The original report was distributed in Financial Times Deutschland on Friday, April 13, 2012
Pushing for Deregulation and Private Investment in Ghana´s Energy Sector
Worldfolio talks to Mr. Alexander KM Mould, CEO of Ghana´s National Petroleum Authority (NPA), about the importance of deregulation and of encouraging private investors to partake in the development of the energy sector
Please start by telling us about the development of the petroleum sector and the potential challenges to future growth and development.
The downstream sector handles the petroleum product distribution, supply and manufacturing in the country. The National Petroleum Authority (NPA)’s role is to regulate all petroleum service providers. If you go back historically, a few multinational companies imported fuel into the country before independence. Post-independence, our leader had the wisdom to set up a refinery in Ghana. It was a very small refinery (about 20,000 barrels), which is small by today’s standards, but it was a significant investment. Since then, we have been moving through phases of deregulation. Deregulation basically just means that the Government does not have too much influence in the industry, especially when it comes to participating in that industry. However, that does not mean that there is no regulation, but that market forces are allowed to determine prices and the rules of engagement that participants have.
The Tema refinery was set up somewhere between 1962 and 1964 and it was refining petroleum that was brought into the country. It was like a third party refinery which produced on behalf of others and marketed in the oil companies and mainly the multinationals such as Shell and Elf. When our leader took over, we started deregulating and GNPC was set up in 1984 with a mandate to bring in crude oil and refine it in the refinery. In 1996, it was passed onto Tema Refinery, where it was bringing in its own crude oil and refining it.
The refinery itself has been upgraded and revamped considerably so it now refines about 45,000 barrels a day. In the 1990s it was agreed that more players would be allowed into the industry and more players could supply oil and bring it into the country, but Tema Refinery was still the main entity that bought the oil and supplied it to the oil marketing companies which then distributed it to the public. Then in the early 2000s we moved towards accelerated deregulation. Here it was agreed that we would be giving more opportunities to Ghanaians to participate in the industry. So the NPA was set up in 2005 and we started to look at all the regulations and guidelines for licensing. We started to ensure that Ghanaians could qualify to participate in this industry. We currently issue licenses and we also ensure that things like safety and compliance are adhered to.
How does it work with other government bodies and ministries? How have you engendered a culture of educating Ghanaians?
We work with the Environmental Protection Agency, financial services and the Town and Country Planning to ensure that the retail stations and any provider are in the right location and to ensure that they are complying with the rules and regulations. But my ministry is the policy driver. We work very closely with the Ministry to carry out the execution of the policy in this sector. We then make sure that we issue the guidelines for the policy. We work very closely with the Ministry of Finance as well, because everybody knows that one of NPA’s mandates is to calculate the petroleum prices that we have. We have to ensure that subsidies are paid in a timely fashion to suppliers. We also work with the banks because they need to understand the industry and the risks involved in the industry as they will be financing these petroleum service providers.
Do you work with the private sector on policy development?
We have a lot of industry meetings, in which we discuss operational, policy and regulatory issues and more importantly financial issues. At the end of the day these companies have to make a decent rate of return, so in order to encourage investment in the industry we have to ensure that the rate of return in sustainable. At the same time, the NPA has a role to protect the consumer. We ensure that there are no monopolistic tendencies or cartels. We protect them but we are businessmen at the same time, so we have to look at the sector and the challenges the sector faces worldwide. Oil is a global commodity and if somebody refines a product he is looking to sell the product, so we have to understand the whole dynamics of supply and demand. If we just rely on the traders, they will take us to the cleaners, so we really have to rely on our research team to be abreast with what is going on in the industry. We look at the latest tools being used to manage risk and hedging etc. We promote efficiencies in our industry.
We look at how we can work together with the other regulatory authorities in Africa, especially West Africa. There is an African Refineries Association and we do meet once a year, either in South Africa or in Morocco, to discuss things like the specifications in Africa and Europe and how we can raise the bar in Africa to ensure that clean products come to our continent. That Africa is not just a dumping ground for the unscrupulous traders who want to get rid of their bad products and keep their good products in Europe where the standards are high. We have to look at doing the same here to ensure that there is a level playing field for all players.
As Head of NPA, what is this organization doing to ensure that petroleum benefits everyone?
You are talking mainly about the upstream, but from a downstream perspective, we encourage as many players as economically possible to get involved in this industry. This industry is larger than the upstream industry. We are talking about crude oil imports which amount to $3 billion in this country. It is therefore a very significant part of GDP (Gross Domestic Product). More importantly for Ghana, because we used to import 100% of our petroleum products and crude oil into this country, there was a huge drain on foreign exchange. We consumed more than 25% of all the foreign exchange that was used for imports in Ghana. I can ensure you that the Ministry of Finance and the Bank of Ghana looks very closely at this because it has a direct impact on all the parameters, including inflation. If you do not manage consumption properly, the exchange rate and prices go up.
We are working hand-in-hand with the Ministry to ensure that Ghana can produce more crude oil and make us more self-sufficient, not just from an economic perspective, but from a strategic perspective as well. We should be able to have enough crude oil to refine and produce enough products in the country which would spur economic growth in the country.
Do you think the Government has created an enabling environment for this?
I think a lot more can be done. There are agencies that are there for the private sector to be able to grow. But like in many African countries, government is still the biggest business. Government can crowd out the investments, because government demand is huge. That is why you can see the private sector borrowing at over 20% and it is 10% for the government bureaus. I think we need less government and more private sector. That is what we should be looking at; we need agencies that promote that and lots of incentives should be given to the private sector, like in our industry. Our industry is 95% private sector.
You mentioned that you want to encourage as many players in this industry as possible. The Tema Oil Refinery was built several decades ago now but it is not meeting demand. Could someone come in and either build another oil refinery or help to expand the Tema Refinery?
I believe that we should privatize the oil refiner. It would become more efficient as a result. That is what happened with Ghana Telecom. I think the issue is not why the Government should sell the asset – the Government should sell the asset at the right price first of all. Secondly, the Government should ensure that whoever buys the asset is willing to invest in the country as well. Ghanaians are working in this industry and they are providing a service to the industry. The Government is a stakeholder in this industry and it should make sure the industry works for the country, as that is the right direction to go.
The Government must be able to ensure that its objectives and the investors’ objectives are in line. For me, having a second refinery would be good, but it all depends on economics. Why have there been no investments in refineries in Africa? Because it is capital-intensive and the only entities that can invest in refineries are governments, because governments control prices. Investors believe that governments could subsidize. When you talk about subsidies, people normally talk about government not fulfilling the payments of subsidies, not that government subsidies are bad, because all governments around the world subsidize.
In my view, I think that we should encourage more investors to invest in Tema Refinery to ensure that we can upgrade the refinery to be a 200,000 or 150,000 barrel refinery. If Ghana is going to become the Singapore of West Africa, we have to look at how we can make our logistics base here far easier and cheaper to access. Doing business in Ghana needs to be made easier, so that an investor coming into Ghana will not have issues when obtaining licenses or law suits lasting 10 years. It should be very straightforward and you should be told why you cannot obtain a license immediately and what you have to do to fulfill the requirements. If you go on our webpage, all the requirements are there.
I think we have to become more business-friendly, and the only way I think governments can become more business-friendly is to get people and the private sector to come and work with governments so they can raise the bar. They understand what the business people want, and that goes for transparency, corruption and all that. We are in the future. I believe that these things take time, but they need strong leadership in institutions. We need to build strong institutions and this stems from strong leadership.
Because the private sector has strong leadership, we need people from the private sector to come into the public sector. If you do not have a public sector that is driven to produce results, you have got to strive for the private sector. The private sector needs to work with the public sector to get the public sector to understand where they are going, otherwise there is going to be a polarity between the public and private sectors and nobody will be in line with the goals set by the leadership.
What would you tell investors who are interested in hydrocarbons?
First of all, you cannot be sitting in Germany and wanting to invest in Ghana. If you want to win the lottery, you have to buy a ticket, so you have to come to Ghana and understand and meet people and understand the industries, how they are being managed and how you want to get involved. If it is the oil sector, you have to come to the right people – the NPA and the regulatory body for upstream, the Energy Commission for research and information and the ministry for policy. But you have to talk to the right people. We are trying as much as possible to get the right information on the webpage.
We the public sector have to make sure that we are reachable, which means that you have to be able to access all information that you need. We should also be accessible, so that if you require any other information, you can come to us. This also goes back to our embassies – embassies are responsible for ensuring that they promote Ghana. Ghana needs to be promoted.
What has prepared you the most for your career? In addition to your background, what types of leadership qualities do you think are most important to instill in a company, especially a public sector institution?
Leadership is very broad. There are a lot of traits and different types of circumstances require different types of leaders. The NPA has grown, which means that although it is a relatively new agency, the NPA inherited most of what it does from various organizations. The individuals who work in the NPA have been doing this themselves for decades. But now they have been brought under one umbrella, which is the NPA. The actual technical know-how has been accumulated over hundreds of years. The deregulating process has moved, so now we have to look at the policy to see what kind of regulation we want, when we want it and how we want to get it.
The NPA’s role here is to accelerate the deregulation process. That means that we have to work with our stakeholders on the private side (oil refineries, other investors etc.). We have over 30 licenses, so Tema Refinery was one of the licenses. We have a huge downstream industry full of petroleum services providers that we need to work with, but at the same time we work with the ministry. We are more of a lobbyer for the Government on the private side and vice versa. We have to ensure that the 2 worlds come together and we have to find the best route to take.
The bottom line is that the Government will have to agree to let go of certain things, like the Tema Refinery. We need investment and we are doing the right thing to ensure that the errors that have been made with regard to oil refineries will not be repeated. That is why I think bringing the private sector in and regulating it in a manner that encourages them to invest is a good idea. If you know the regulator is behind you, you are not going to supply out of specification products to the consumers. You still need regulation, but you need to get out of the actual commercial agreements, and that is what deregulation is. But there will still be a regulator in the industry to promote government policy and protect the consumer as well as encourage investment. Government is not supposed to be competing with the private sector in certain areas; however in our industry the Government has certain social obligations. But that has to be paid for as well, and that is where the regulator comes in.
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