack of uniformity inhibits supply chain optimization and potential economies of scale and results in higher costs to consumers. In addition, such non-uniformity encourages illegal smuggling and product adulteration activities with further adverse effects.
ARDA, through its Regulation Work Group, also promotes the need for an independent, downstream regulator, separate from upstream, to assure coherent and robust global best practices are applied in the sector across Africa.
One of the areas ARDA focuses on is logistics. Reportedly, it is cheaper to transport goods from other continents to Africa than transporting same within Africa. What is your take on this and what are the options for the continent to address these challenges?
Africa needs a coordinated storage and distribution roadmap that builds on AfCFTA objectives to promote synchronized, regional investments across the entire supply chain – terminals, pipelines, rail and ports – to ensure safe, efficient delivery of petroleum products across the continent. ARDA has a dedicated Storage & Distribution (S&D) Work Group that is tasked with engaging key players to develop such a roadmap.
During a virtual S&D Workshop held on April 29 this year, major public and private sector S&D players in the African Downstream including the Kenya Pipeline Company (KPC), Rainoil Limited (Nigeria), SENSTOCK (Senegal) and SONABHY (Burkina Faso), shared their experiences in improving downstream logistics.
Terminal and maritime experts, Riverlake Solutions, shared insights on reducing congestion and costs in major African ports, Parylm provided experience preparing a feasibility study for a multi-country pipeline investment (Ghana-Burkina Faso-Chad), and CITAC Africa covered pipeline operations across Southern Africa. In addition, HMT and Alma Group/Soudotec contributed their expertise in reducing emissions from storage tanks and considerations for bottom vs. top loading of products at oil terminals respectively.
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