Restrictive domestic regulation, allegations of corruption and other local interventions have hampered the evolution of the West African bunker sector, but, says Jon Hughes, MD of SABT, there are now some signs of a move towards market liberalisation.
Speaking at Petrospot’s recent online Maritime Week Africa conference, Hughes gave a comprehensive and frank overview of the state of play in some West African marine fuel markets.
He noted that the entry of the National Petroleum Corporation of Namibia (NAMCOR) into the Namibian bunker market had ‘sparked some changes and ruffled some feathers’. The Namibian government has had to bale the company out over the years after sustaining financial losses and its ambitions to become a local bunker player had been met with ‘significant apprehension’, he said.
NAMCOR’s strategy is to become the sole importer of fuel into the Namibian market; it would then have control over the distribution of the fuel to other market players, such as Vivo Energy, Engen or Puma Energy.
NAMCOR also operates a new storage and terminal facility at Walvis Bay, a project which has racked up a cost overrun of some 1.2 billion Namibian dollars. One ‘roadblock’ for the facility is that without the permission of a joint venture between Vivo Energy, Engen and Puma Energy, bunker fuel cannot be pumped to vessels in port. Furthermore, a planned gantry for loading fuel onto trucks is a year late entering operation.
In the light of this stalemate with the joint venture, NAMCOR has had to resort to cabotage to supply fuel: loading the product at the new terminal and moving to the old jetty – an expensive and time-consuming exercise, commented Hughes.
He noted that NAMCOR ‘has the potential to do a good job’ if it can address and control some of the alleged fraudulent practices relating to the local supply chain infrastructure, such as the operations of local agents who are reported to be offering lower fuel prices to buyers after nominations have been placed.
In an attempt to stamp out alleged fraud and corruption in the local market, there is also a temporary moratorium on the issue of bunker licences in Namibia.
There are also ongoing efforts to clean-up and liberalise the bunker market in Angola, said Hughes. For a long period of time, companies have been selling subsidised fuel intended for domestic consumption into the international market, thereby reaping ‘huge profits’.
At present, the Angolan bunker market is dominated by the oil (and gas) company Sonangol, which has the licence to both import and distribute fuel. However, Sonangol is struggling to purchase sufficient quantities of fuel to meet national and bunker sector requirements, and the resulting ‘bottlenecking’ of the market is placing huge constraints on the ability of vessels to source marine fuel, Hughes noted.
Liberalising the market and removing the fuel subsidies – which, Hughes highlighted, would be a huge political issue – would enable more players to buy and supply fuel from Angola’s refineries. As Hughes pointed out, the country’s refining industry produces ‘a fantastic low sulphur, straight run product’.
Of the 65,000 metric tonnes (mt) of bunker fuel produced in Angola, only 15,000 mt are fed into the local market; the rest is exported.
Hughes said that changes to Customs regulations over the issue of bunkering licences have improved the supply situation and market liberalisation offers an opportunity ‘to unlock value into the local bunker market, support jobs and attract vessels’.
The local marine fuels market could also be ‘very competitive’ on price compared to the offshore market, he said.
Moving on to Nigeria, Hughes said that bunker volumes dropped last year as oil and gas projects were put on hold as a result of the impact of COVID-19 on global energy demand. Sales of oil, denominated in US dollars, constitute the majority of Nigeria’s foreign exchange so the country is heavily dependent on a crude oil price upswing for the rebound of its energy sector and wider economic recovery
Ghana has been in a similar position in terms of its oil and gas production during the pandemic. Hughes also noted that the taxation on bunker fuel at Tema is also exacerbating a difficult situation for the country’s marine fuel sector, making it around 30% more expensive than offshore supply. Côte d'Ivoire’s bunker market is also being impacted by the downturn in oil prices, he added.
Hughes also addressed the issue of local content in the bunker markets of the African continent. National authorities are looking to ensure that companies can generate and retain revenue from bunker supply and support their local workforce. He cited the example of Abidjan in Côte d'Ivoire, where companies that supply bunker fuel must be able to show 35% local ownership. This, he said, has impacted on the activities of companies such as Vivo Energy and Puma Energy.
The high cost of the deposit for a licence in the Côte d'Ivoire bunker market, as well as application waiting times that can take up to a year, can be barriers to entry for small, local enterprises – especially in an industry with small margins, said Hughes.
The same situation is being seen in South Africa, he noted. ‘Bunker stems can regularly require capital of $3 million but it is not often that new entrants to the bunker market have $3 million in collateral,’ he said.
One result of this is that companies are under pressure to secure credit and the knock-on effect is that fuel deliveries can be delayed, Hughes noted.
The requirement for local content is well placed, he said, ‘but it cannot be imposed on the bunker market in the same way it has been imposed in the mining industry, for example.
‘It creates a bottleneck in a market struggling to develop… while international shipping companies may choose to get their bunkers from other sources,’ he commented.