70674 Volume III – Lessons Learned LP Gas Sector Improvement Studies Cameroon, Ghana, Nigeria March 31, 2007 .$12 0$,'8*85, GUSAU GOMBE KADUNA ILORIN $%8-$ IBADAN 0$.85', %(1,1 ENUGU &,7< /$*26 2:(55, WARRI CALABAR PORT HARCOURT World Bank / Energy Sector Management Assistance Programme (ESMAP) Copyright © 2007 The International Bank for Reconstruction and Development/THE WORLD BANK 1818 H Street, N.W. Washington, D.C. 20433, U.S.A. All rights reserved Manufactured in the United States of America First printing March 2007 ESMAP Reports are published to communicate the results of ESMAP’s work to the development community with the least possible delay. The typescript of the paper therefore has not been prepared in accordance with the procedures appropriate to formal documents. Some sources cited in this paper may be informal documents that are not readily available. 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CONTENTS Executive Summary...................................................................................................1 Introduction................................................................................................................4 Study Background..........................................................................................4 Study Objective..............................................................................................5 LPG Market Comparison ...........................................................................................6 Introduction ....................................................................................................6 Comparing LPG Markets in Nigeria, Cameroon, and Ghana..........................8 Critical Issues/Strategies/Action Plans – Cameroon ................................................41 Critical Issues/Constraints Summary............................................................41 Strategies/Action Plans ................................................................................44 The Way Forward ........................................................................................50 Critical Issues/Strategies/Action Plans-Ghana.........................................................51 Critical Issues/Constraints Summary............................................................51 Strategies/Action Plans ................................................................................54 The Way Forward ........................................................................................58 Appendix: Post-Power-Point-Presentation Notes List of Tables: Table 2.1: LPG Market Comparison Nigeria, Cameroon, Ghana ...............................9 Table 3.1: Objectives/Targets - Cameroon ..............................................................44 Table 3-2: Critical Issues, Strategies, and Action Plans - Cameroon ......................45 Table 4.1: Objectives/Targets - Ghana ....................................................................54 Table 4-2: Action Plan/Strategies Matrix - Ghana ....................................................55 Abbreviations and Acronyms ESMAP Energy Sector Management Assistance Programme GLPGA Ghana LP Gas Association GSB Ghana Standards Board LPG Liquefied Petroleum Gas MCC Millennium Challenge Corporation MoEN Ministry of Energy NPA National Petroleum Authority Société Camerounaise des Dépôts Pétroliers, the SCDP principal bulk storage company in Cameroon TOR Tema Oil Refinery WLPGA World Liquefied Petroleum Gas Association yr year Units of Measure Kg Kilogram MT Metric Ton PSI Pounds per Square Inch Currency Equivalents Monetary Unit of Ghana; In January 2007, US$1.00 was Cedi, ¢ the equivalent of 9,400¢ Franc de la Communauté Financière Africaine, the FCFA Monetary Unit of Cameroon. In December 2006, US$1.00 was the equivalent of 501.75 FCFA. Executive Summary 1. This report is a sequel to the Nigerian LP Gas Sector Improvement Study of 2004, which was produced by the World Bank Oil and Gas Policy Division with funding under the Energy Sector Management Assistance Programme (ESMAP). The objective of the Nigerian study was to investigate and identify reasons for the failure of the LPG market in Nigeria to live up to its potential, to develop a strategy for reviving Nigeria’s domestic LPG market, and to expand LPG access to all, including to the poor, in Nigeria. 2. In light of the successful outcome of the Nigerian LPG Sector Improvement Study, it has been suggested that lessons learned should be tentatively applied to other countries likely to benefit from similar investigative and analytical work. The main objective in the present study is to identify two or more countries, investigate the situation there, and if and where impediments similar to those in Nigeria are found, to prepare a business proposal for mitigating pertinent problems that currently inhibit the sound development of LPG markets in those countries. 3. The two countries selected for this study are Cameroon and Ghana. A detailed description and analysis of Cameroon has been incorporated as Volume I, “Cameroon LP Gas Sector Study� in this report. A similar analysis for Ghana, VOL II, “Ghana LP Gas Sector Study� is also part of this report. 4. This report, VOL III, pulls together the LPG work that was done in Nigeria, Cameroon, and Ghana, to determine whether the LPG markets in developing countries share certain characteristics and, if so, whether the lessons learned in Nigeria can be applied, in part or in whole, in Cameroon and Ghana as well. 5. Following a brief introductory Chapter 1, the second Chapter in VOL III is a comparison of the LPG markets in Nigeria, Cameroon, and Ghana. In all three countries the LPG industry is characterized by a mix of public and private sector participants. The type of participation and the institutional oversight vary from country to country, but certain weaknesses of LPG markets in cash-poor environments such as they are found in developing countries are repeated again and again. Chief among those weaknesses are incomplete industrial infrastructures, poor legal underpinnings and regulatory oversight, inadequate and sometimes unreliable LPG supply, inadequate distribution and transportation facilities, non-working LPG cylinder policies, neglect of safety issues and others, including lack of access to LPG by the poor. 6. This is shown in some detail in a tabular matrix that lists and compares certain LPG market elements side by side for the three countries here under discussion. The elements that were used include the LPG industry structure, the legal and regulatory structure, the LP Gas supply sector, the LPG distribution infrastructure, and the transportation sector. Also included are LPG cylinders issues, the use of LPG for household cooking and lighting, household appliances, safety, automotive use, investment funding, and access by the poor. A final comparison addresses country-specific issues. A few remarks highlighting similarities and differences in the three subject countries conclude Chapter 2. For more detailed country-specific data on the Cameroon and Ghana LPG markets, the reader is referred to Volumes I and II of this LPG Nigeria, Cameroon, Ghana Page 1 Merklein report. 7. Chapter 3 deals with critical issues, strategies and action plans for the Cameroonian LPG market. The coverage and format of this Chapter, and of the Ghana Chapter that follows, build heavily on the Nigerian ESMAP Study. 8. Chapter 3 opens with a brief discussion of the current status of the Cameroonian LPG market, which has exhibited substantial growth over the last two decades, but at a cost. The tripling of LPG consumption was regionally uneven, leaving out the rural areas which continue to be deprived of LPG accessibility. In addition, the market is generally in a dilapidated condition and in need of rehabilitation and expansion. A lack of attention to safety issues is, perhaps, the weakest link in the market. 9. There is one event that, more than any other, will shape the Cameroonian LPG availability. That is the Equatorial Guinean gas export project, scheduled for completion in 2010, which will inject some 300,000 metric tons of LPG per year into the domestic market. This presents both an opportunity and a challenge. The opportunity is represented by the nearly eight- fold increase in LPG supply, relative to current (2006) demand. The challenge is to expand and improve the market with massive capital investments, so it can absorb the newly available LPG, or most of it, with any remaining volumes slated for export. It would be easy to simply export all of the new LPG, as that requires no infrastructure build-up, but the effect would be the Dutch disease impact which would have all the resources leaving the country with no visible domestic benefits. 10. Just about any sub-sector of the Cameroonian LPG market needs to be improved. To begin with, an improved policy framework that promotes the expansion of the LPG infrastructure and prescribes pragmatic strategies to stimulate private sector investment is absolutely necessary, as is a review and adjustment of the industry structure and the strengthening through a substantial escalation in funding of the country’s regulatory LPG regime, with special attention to the household sector. To boost household LPG consumption, the entire LPG supply chain, from storage facilities and transportation to the distribution network needs to be rehabilitated, upgraded, and expanded. That includes a complete revamping of the LPG cylinder management system. An aging household survey needs to be updated, along the Nigerian ESMAP lines. Household appliances, safety perceptions, the potential for automotive use, and other issues need to be explored through such a survey. Last, but not least, the need for and amount of investment funding to facilitate LPG access by the poor need to be determined and ways to find the required funds need to be explored, through wholly private capital injections, through private partnership projects, through donor actions or, more likely, through a combination of all three. 11. Tables 3-1 and 3-2 spell out a proposed action plan for consideration by participants in a round-table discussion and for the development of a roadmap for LPG market enhancements in Cameroon. 12. Chapter 4 deals with critical issues, strategies and action plans for the Ghanaian LPG market. It, too, opens with a brief discussion of the current status of the LPG market. Many of the shortcomings found in Cameroon are replicated in Ghana, including regional accessibility problems and a generally dilapidated market in need of rehabilitation and expansion. Unlike in Cameroon, the Ghanaian consumer seems to more readily accept LPG as a relatively safe fuel. LPG Nigeria, Cameroon, Ghana Page 2 Merklein 13. There is no windfall event in Ghana, like the Equatorial Guinean gas export project in Cameroon that will provide a substantial boost to LPG supplies in the foreseeable future. That leaves the traditional market rehabilitation and expansion challenge, and the need to revise policies and, even more so, much needed regulations, especially safety regulations. Also needed is an effective industry-wide LPG Association, currently absent, to coordinate the efforts of the various retailers and distributors and to provide a channel of communication with all stakeholders, particularly with the National Petroleum Authority (NPA), which is charged with the implementation of pricing and regulatory issues. The operational weakness of both, the NPA and the Ghana Standards Board (GSB), are at the bottom of the regulatory disarray that the LPG market finds itself in, and both need funding and personnel training. 14. All in all, the Ghanaian LPG supply has been erratic, in part because of operational inefficiencies at the Tema Oil Refinery (TOR) and because of inadequate storage within and outside the refinery. Transportation is limited to road service, which is handicapped by the deteriorated road conditions in much of the country. One notable impediment is the fact that there is no cylinder management system. The end-user is the owner of LPG cylinders which, in addition to a financial burden, is a major contributor to safety problems. These problems are accentuated by a lack of nationally accepted operational and safety standards in the LPG industry. Significant investments will be required in the LPG supply-distribution infrastructure to facilitate end-user access to the product, and barriers limiting access to LPG by the poor will need to be overcome, including financial barriers. 15. While Cameroon has the Equatorial Guinean windfall event, Ghana has its own unique advantage. The country is highly regarded for its political and commercial integrity. It is ranked as the fifth top performer among African Nations (along with Egypt and Senegal) on the 2006 Corruption Perceptions Index, and it has been declared eligible for program assistance by the Millennium Challenge Corporation (MCC), based on that organization’s sixteen-variable integrity rating system. 16. The MCC has signed a $547 million compact with Ghana to fund a poverty- reduction project. This will be achieved through a private-sector led agribusiness development plan that targets the very population that the ESMAP LPG project is focusing on, the poverty- stricken mostly rural population. MCC interventions aim to increase farmer incomes and export earnings by increasing the production and productivity of high-value cash and food staple crops in some of Ghana’s poorest regions and to enhance Ghana’s agricultural products in regional and international markets. The two largest items in the assistance budget are agriculture development ($241 million) and transport development ($143 million). The first of these will stimulate demand for LPG by providing purchasing power to rural regions and the second item will improve the supply infrastructure by enhancing Ghana’s LPG delivery system. 17. Tables 4-1 and 4-2 spell out a proposed action plan for consideration by participants in a round-table discussion and for the development of a roadmap for LPG market enhancements in Ghana. LPG Nigeria, Cameroon, Ghana Page 3 Merklein 1 Introduction Study Background 1.1 In 2001, the World Bank Oil and Gas Division and the World LP Gas Association (WLPGA) undertook a Regional LP Gas Study that revealed a very low per-capita usage of LP Gas in Nigeria compared with neighboring countries in West Africa. Preliminary investigations of the Nigerian LP Gas sector indicated an inadequate supply to the domestic market, lack of access to the existing infrastructure, and shortcomings in the institutional and regulatory framework. It asserted the need for a follow-on study that would take an in-depth look at the structural reasons for this market failure and that would propose realistic ways and means to bring Nigeria’s LP Gas consumption in line with its resource-based capabilities, and closer to the Region’s average. 1.2 The proposed follow-on study was initiated by the World Bank in 2002, under the auspices of its Energy Sector Management Assistance Program. A fact-finding mission to Nigeria developed a study work plan in January of 2003. By December of that year, a preliminary report was submitted to a stakeholders workshop in Abuja, where an in-depth discussion led to the adoption of the report by all interested parties, including the Government of Nigeria. The final report, titled “Nigerian LP Gas Sector Improvement Study�, was published in March of 2004. The report was among the most detailed analyses to date of a country’s LPG market. As part of its analysis of critical LPG issues in Nigeria, the report included the findings of a household survey, and it contained a set of strategies and related action plans, as well as a roadmap to bring the sector back to sustainable development. The Government of Nigeria fully endorsed the plan and set up a steering committee to pilot, promote, and monitor its implementation. Today, the Government is at an advanced stage of privatizing its LPG market. 1.3 In light of the successful outcome of the Nigerian LPG Sector Improvement Study, it has been suggested that lessons learned should be tentatively applied to other countries likely to benefit from similar investigative and analytical work. Four countries have been selected as potential candidates for such studies. Two of these countries were dropped early on. In Papua New Guinea, the selected in-country consultant opted for other energy consulting opportunities and informed the World Bank too late to search for and appoint another consultant in the country, and in Ecuador the in-country consultant dropped out for unexpected medical reasons. That left two countries, Cameroon and Ghana, as viable LPG study candidates. The studies printed as Volume I and Volume II in this publication reflect the work of the respective country consultants, Mr. Joël Nkoto-Angoula in Cameroon and Mr. Ishmaël Edjekumhene in Ghana. LPG Nigeria, Cameroon, Ghana Page 4 Merklein Both countries clearly have failing LPG markets, generally for the same or similar reasons as those encountered in Nigeria. This report analyzes what the LPG market failures in Cameroon and Ghana have in common and where and how they coincide with those in Nigeria. By extension, it also demonstrates where similar LPG problems are likely to arise in other developing countries and points to ways in which they can be identified and resolved. Study Objective 1.4 The objectives of this study are to: • Analyze the LPG markets in Cameroon and Ghana, in light of insights gained from the Nigerian experience, • Investigate and identify reasons for the LP Gas market failures in Cameroon and Ghana, • Develop a strategy for developing and expanding LP Gas markets in the two subject countries, and • Expand LP Gas access to all, including to the poor. 1.5 The target is to achieve per capita LP Gas consumption equivalent to or greater than the average for comparable West African countries. According to data in the World Bank/WLPGA Study for West Africa this is approximately 3.7 kg per capita per year, compared to 1.9 in Cameroon and 2.1 in Ghana. LPG Nigeria, Cameroon, Ghana Page 5 Merklein 2 LPG Market Comparison Introduction 2.1 In all three countries, Nigeria, Cameroon, and Ghana, the LPG industry is characterized by a mix of public and private sector participants. The type of participation and the institutional oversight vary from country to country, but certain weaknesses of LPG markets in cash-poor environments such as they are found in developing countries are repeated again and again. Chief among those weaknesses are incomplete industrial infrastructures, poor legal underpinnings and regulatory oversight, inadequate and sometimes unreliable LPG supply, inadequate distribution and transportation facilities, non-working LPG cylinder policies, neglect of safety issues and others, including lack of access to LPG by the poor. 2.2 The fuel of default in a poverty-stricken cash-starved non-market subsistence environment is wood. In all three countries here under consideration, this is the dominant cooking fuel. In Ghana, for example, wood represents 56% of the country’s source of cooking fuel, not counting charcoal, which represents another 32%. In Cameroon, wood represents 61% of the country’s total energy usage, followed by oil products at 21%. The advantage of wood is that it is “free�. In a non-market society, and looked at narrowly, the cost of wood reflects the opportunity cost of the person gathering it, and that may well be zero if that person lives in a state of actual or de facto unemployment and has idle time to devote to fuel gathering. In a larger sense, of course, the use of wood has serious consequences that transcend the individual using it, such as desertification, health problems and others that impose real current and future costs on society at large and on the Government that will naturally attempt to alleviate these problems. 2.3 The many disadvantages of using wood for cooking are well documented. They include time lost in the daily search for fuel, health hazards, deforestation and desertification in the northern part of all three subject countries where wood is systematically being cut down as a matter of survival. Used as cooking fuel, wood is only 42% as efficient as LPG, and it emits two-and-a-half times the amount of greenhouse gas, the principal contributor to global warming. Illnesses caused by the inhalation of wood fires include acute lower respiratory infection, chronic obstructive pulmonary disease, lung cancer, pulmonary tuberculosis, asthma and cataract. Indoor air pollution caused mainly by smoke generated by incomplete LPG Nigeria, Cameroon, Ghana Page 6 Merklein combustion of wood fuels in poorly ventilated kitchens is estimated to kill annually over 1.6 million people, predominantly women and children, throughout the world. 2.4 Thus it is not surprising that efforts are underway worldwide to substitute a cleaner-burning fuel for wood. LPG has all the attributes to qualify as the substitute fuel of choice. To quote the World LP Gas Association: • LP gas is portable. It can be transported, stored, and used virtually anywhere in the world. It does not require a fixed network and will not deteriorate over time. • It is clean. LP Gas is very clean burning and has lower greenhouse gas emissions than any other fossil fuel when measured on a total fuel cycle. Originating mainly from natural gas production, it is also non-toxic and will not contaminate soil or aquifers in the event of a leak. • It is accessible. LP Gas can be accessible to everyone everywhere today without major infrastructure investment. Nothing needs to be invented and there are enough reserves to last many decades. • It is efficient. LP Gas is cost-effective, since a high proportion of its energy content is converted into heat. LP Gas can be up to five times more efficient than traditional fuels, resulting in less energy wastage and better use of our planet’s resources. • It is convenient. LP Gas is a multi-purpose fuel. There are more than a thousand applications, from cooking, heating, air conditioning and transportation, to cigarette lighters and even the Olympic torch. 2.5 Removing market barriers and subsidization are the two principal instruments in the economist’s tool box that are employed in promoting the use of goods or services. The removal of barriers can range from opening markets to competition through targeted legislation that includes the privatization of most market activities, introducing and enforcing tough but uniform regulations covering market concentration, health, safety, and environmental aspects, encouraging investments in infrastructure developments, developing and applying anti- corruption measures, and others. The instruments that are targeted to remove market barriers will be discussed in some detail later in this study. They are conceptually easier to understand than subsidies and, given the host country’s political will and ethical sincerity, they are easier to apply. 2.6 It is in the realm of subsidies that conceptual problems arise. Simply allocating money to a section of society to assist their members in buying otherwise unaffordable fuel without concomitant efforts to raise their opportunity costs will lead to expensive and unsustainable developmental efforts. Unemployed people who have their cooking fuel or other products provided wholly or partially free of charge quickly become dependent on the subsidy. Unless broken by securing employment that will allow them to enter or re-enter the market as full participants, selling their services and buying commercial goods, this dependency will become a financial liability to the subsidizing agency that is ultimately funded by taxpayers. If shared by a substantial number of subsidy recipients, this policy will eventually create a political liability. Expectations, habituation, and LPG Nigeria, Cameroon, Ghana Page 7 Merklein organized political resistance will make it nearly impossible to stop the subsidy, as Nigeria has found out in its energy markets. Forced unto the people, the weaning of their dependency may well lead to unrest, perhaps violence. 2.7 Securing employment for the unemployed or underemployed is an act of raising their opportunity cost. Fully employed people do not have the time to traverse ever larger distances to gather wood for cooking, and they have the cash it takes to acquire an alternative fuel in the market. Among those alternative fuels LPG stands out as one of the best options. In addition to the attributes listed above, LPG is gigajoule for gigajoule among the most efficient fuels. Unlike natural gas, it does not require a complex distribution system and thus has very little overhead for the consumer to absorb in the retail market. 2.8 It is an axiom of economics that a given commodity, if subsidized in preference to a competing commodity, will generate market aberrations. In Nigeria, kerosene was being subsidized while LPG was imported with substantial import duties, causing LPG to be displaced in the market and newly constructed LPG storage facilities to deteriorate without ever being put to use. Worse, a significant LPG surplus in Nigeria was exported if produced in the vicinity of convenient export facilities, and flared if not. More will be said later on with regard to subsidy policies. Suffice it here to point out that these policies breed inefficiencies and market distortions and are capable of presenting grave and nearly unsolvable political risks. Comparing LPG Markets in Nigeria, Cameroon, and Ghana 2.9 LPG markets in developing countries have many characteristics and weaknesses in common. Some of these characteristics and weaknesses are listed in Table 2-1, for Nigeria, Cameroon, and Ghana. The Nigeria data come from the ESMAP LP Gas Sector Improvement Study, while the data for Cameroon and Ghana have been brought in from Volumes I and II in this report. Comparing the market environment in Cameroon and Ghana to that of Nigeria and reviewing the recommended Nigerian market corrections will lead, it is hoped, to similarly effective policy recommendations for Cameroon and Ghana. 2.10 As a general rule, market deficiencies in developing countries, including Nigeria, Cameroon, and Ghana, occur in just about every sector, as Table 2.1 reveals in summary fashion. The bulleted text following Table 2.1 provides supporting details from the three source reports. LPG Nigeria, Cameroon, Ghana Page 8 Merklein Table 2.1: LPG Market Comparison Nigeria, Cameroon, Ghana Sector Nigeria C Ghana a m e r o o n LPG Nigeria, Cameroon, Ghana Page 9 Merklein LPG Industry LP Gas market is highly fragmented. Need for a single representative M Mix of public and private Structure “LP Gas Association�. Refineries are owned by Government. i sector participants. Sole Distributors and retailers are private. Imports permitted since 1999 x refinery 100% state-owned is deregulation. Private gas processing plants are coming on line. t exclusive LPG importer. LPG u prices controlled r (“stabilized�). Diverse e distribution and marketing companies, 27 in all. Ghana o has no National LP Gas f Association. g o v e r n m e n t , q u a s i - p u b l i c a n d p r i v a t e LPG Nigeria, Cameroon, Ghana Page 10 Merklein o Legal and The legal framework for the sector is very weak and needs serious T There is no specific legislation Regulatory Structure upgrading and consolidation. Principal regulator is Dept. of Petroleum h governing the LPG industry in Resources. It emphasizes licensing of facilities and statistics, neglects e Ghana. The National regulatory oversight in operations. Petroleum Authority Act o provides the i framework/legislation for l governing the down stream - petroleum industry including p LP Gas. Need to develop and r enforce LPG regulation. o d u c t d i s t r i b u t i o n s e c t o r i s i n c r e a s LPG Nigeria, Cameroon, Ghana Page 11 Merklein i n g l y m a r k e t - o r i e n t e d w i t h t h e s u p p r e s s i o n o f LPG Nigeria, Cameroon, Ghana Page 12 Merklein c e r t a i n m o n o p o l i e s a n d s u b s i d i e s . T h e s t o r a g e LPG Nigeria, Cameroon, Ghana Page 13 Merklein c o . n o w g r a n t s u n i m p e d e d a c c e s s t o i t s s t o r a g e LPG Nigeria, Cameroon, Ghana Page 14 Merklein f a c i l i t i e s . N e e d t o p r o m o t e a c c e s s t o L P G i n LPG Nigeria, Cameroon, Ghana Page 15 Merklein t h e N o r t h e r n p r o v i n c e s LP Gas Supply LPG prices prohibitively high due to high import duty, VAT, shipping, L Refinery inefficiencies have and demurrage costs. Removal of import duty and debottlenecking P led to unreliable supplies. import facilities would immediately reduce costs and enable marketers G Ghana relies heavily on to reduce prices to consumers by nearly half. imports and this is expected to i continue until conditions at the m refinery improve. Storage p facilities need to be developed o in strategic locations in the r country. t s n o w r e p r e s e n LPG Nigeria, Cameroon, Ghana Page 16 Merklein t 3 0 % o f c o n s u m p t i o n t o s u p p l e m e n t d o m e s t i c r e LPG Nigeria, Cameroon, Ghana Page 17 Merklein f i n e r y s u p p l i e s . P r i c e s a r e s t i l l c o n t r o l l e d a LPG Nigeria, Cameroon, Ghana Page 18 Merklein n d p a r t i a l l y s u b s i d i z e d , f o r t h e p u r p o s e o f p r LPG Nigeria, Cameroon, Ghana Page 19 Merklein o v i d i n g a l o w e r - c o s t f u e l t o t h e p o o r . P r i c e s LPG Nigeria, Cameroon, Ghana Page 20 Merklein r e m a i n i n f l e x i b l e b e c a u s e o f t h e w a y t h e y a r e LPG Nigeria, Cameroon, Ghana Page 21 Merklein s t r u c t u r e d . LPG Distribution There is an extensive distribution infrastructure capable of supplying a D The refinery, which is the sole Infrastructure much enlarged market. Debottlenecking import facilities at the port of i bulk supplier of LPG in the Lagos is a first priority. Government-owned butanization depots are s country, has a storage capacity being privatized as a result of the ESMAP Report. t for a only week’s r consumption. There are no i downstream LPG depots in b any of ten regions. There is u therefore an inadequate t strategic reserve for the supply i of LPG in Ghana. o n o f L P G i n C a m e r o o n i s LPG Nigeria, Cameroon, Ghana Page 22 Merklein h i g h l y u n e v e n . T h r e e o f C a m e r o o n ’ s t e n P r o v i n c LPG Nigeria, Cameroon, Ghana Page 23 Merklein e s c o n s u m e 9 4 % o f t h e L P G s o l d t o h o u s e h o l d s . LPG Nigeria, Cameroon, Ghana Page 24 Merklein T h e r e a r e s e v e r e s t o r a g e s h o r t a g e s a t t h e r e f i LPG Nigeria, Cameroon, Ghana Page 25 Merklein n e r y a n d a t t h e b u l k s t o r a g e c o m p a n y ( S C D P ) , w LPG Nigeria, Cameroon, Ghana Page 26 Merklein h o s e s t o r a g e c a p a c i t y h a s r e m a i n e d u n c h a n g e d f LPG Nigeria, Cameroon, Ghana Page 27 Merklein o r 2 0 y e a r s Transportation There is an established pattern of LP Gas transport by ship from coastal T Currently, road transport is the refineries to receiving facilities in Apapa (Lagos). Inland transportation h only mode for LPG of LP Gas is by road and is likely to remain so in the immediate future. e distribution in all parts of the Road transport is at present the only practical on-land method, given country. There are no LPG the limitations of the rail system. t depots in Ghana apart from the r limited primary storage at the a refinery, which means that all n retailers have to drive to Accra s for supplies. There exists a p huge potential for private o participation in the r construction of primary LPG t depots. a t i o n o f L P G i s p e r f LPG Nigeria, Cameroon, Ghana Page 28 Merklein o r m e d b y s e a , b y r a i l w a y a n d b y r o a d . C o a s t a l LPG Nigeria, Cameroon, Ghana Page 29 Merklein t r a n s p o r t a t i o n t a k e s p l a c e b e t w e e n t h e r e f i n e r LPG Nigeria, Cameroon, Ghana Page 30 Merklein y a n d t h e p r i m a r y s t o r a g e f a c i l i t y i n D o u a l a , LPG Nigeria, Cameroon, Ghana Page 31 Merklein w h i l e r a i l w a y t r a n s p o r t a t i o n i s u s e d f o r t r a n s LPG Nigeria, Cameroon, Ghana Page 32 Merklein f e r s b e t w e e n t h e t w o p r i m a r y s t o r a g e d e p o t s . M LPG Nigeria, Cameroon, Ghana Page 33 Merklein o s t o f t h e L P G d i s t r i b u t i o n i n C a m e r o o n i s d o n LPG Nigeria, Cameroon, Ghana Page 34 Merklein e b y w a y o f u s i n g b o t t l e d g a s . LPG Nigeria, Cameroon, Ghana Page 35 Merklein Sector Nigeria Cameroon Ghana Cylinders Most of the cylinders in circulation are Gas cylinders are owned by marketers. Most cylinders in circulation are in poor in poor condition from lack of proper Consumers pay a deposit, which varies condition due to the absence of a maintenance and renewal. The country because there is a lack of bottles in the cylinder management system. The has the capacity to manufacture and country. For example, in Yaoundé, the current cylinder ownership arrangement refurbish steel cylinders. The ownership deposit for a 12.5 kg bottle may vary allows end-users to own their cylinders. of cylinders, the right to refill them, and from 10,000 to 25,000 FCFA ($20-$50) Two cylinder manufacturing companies responsibility for their maintenance and in the hinterland, it ranges from have the capacity to manufacture a should be codified and enforced 15,000 to 30,000 FCFA. limited range of cylinder sizes. Household Cooking A household survey revealed a LPG in Cameroon is mostly consumed Although the household sector is the and Lighting significant suppressed demand for LPG. in households, at 93% of the gas sold. At largest consumer of LPG in Ghana, only Many households are forced to use less than 1% of total energy use, LPG 9% of the total population uses the fuel kerosene when the preferred fuel is LPG. remains a marginal commercial energy for cooking. LPG is rarely used for Additional uses of LPG would help the source. Its availability is limited in some lighting and refrigeration. Kerosene, viability of the industry and reduce the Northern Provinces, where the per-capita followed by electricity, are the main hardship of electricity outages. gas consumption averages 0.3 kg/yr. sources of lighting in Ghana. Household Survey Attitudes toward LP Gas are generally A survey initiated by the a third-party No household survey was initiated for favorable. Some rural dwellers did not organization showed that 30.1% of the this study and no previous third-party know the product. Of the households non-poor households consume 93.7% of surveys could be found. surveyed, 20 percent used LPG as the the total residential LPG supply, and fuel most used in cooking. Many LP Gas 3.7% of the poor households consume consumers are discouraged by the 6.3%. perceived high cost Household Appliances Burners and rings are often imported and LPG is mostly used for cooking. A There are primarily two types of LPG later incorporated into cooking stoves, variety of devices are used, ranging from end-use appliances in Ghana: locally water boilers, and the like. The assembly simple gas plates to stoves with ovens. fabricated stoves which run as low as work tends to be done in craft shops. The use of LPG for lighting or $22 for single burner stoves, and There is no industrial-scale gas cooker refrigeration remains weak. Gas plate imported western type stoves at $200- manufacturer operating in Nigeria but a prices range from 10,000 to 30,000 $300. Commercial gas ovens are in wide limited range of imported cookers may FCFA ($20-$60). Gas stove prices vary use among bread bakers and producers be found in stores in the large cities. from 100,000 to 500,000 FCFA ($200- of confectionary in the cities and major $1,000) town centers. Safety Image The authorities tend to focus on Serious safety problems exist in all There are genuine safety concerns in the technical and safety aspects of plant phases of LPG operations. A field supply/distribution chain and the operation and cylinder manufacture. The inspection revealed numerous safety handling of LPG by end-users. However, household survey disclosed a disturbing violations at depots. Leaks and theft are safety is not a major inhibiting factor in level of safety problems in households, not uncommon at rail loading stations. the use of LPG in the country. Rather, including deteriorated cylinders, random Tank truck violations range from the lack of appropriate legislation and refilling practices and lack of policing speeding to poor equipment regulation continues to be a bane to the final sellers. maintenance. There were 20,955 private-sector investment in the LPG accidents in households in 2004, that sub-sector. killed 279 people and injured 4,270. LPG Nigeria, Cameroon, Ghana Page 36 Merklein Sector Nigeria Cameroon Ghana Automotive Use Not addressed in ESMAP Study The use of LPG as an automotive fuel is The use of LPG in automobiles in Ghana not expected to occur any time soon, is generally believed to be on the because of safety problems and because ascendancy. However there are no of the poor condition of the 300,000- official statistics regarding the number vehicle fleet in circulation of vehicles running on LPG as most have been retrofitted illegally. Investment Funding Sector recovery will call for significant By 2010, when the Equatorial Guinean The weak supply/distribution investment in physical assets and in export project is completed, the country infrastructure in Ghana’s LPG sector is institutional development and training. will have at its disposal some 300,000 reflected in the low LPG per-capita use External investment will be required if MT of LPG per year, part of which will of 2.8kg/yr. An estimated US$78 million sector recovery and access to the poor be used for domestic consumption. This in hardware (cylinders and cook stoves) are to be achieved without inordinate will require the investment of 78.5 will be required to provide 1.6 million delay. Certain initiatives, such as LP Gas billion FCFA ($157 million) in all households with LPG over the next ten- production, will meet commercial sectors of the Cameroonian LPG market, year period. This does not include the investment criteria but certain others, not including strengthening of regulatory cost of expanding the refinery capacity such as cylinder renewal, may not. authorities and activities. and of enhancing the distribution/storage infrastructure. Access by the Poor An abundant supply of LPG will help to With 40% of the Cameroonians below In Ghana, approximately 90% of all revitalize the industry and extend the 2001 poverty line of US $1.08 per households rely on wood fuels for availability geographically and across day, and only 3.7% of the poor using cooking. The rising retail price of LPG socioeconomic groups. Affordability, LPG, access by the poor is very low. and the high initial outlay are the however, will require the whole gamut Cameroon committed itself, as part of its principal factors for the low penetration of targeted facilitating measures such as structural adjustment program, to of the product among the poor. The lowering the costs for cylinders and eliminate subsidies on domestic gas, yet absence of an efficient and reliable equipment by tax and duty exemption stabilization and equalization taxes drive supply chain for LPG in many areas is and ready access to soft financing. up the cost of LPG. another key barrier to the use of the fuel. Country-Specific Issues Nigeria is literally drowning in LPG and Cameroon will turn from an LPG deficit Having no oil or gas production to speak it has a substantial, if unused and to a surplus in 2010, when the Equatorial of, Ghana is totally dependent on partially dilapidated, distribution Guinean gas export project is completed. imports for all hydrocarbon fuels. The infrastructure. ESMAP’s But the country has a weak and West African Gas Pipeline, on the point recommendations to privatize the LPG regionally scattered infrastructure, and it of completion, cannot compete with market will almost certainly be has a perceived corruption problem that LPG, especially not in rural areas. successful, if pursued with vigor and it will have to overcome to attract Ghana will need to both rehabilitate and integrity. foreign investors. expand its LPG infrastructure. In its favor is Ghana’s vigorous pursuit of market liberation and financial support of the Millennium Challenge Corp. which is targeting the agricultural sector, for a perfect match with the LPG project. LPG Nigeria, Cameroon, Ghana Page 37 Merklein • The LPG Industry Structure is generally characterized by mixed government and private ownership, the latter at times with monopolistic market dominance by one company. Exclusive import licenses have in some cases yielded to partial import concessions and to free access regimes, under pressure from foreign investors. Market fragmentation is prevalent, with flight-by-night operators working side by side with serious and safety-conscious companies that are in for the long haul, especially international oil companies. However, oil companies have been know to withdraw from markets because the precarious safety situation leaves them open to liability risks they do not care to assume. Marketers in the LPG industry often do not have LP Gas Associations to represent their interests vis-à-vis the government or the public. Such an association exists in Nigeria, but not in Ghana. It exists in Cameroon, but under government (that is National Oil Company) auspices. • The Legal and Regulatory Structure is generally weak. When the legal framework is missing or inadequate, regulatory enforcement is necessarily flawed. Oftentimes, the regulator resides within a Ministry that has a hard time differentiating between policy- making, which is its job, and regulating, which in a western environment it is not. Regulatory independence is often viewed as a foreign concept. Even in those cases where a reasonable regulatory authority exists, it generally lacks the funding to secure the equipment and to provide the personnel training it needs for effective enforcement. • The LPG Supply Sector is often unreliable which, in Ghana for example, has caused consumers to go back from LPG to the more reliable wood fuel (wood or charcoal). The reasons for the unreliability of LPG supplies are manifold. In Nigeria, the refineries are the principal bottlenecks in part because they are not operating at capacity because of their deteriorated condition and in part because of insufficient evacuation facilities. Offloading harbors also present problems for various technical reasons. Refinery inefficiencies are to blame in Cameroon and Ghana for LPG supply bottlenecks. Paradoxically, price stabilization and equalization policies have generally caused prices generally to be higher than they would be without them, and they have introduced rigidities in LPG markets that hamper competitive market activities. • The LPG Distribution Sector is often faced with insufficient or inadequately spaced depots. In Ghana, for example, there are no primary LPG depots outside the refinery in Accra, which means that all retailers have to drive to Accra and wait in long lines to procure their products. Similar deficiencies in the transportation sector will be discussed below. Paradoxically, on the retail side the LPG distribution sector often suffers from extreme competition, if such a thing exists. It is generally neither difficult nor expensive to enter the LPG retail business, where the almost total absence of safety enforcement allows marketers to cut corners. That includes inadequate maintenance of equipment, insufficient training of personnel and careless handling of cylinders. • Cylinders are owned by marketers in some LPG markets, (Nigeria and Cameroon, for example) and by users in others (Ghana). Either way, inadequate regulatory enforcement permits the circumvention of certification and periodic re-certification. In some instances, even though there are domestic cylinder manufacturing facilities as in Nigeria, LPG Nigeria, Cameroon, Ghana Page 38 Merklein Cameroon, and Ghana, used cylinders of questionable quality are being imported and put in circulation. • Household Cooking is the dominant use of LPG in all three countries here under discussion. In Nigeria, where pricing policies has been favoring kerosene, LPG comes in second after kerosene as the dominant cooking fuel. Still, to the extent that LPG is used, it is used almost exclusively for cooking. In Cameroon, LPG is an insignificant source of energy overall, at less that one percent of energy used nation-wide. However, almost all of the little that is used, 93% of it, goes for cooking. The same holds true, at slightly higher utilization percentages, for Ghana. LPG and kerosene are the two cooking fuels that can be delivered without an expensive overhead delivery system. Thus both lend themselves for use in scattered rural areas. Pricing, more that anything else, is likely to determine consumer preferences, which mandates special attention to the pricing policies of both, lest the signals be distorted and the fuels misallocated. • The Household Survey that ESMAP conducted in Nigeria yielded significant insights as to LPG user and marketer preferences. For example, it led to the discovery of a significant suppressed demand and to attendant investment opportunities that probably would have gone unnoticed otherwise. Even though a casual third-party survey was conducted in Cameroon, the Nigerian experience suggests that a formal LPG survey along Nigerian lines be conducted anew in Cameroon. This holds even more true for Ghana, where no consumer survey is available to guide future policy analyses. • Household Appliances are generally available in a range of sizes and qualities. They are imported or manufactured in commercial plants or, at lower prices, in local craft shops, were they are relatively “inexpensive�, if that term can be applied to an item that costs $20 and that a buyer whose income barely exceeds a dollar a day must purchase. That is the case in Cameroon, where 40% of the population lives below the poverty line. Of course, a dollar a day only covers cash income. It does not include non-market income, which probably represents ninety or more percent of the income generated in very poor households. Still, $20 is the equivalent of three weeks of a poor person’s cash income. Add to that the cylinder deposit and fuel, which are market items and require cash payment, and the enormity of the barrier to entry by the poor comes into perspective. • Safety is, perhaps, the most disturbing aspect of LPG gas use in developing countries. Clearly, at an atmospheric boiling pressure of close to 100 PSI at 80 degrees Fahrenheit, LPG (70% propane and 30% butane, the Ghana standard) must be handled with caution. Pressure vessels and pressure regulators are standard equipment in containing and using LPG, and they must be treated with respect. For lack of care by users or because of regulatory shortcomings by the authorities, generally both, the use of LPG is not anywhere near as safe in developing countries as it is in industrialized nations. This is an area that needs urgent attention in all three countries here under discussion. 20,955 accidents and 279 people killed in Cameroon in one year is unacceptable on human grounds and a disincentive to using the fuel on commercial grounds. This kind of safety record discourages people from using LPG, thereby limiting market expansion and foreclosing foreign or domestic investments in the market. LPG Nigeria, Cameroon, Ghana Page 39 Merklein • Automotive Use of LPG is not widely accepted in developing countries. There is market potential, given the growing number of cars in circulation and the low expense of using LPG as an automotive fuel, but cars are often in poor condition, and converting them to LPG is dangerous. In Ghana, for example, there are a number of retrofitted cars, but the retrofitting is generally done illegally and clandestinely, so that there are no statistical data available to assess the market potential. • Investment Funding to rehabilitate or expand LPG markets is expensive. The ESMAP Study summed up the problem correctly when it said that the rehabilitation and expansion of the Nigerian LPG market will call for significant investment in physical assets and in institutional development and training. External investment will be required if sector recovery and access to the poor are to be achieved without inordinate delay. Certain initiatives, such as LP Gas production, will meet commercial investment criteria but certain others, such as cylinder renewal, may not. One credible estimate, Cameroon, suggests that tripling LPG consumption from 44,000 to 122,000 MT per year over the next 20 years requires an investment of $157 million, with more than 86% going to storage, transportation and cylinders. This estimate includes a modest amount of promotion (3.8%), but it does not include typical consumer charges such as the cost of appliances, nor does it include the expense of setting up, equipping and training an effective regulatory authority. The problem, generally, is that it is easy to discern non- functioning deteriorated hardware and to asses what is needed and what it costs to rehabilitate it, but non-functioning regulation is much harder to cost out and fix. Ideally, an independent regulatory authority should be self-funding, with operating cash generated through license fees. Whether that is feasible in a developing country deserves discussion. • Access by the Poor is the most urgent and challenging task in developing LPG markets. Significantly, the ESMAP Study recognizes the difficulties faced by poor households in acquiring LPG appliances, making deposits for cylinders and paying cash for fuel, and they recommend a series of steps to alleviate the problem, but there is no suggestion of subsidies. There is only the recognition that, “without subsidy or soft financing, the initial cost of becoming an LP Gas consumer will be a formidable barrier to access for the poor�. Such subsidies have raised prices and brought inflexibility to markets in Cameroon and Ghana and, in combination with misconceived import duty policies, they have led to severe market distortions in Nigeria. LPG Nigeria, Cameroon, Ghana Page 40 Merklein 3 Critical Issues/Strategies/Action Plans – Cameroon Critical Issues/Constraints Summary 3.1 Introduction: Based on the methodology developed in the ESMAP Study and the findings of the country consultants in Volumes I and II, a tentative delineation of critical issues and strategies/action plans is offered here in two separate chapters. This Chapter deals with the Cameroonian LPG market. A discussion of the Ghanaian market follows in Chapter 4. The format for both closely follows the format set forth in the ESMAP Study. Following review and discussion with government and industry representatives of the current LPG situation and proposed strategies to stimulate LPG consumption in both countries, it is suggested that a detailed roadmap be developed and implemented to translate the policy proposal into reality. 3.2 Objectives: Lessons learned from the ESMAP Study and findings developed by the Cameroonian in-country consultant point to the need for massive improvements in the LPG supply and distribution infrastructure and practices if the fuel is to be made available in all parts of the country, particularly to the poor in the northern regions. In addition, there is a need for demand stimulation once LPG is made accessible. It is thus important that, as the supply and distribution infrastructure for the LPG industry is improved, steps be taken to stimulate demand for the product in all parts of the country. 3.3 Current Status: Even though the Cameroonian LPG market has grown substantially over the years, it has failed to fully achieve its potential. Total LPG consumption has more than tripled over the last twenty years and per-capita consumption has doubled, but much of the country’s associated gas is still being flared and will continue to be flared for another 4 years, until a major associated-gas recovery project is completed. Perhaps the greatest hurdle Cameroon still has to overcome is the achievement of a deeper and more evenly divided market penetration. Practically no LPG is used where it is needed most, in the Far North Province where the per- capita consumption is 0.1 kg/yr. Efforts to stabilize the domestic price of LPG in the face of volatile international markets have been partially successful, but they have introduced a rigid pricing mechanism that keeps domestic market forces at bay, and they have raised prices. This has led to capital shortages in the industry and to shortages and obsolescence in equipment, which resulted in sluggish growth and uneven regional use patterns. In response, there have been suggestions regarding the need to compel industry to expand into areas where, under the current system, little LPG is being delivered. Mandatory market adjustments generally signal the absence of effective incentives. If imposed, they would merely compound the existing capital shortage. The one area that does require compulsory action is the enforcement of safety and other regulations. A review of the current regulatory oversight mechanism is needed, including a LPG Nigeria, Cameroon, Ghana Page 41 Merklein determination of the composition and regulatory authority of the oversight board, its independence and non-involvement in operational activities, and its ability to develop and impose sanctions. 3.4 Policy: The government’s LPG policy cannot be said to have achieved the desired result of ensuring improved access by all Cameroonians and safeguarding the integrity of the industry. Most operators in the LPG industry have not lived up to expectation with regard to adhering to standards and regulations and, most importantly, protecting lives and property. That policy should also be designed to help elevate the LPG industry to an improved level of operational performance. 3.5 Industry Structure: The three major participants in the Cameroonian LPG market are the government, quasi-public corporations, and private operators. While the government is clearly committed to move the industry away from government ownership and towards relatively unimpeded private-enterprise markets, its presence and influence in the market continue to be pervasive. 3.6 Legal and Regulatory Structure: A number of laws, decrees, and orders govern every aspect of the LPG sector. Among them, the Caisse de Stabilisation des Prix des Hydrocarbures under the Ministry of Trade is in charge of regulating financial aspects of the LPG distribution sector, where it operates the country’s price stabilization and equalization programs. Meanwhile, the Ministry of Water and Energy is the lead agency for all administrative and technical activities of the petroleum products industry, including the development and implementation of legislation and oversight responsibility of all regulatory activities in the petroleum products sector. Both Agencies are discussed in more detail later in this Chapter. Underfunded and undertrained, the regulatory authority needs to be overhauled and welded into an effective enforcement agency. 3.7 Demand/Supply: Essentially all of the LPG consumed in Cameroon is used by the household sector. Under almost any scenario, LPG consumption is expected to rise substantially over the foreseeable future, which gives rise to concern how the increase in demand will be accommodated. The completion of the ongoing associated-gas project to capture natural gas currently flared at the wellhead, to strip it and ship the methane components to Equatorial Guinea for liquefaction and export, will create a new source of supply of some 300,000 MT of LPG per year for consumption in Cameroon. While this is an extraordinary opportunity, it is also a challenge since such a dramatic increase in LPG availability will require substantial investments to handle them. It will also require that the build-up of regulatory effectiveness begin now. 3.8 Distribution Infrastructure: The entire LPG supply chain, from storage facilities and transportation to the distribution network is underdeveloped and in urgent need of upgrading, rehabilitation, and new capacity development. The principal storage company in Cameroon, (Société Camerounaise des Dépôts Pétroliers, or SCDP), has not expanded its storage capacity in 20 years. As of 2004, SCDP storage capacity was 3,077 MT below legal requirements. Similar problems exist in coastal transportation, where there is a shortage of safe (double hulled) marine vessels, and in railway and road transportation where serious regulatory and safety problems place equipment and people in jeopardy. 3.9 Cylinders: The country has no cylinder management system in place. Many of the cylinders in circulation are in poor condition and are either due for maintenance or disposal. Cylinders are owned by marketers and consumers pay a deposit for their use. The amount of that LPG Nigeria, Cameroon, Ghana Page 42 Merklein deposit varies because there is a lack of bottles in the country. For example, in Yaoundé, the deposit for a 12.5 kg bottle may vary from 10,000 to 25,000 FCFA ($20-$50). The problem is that cylinders are not readily available in the market, which is a major inhibitor of bottle interchangeability. An appropriate cylinder management system should be established to cope with the increasing volume of dangerous cylinders circulating in the country. 3.10 Household Cooking and Lighting Demand: In 2002, wood constituted by far the most important energy source in Cameroon, at 61% of the country’s total energy consumption, with oil products running a distant second at 21%. Within the various oil products, LPG ran second to last, at 3.1%, out of seven categories of oil products, aviation fuel being last. In other words, LPG consumption was, and continues to be, a relatively insignificant source of energy in Cameroon. LPG consumption by households needs to be addressed with some urgency. This includes the removal of consumption barriers by de-bottlenecking the supply sector, but attention also needs to be paid to the LPG pricing policy. 3.11 Household Survey: A household survey conducted in 2001/2002 revealed that LPG consumption is unevenly distributed across the nation. Forty percent of the population lives below the poverty line of $1.08 per day, and only 3.7% of the poor households use LPG. This socio-economic divergence in LPG consumption also manifests itself regionally and in terms of urban vs. rural consumption. The survey is getting dated. A new survey along ESMAP lines should be instituted and the results used in designing a promotional campaign to improve popular understanding of LPG and to stimulate household consumption of the fuel. 3.12 Household Appliances: Almost all of Cameroon’s LPG is consumed in households, where it is used mostly for cooking, with limited use for lighting and refrigeration in rural zones that have no access to electricity. A variety of cooking devices is used, ranging from simple gas plates to stoves with ovens. It is suggested that the household survey suggested above include a review of prices of, and taxes on, appliances. 3.13 Safety Image: In Cameroon, LPG has the reputation of being an unsafe fuel, and for good reason. In 2004, no less than 20,955 households have experienced gas-related accidents resulting in the deaths of 279 people and injuring 4,270. This unacceptably high accident rate is almost exclusively attributable to careless handling of the gas in all sub-sectors of the LPG market, including storage, transportation, distribution, and above all consumption. The situation requires more vigorous enforcement of existing safety regulations and better training of professionals in the LPG sector, and a serious safety campaign among all stakeholders, especially the consuming public. 3.14 Automotive Use: Even though, as of 2004, Cameroon had an estimated automotive fleet of 300,000 vehicles, LPG has not yet been put to use as an automotive fuel. The use of this source of energy as an automotive fuel is not expected to occur any time soon because of the safety problems associated with LPG and because of the poor condition of the vehicles in circulation. However, the suggested household survey should include one or two questions probing the perception of vehicle owners with regard to LPG as an automotive fuel. 3.15 Investment and Funding: Serious under-investment characterizes the Cameroonian LPG industry. There are shortages in storage capacities of major depots, an undersized and in part deteriorated truck fleet, a severe shortage of retail outlets and of LPG cylinders, to name a few. These shortages will become worse as consumption rises, unless the government finds a LPG Nigeria, Cameroon, Ghana Page 43 Merklein mechanism to attract investors into the market. This is an urgent issue, as some 300,000 MT of LPG will come to market in 2010, when the Equatorial Guinean gas export project is completed. 3.16 Access by the Poor: With 40% of the Cameroonian population below the 2001 poverty line of US $1.08 per day, and only 3.7% of the poor using LPG, access by the poor is very low. The average LPG access rate in 2004 was 19.5% for the country at large; it was 38.1% in urban zones and 3.1% in rural areas. The far northern provinces have the lowest accessibility rate, with only one retail outlet per 151,300 inhabitants. The LPG pricing structure needs to be re-examined for its efficiency in allocating the fuel to those areas where it is needed most, assisted by a determined government policy to eliminate, or at a minimum reduce, the current deforestation in the northern part of Cameroon. It also means the development of a targeted growth policy that will stimulate the absorptive capacity of the LPG-starved provinces in the north, once the new LPG availability from the Equatorial Guinean gas export program is completed. Strategies/Action Plans Table 3.1: Objectives/Targets - Cameroon Objectives Target 1. Develop a strategy for stimulating • LPG per capita consumption of 4.0 kg and expanding the LPG industry in per year by 2025 Cameroon. 2. Expand LP Gas access by the poor LPG Nigeria, Cameroon, Ghana Page 44 Merklein Table 3-2: Critical Issues, Strategies, and Action Plans - Cameroon Critical Issues Strategy Action Plan 1 Objectives: The study has two main objectives: revival Concentrate initially on the revival of the Commence implementation of the recovery of the domestic LP Gas market and expanded access of domestic gas market while planning for its program in accordance with the final agreed LP Gas to the poor. The best prospect for extending LP expansion to the poor. roadmap. Gas access to the poor is from a well-founded, dynamic Determine priorities and timescale for industry. No realistic prospect of achieving the second implementation of the roadmap. objective is possible until the first has been implemented. 2 Government Policy / LPG Strategy: At this time, Secure formal government endorsement of the Complete and present the report incorporating the Cameroon depends on LPG from its domestic refinery, study’s roadmap. Generally, the government strategic roadmap and follow up as necessary to with imports closing the growing gap between limited should pursue an enabling function to facilitate secure acceptance by relevant government refinery supplies and rising LPG demand. Completion implementation in the LPG industry. agencies. of a natural gas export project to Equatorial Guinea is Establish a dialog with the International Monetary Secure endorsement of the lead minister for the expected to inject substantial quantities of LPG into the Fund, which has advocated decontrol of prices for target set in terms of per capita usage and for Cameroonian gas market by 2010. Making this new gas some time, and with the Millennium Challenge market expansion aimed at improved access by available to the population rather than exporting it will Corporation to determine whether any or all of the the poor. require substantial investments in the LPG proposed actions advance or impede their work, Secure clarification of the role of LP Gas in energy infrastructure, improvements in its operational which places heavy emphasis on open and planning within a coherent fiscal and legal efficiency and adherence to safety standards. transparent market behavior. framework. Identify the resources required to implement the sector rehabilitation/expansion strategies. Identify available skills, quantify the skills/resource deficit, and propose measures to match resources to requirements, especially in the regulatory sector. Prepare a short- and medium-term institutional development plan for the LP Gas industry. Allow the LP Gas industry to represent itself and to participate in energy and gas strategy planning. Brief the relevant committees of the National Assembly with a view to securing their support and appropriate government action. LPG Nigeria, Cameroon, Ghana Page 45 Merklein Critical Issues Strategy Action Plan 3 LP Gas Industry Structure/Market Controls: Develop an effective LP Gas industry Association Assist the Cameroon Gas Association in the There are three major participants in the Cameroonian representative of all sectors, including consumer development of a coherent LPG market, where LPG market: the government, quasi-public corporations groups—not just marketers—with a brief to the members will support the establishment of and private operators. The principal LPG supplier, the support the LPG expansion program. efficient and safe operations, under the tutelage Limbé Refinery, is 66% state-owned and the bulk depot of a reinforced regulatory regime. company (SCDP) is 51% state-owned. Marketing Enroll the Cameroon Gas Association in the World activities are in the hands of private-sector companies. LP Gas Association and use the services Various ministries are responsible for the regulation of available to WLPGA members. different LPG activities. Empower and resource the Gas Association to deal A Cameroon Gas Association has recently been created with industry problems. (Oct 2006), under the auspices of the state-owned oil company CNH. It lacks the broad membership and the experience it needs to make its voice heard. The market is inflexible even though nominally free of price controls, due to the use of stabilization and equalization taxes. In terms of operating efficiency and safety, the market is basically out of control. 4 Legal and Regulatory Structure: A number of laws, Having secured formal government endorsement Prepare a submission to the Minister of the lead decrees and orders deal with the LGP market, especially of the study roadmap, seek to strengthen and agency setting out the LP Gas industry vision of Decree Nbr. 022/MINEE which spells out the licensing rationalize legislation and regulatory functions in its role, highlight any regulatory and structural requirements for all downstream petroleum activities order to facilitate sector recovery and future impediments, and make recommendations, including refining, imports, exports, storage, qualities development. where appropriate, for legislative action to and quantities, and distribution. The Ministry of Water facilitate policy objectives and to reflect current and Energy is in charge of all administrative and conditions and technology. technical activities of the petroleum products industry. Secure clear definition of the functions of The Ministry of Trade issues operating licenses, sets government, regulatory authorities and prices for petroleum products, and oversees the Price industry, supportive of LPG policy objectives. Stabilization Board. Other Ministries deal with fiscal Develop a constructive dialogue with the relevant policies and customs, petroleum transport issues, and agencies and authorities for collaboration in environmental issues. efforts to bring the benefits of LP Gas to the Willingness and enforcement capacity, not legal or largest possible number of consumers. regulatory coverage, are the principal impediments to Press for the establishment of an LP Gas efficient market operations. Department in the Ministry of Water and Energy or the establishment of a separate regulatory agency with strict enforcement of regulations to discourage market/price manipulation, promote safety, and encourage good industry practice. Press for clear definition of regulatory functions and for elimination of overlap, for example, in pressure vessel testing and certification. LPG Nigeria, Cameroon, Ghana Page 46 Merklein Critical Issues Strategy Action Plan 5 LP Gas Supply/Refineries/Storage/Distribution: When the Equatorial Guinean gas export project is Press the government to release its interest in the The LP Gas industry effectively depends upon the completed in 2010, there will be more than SCDP to new investors, hopefully to oil Limbé Refinery and imports for supply and, at times, adequate LPG supplies available to Cameroonian companies that have set the example generally supply has been insufficient, overpriced and unreliable. consumers, provided that the storage, transport, in adhering to international safety and operating Inadequate facilities and low priority have consistently and distribution sectors gear up in time to absorb standards, but at a minimum to new impeded evacuation when LP Gas was available at the the influx. This will require the establishment of owner/operators: (a) with the financial and refineries. an investor-friendly, transparent and profitable technical capacity for their rehabilitation and market environment. expansion; (b) committed to their operation on The inland transportation infrastructure for LP Gas is an open access/transparent price basis. underdeveloped. Encourage suppliers and supply chain operators to The LPG primary depot at the refinery is undersized improve shipping and inland transport and has inadequate evacuation facilities. Apart from the performance and standards. refinery which has all of its depots at the refinery proper, there is only one company that has primary Promote the expansion of alternative transportation depots in the country. That company, SCDP, which is modes, for example rail and pipeline, for safer 51% government-owned, has not added to capacity in and more economical inland supply of LP Gas. 20 years and currently is in violation of minimum Raise technical standards and provide funding or storage capacity laws. Holding all of the ex-refinery self-funding (through license fees) for depot capacity in the country places SCDP in a regulatory authorities so they can acquire the monopoly position. equipment and skills they need for effective Coastal shipping and road and rail transport incur high regulation. costs and suffer low operational efficiency. Many road Strictly enforce compliance with regulatory tankers are dilapidated. requirements, remove sub-standard equipment where practicable (trucks for example), and enforce rehabilitation where not (depots, loading facilities etc.). 6 LP Gas Cylinders: Many cylinders are in poor condition Issues surrounding the identity, rights, and Prepare and cost out a program to rehabilitate and from age and lack of proper maintenance. Leaking obligations of cylinder owners and users to be renew LP Gas cylinders. cylinder valves are common. Unauthorized cylinder resolved, codified, and enforced. Ensure that national standards and regulations do filling has helped to undermine the discipline of not preclude the use of new technologies, such periodic inspection and maintenance. There is no clear as composite cylinders. accountability or traceability in the event of an accident Encourage the LP Gas industry to work with the or of under-filling. appropriate regulatory authority for the progressive and permanent removal of dangerous cylinders from the market, avoiding disruption, panic, and hardship for consumers. Investigate whether the sole cylinder manufacturer in Cameroon, SCTM, who controls 62% of the cylinder inventory, is engaged in monopolistic practices and, if so, seek and recommend ways to make that section of the market more competitive. LPG Nigeria, Cameroon, Ghana Page 47 Merklein Critical Issues Strategy Action Plan 7 Household Cooking Demand and LP Gas Appliances: Suitable, affordable appliances to be made Have LP Gas marketers work with manufacturers, Almost all of the LPG (93%) sold in Cameroon is used available to prospective LP Gas consumers local work shops, and vendors to secure in households, and almost all of that for cooking. throughout Cameroon. suitable, affordable appliances. However, wood and charcoal are still the predominant Investigate adaptability of a cooking device that energy sources, at better than 60% of the total energy uses cylinder foot rings as cooking pot consumed in the country. There is a variety of LPG supports. This Easi-Cooker proved practical appliances in the market, both manufactured and and popular in Nigeria. produced in local work shops at costs ranging from $20 Investigate introduction of easy-financing for gas plates to $1000 for western ovens. Even the $20 mechanism to help the poor to overcome the gas plate is a barrier to entrance for the poor. financial entry barrier of costly appliances and cylinders. 8 Safety/Image: Whether Cameroon is particularly unsafe Improve LP Gas safety throughout the distribution Make sure that LPG storage depots are closely in its handling of LPG or whether other countries lack system and at the point of use. monitored for adherence to safety standards and relevant data, 20,955 accidents in one year (2004), with regulations. 279 people killed and 4,270 injured, does not enhance In marine transportation, discontinue delivery of consumer confidence in LPG. Safety is perhaps the imported LPG, except in double hulled vessels, worst LPG problem in Cameroon. It exist in every and rehabilitate separate oil harbour. subsector, from storage to transportation, distribution, In on-land transportation, enforce certification and and consumption. periodic re-certification of rail tanks and tank trucks and remove from service if beyond rehabilitation. Improve the quality of cylinders and valves by enforcing re-certification, eliminating sub- standard units and banning unsafe practices such as unauthorized and illicit filling. Adopt and enforce good LP Gas industry standards and practices, such as The Guidelines for Safety and Good Practice published by the World LP Gas Association. Promote safety standards and practices through: (a) seminars for industry players; (b) securing formal commitment of industry players; and (c) a properly designed and funded consumer safety awareness campaign. LPG Nigeria, Cameroon, Ghana Page 48 Merklein Critical Issues Strategy Action Plan 9 Access by the Poor: The initial cost of becoming an LP LP Gas access to the poor to be formally adopted Have the LP Gas Association monitor and report on Gas consumer is a real barrier for the poor, not least as an objective of the LP Gas industry and its relevant programs in other countries to take because of their inability to secure consumer credit. association. account of experience gained by LPG industries Uncertainty regarding availability and pricing, together and NGOs elsewhere. with safety concerns, are also deterrents. Update the household survey findings and use the data in planning and evaluating pilot projects in poor communities. Have the LP Gas Association report periodically to members and the media on safety (and regulatory) progress. 10 Investment/Funding/Implementation: The sector Attract external local or foreign investment and Identify and seek support from organizations with recovery program calls for significant new investment skills essential for the implementation of the institutional development skills and capacity and sustained effort for its implementation. Dependence sector recovery program. relevant to the needs of the LP Gas industry. on funds generated internally would imply a delayed Organize seminars and presentations for financial timescale for recovery, and hence, for progress toward institutions and prospective investors. the second objective. The impending completion of the Use publications such as the WLPGA’s Special Equatorial Guinea gas export project in 2010 (just Report on Funding Sources to extend the range around the corner in terms of downstream hydrocarbon of possible investors and facilitators. planning) imposes a sense of urgency on the funding Introduce new resources and structures to enable issue, necessitating significant and almost immediate action plans to be implemented. The LP Gas injections of private-sector capital. industry needs to take this responsibility. LPG Nigeria, Cameroon, Ghana Page 49 Merklein The Way Forward 3.17 Implementation of the final, agreed roadmap depends critically on commitment from key stakeholders—government and industry. Commitment to LP Gas sector recovery and extended access, together with clarification of the respective roles of government and industry, are essential outcomes. They must also be set in an agreed, realistic timeframe. 3.18 The thrust of this study is that the LP Gas industry/private sector should initiate and carry through the various action plans while the government/public sector acts as the enabler. In order to achieve this the LP Gas industry will need to put in place the resources and structures necessary to implement many of the action plans essential for achievement of the study objectives. LPG Nigeria, Cameroon, Ghana Page 50 Merklein 4 Critical Issues/Strategies/Action Plans-Ghana Critical Issues/Constraints Summary 4.1 Introduction: Based on the methodology developed in the ESMAP Study and the findings of the country consultants in Volumes I and II, a tentative delineation of critical issues and strategies/action plans is offered here in two separate chapters. Chapter 3 dealt with the Cameroonian LGP market. This Chapter addresses critical issues in the Ghanaian market. The format for both Chapters closely follows the format set forth in the ESMAP Study. Following review and discussion with government and industry representatives of the current LPG situation and proposed strategies to stimulate LPG consumption in both countries, it is suggested that a detailed roadmap be developed and implemented to translate the policy proposal into reality. 4.2 Objectives: Lessons learned from the ESMAP Study and findings developed by the Ghanaian in-country consultant point to the need for massive improvement in the supply and distribution infrastructure/practices of LPG if the product is to be made available in all parts of the country, particularly to the poor. In addition, there is a need for demand stimulation once LPG is made accessible. It is thus important that, as the supply and distribution infrastructure for the LPG industry is improved, steps be taken to stimulate demand for the product in all parts of the country. 4.3 Current Status: The LPG industry has made some strides since the launch of the LPG promotional campaign by the government in the early 1990s. LPG has gained a high level of market acceptance among most urban dwellers with marginal usage in the rural and peri-urban areas. The uncertain supply of LPG in the Ghanaian market coupled with price hikes has compelled some current LPG users to switch back to traditional cooking fuels such as charcoal and firewood, and it has served as a deterrent to other potential users. The perennial shortage of the product is partly due to bottlenecks in the delivery infrastructure for LPG at the Tema Oil Refinery and to operational inefficiencies at the refinery. An improved supply environment is essential to retain existing users and to encourage prospective LPG users to make the necessary initial cash outlay. It is also important that private investors be attracted to the distribution chain. 4.4 Policy: The government’s LPG policy cannot be said to have achieved the desired result of ensuring improved access by all Ghanaians and safeguarding the integrity of the industry. Most operators in the LPG industry have not lived up to expectation with regard to adhering to standards and regulations and, most importantly, protecting lives and property. An improved LPG policy framework that promotes the expansion of the LPG infrastructure (availability/accessibility) and prescribes pragmatic strategies to stimulate private sector LPG Nigeria, Cameroon, Ghana Page 51 Merklein investment is necessary. That policy should also be designed to help elevate the LPG industry to an improved level of performance. 4.5 Industry Structure: An effective industry-wide LPG Association, currently absent, is necessary to coordinate the efforts of the various retailers and distributors and to provide a channel of communication with all stakeholders, particularly with the NPA, on pricing and regulatory issues. A dialogue should begin as soon as practicable between the key industry players particularly the existing LPG Retailers Association, the liquid petroleum gas marketing companies and the oil marketing companies involved in the LPG industry. 4.6 Regulation: The National Petroleum Authority and the Ghana Standards Board are not only perceived to be ineffective but they also lack the capacity to effectively regulate the various participants in the LPG industry. Over the years, regulation of the sector has been limited to screening of applications for licenses. Monitoring LPG facilities to ensure conformity to and compliance with safety standards and regulations has been minimal due to the limited logistical and human resource capacity of the regulators. End-user safety standards and regulations are lacking and the GSB, which is expected to ensure adherence to end-user safety and regulations, either lacks the capacity (it seems) or the will-power to undertake this task effectively. The capacity of the regulators will thus have to be strengthened to enable them to establish and enforce relevant laws and regulations for the smooth operation of the LPG industry. 4.7 Supply: The LPG supply in Ghana has been erratic due to unreliable deliveries from the Tema Oil Refinery, which is wholly-owned by the government. Diversifying the sources of supply of LPG for the Ghanaian market is critical for sustainable development of the industry. There is a need to get LPG closer to consumers by increasing imports and effectively decentralizing storage away from the refinery. 4.8 Refinery: Inefficiency and limited storage and loading facilities at the Tema Oil Refinery have greatly affected the LPG industry in Ghana. Long down times at the refinery and inadequate loading facilities when LPG is available are impeding LPG availability on the Ghanaian market. The operating efficiency of the TOR has to be improved and other refineries may need to be established to supplement supply from the TOR. In addition, there is a need to increase storage, loading and unloading facilities across the country. 4.9 Distribution Infrastructure: The LPG distribution infrastructure in the country is limited. It is mainly private-sector owned and concentrated in a few urban centers leaving the rural and peri-urban areas without service. The LPG distribution infrastructure of the country has to be extended and improved to facilitate service delivery and availability of LPG to all Ghanaians. 4.10 Transportation: the main mode of transport for LPG in Ghana is by road. The poor nature of the road network increases the risk of transporting the product by this means. The establishment of LPG storage depots in strategic locations across the country will help improve the efficiency of road transportation and reduce risk. In addition, alternative modes of transport such as rail and pipeline will have to be considered in the near future to augment road transportation of the product. 4.11 Cylinders: The country has no cylinder management system in place and many of the cylinders in circulation are in poor condition and are either due for maintenance or disposal. The issue of who owns, who fills, and who maintains cylinders in the country needs to be clarified. An appropriate cylinder management system should be established to handle the increasing LPG Nigeria, Cameroon, Ghana Page 52 Merklein volume of dangerous cylinders circulating in the country. 4.12 Household Appliances: there are a variety of LPG household appliances on the Ghanaian market. There is however a need to improve the technology for locally designed appliances to make them cheaper and more efficient. Adaptation of existing appliances to meet local needs at home will help improve the acceptability of LPG among Ghanaians. 4.13 Safety Image: There are currently no nationally accepted operational and safety standards in the LPG industry, which has a bad reputation for its poor safety standards. Appropriate safety legislation and guidelines for the LPG industry are required to streamline safety standards in the industry. Public education for all stakeholders is necessary to improve the safety environment in the industry and to instill consumer confidence in the product. In addition, the media should be properly engaged to support public education on LPG safety. 4.14 Investment/Funding: Significant investments will be required in the LPG supply- distribution infrastructure to facilitate end-user access to the product. Potential funding sources for the LPG industry include the provision of incentives to the private sector to invest in the LPG industry and the promotion of Public-Private Partnerships This involves securing private sector investment in partnership with the public sector for capitalization of the LPG supply system to expand supply and distribution networks to all parts of the country. 4.15 Access by the Poor: There are a number of barriers limiting access to LPG by the poor. Key amongst them are financial constraints. The high upfront cost of end-use equipment such as cylinders and stoves and the high recurrent cost of filling large cylinders is a factor that inhibits access by the poor. An increased number of LPG retail outlets in the rural and peri-urban areas is essential to improve access by the poor. In addition, targeted subsidies on LPG appliances and financial support systems will be required to assist the poor to acquire LPG end-use appliances. Small cylinder sizes will also have to be promoted to reduce the recurrent refilling cost. 4.16 Unique Ghanaian Issue: Ghana is ranked seventieth out of 163 countries listed in the 2006 Corruption Perceptions Index published by the German-based Internet Center for Corruption Research. It is ranked fifth (along with Egypt and Senegal) among African Nations. Moreover, the Millennium Challenge Corporation, using a sixteen-variable rating system that emphasizes political and economic freedom, investments in education and health, control of corruption, and respect for civil liberties and the rule of law, has declared Ghana eligible for program assistance and has signed a $547 million compact with the country. The goal of the Ghana Compact Program is to reduce poverty through a private-sector led agribusiness development. Interventions aim to increase farmer incomes and export earnings by increasing the production and productivity of high-value cash and food staple crops in some of Ghana’s poorest regions and to enhance Ghana’s agricultural products in regional and international markets. The two largest items in the assistance budget are agriculture development ($241 million) and transport development ($143 million). The first of these will stimulate demand for LPG by providing purchasing power to rural regions and the second item will improve the supply infrastructure thereby enhancing Ghana’s LPG delivery system. A meeting with Jonathan Bloom, Managing Director, Africa, is recommended to coordinate assistance efforts, as is a similar meeting with Ned Cabot, Regional Director of Sub-Saharan Africa. An comparable USTDA linkage proved to be highly beneficial in the Nigerian LPG assistance work. LPG Nigeria, Cameroon, Ghana Page 53 Merklein Strategies/Action Plans Table 4.1: Objectives/Targets - Ghana Objectives Target Develop a Strategy for stimulating and • LPG per capita consumption of 3.7 kg per expanding the LPG industry in Ghana. year. Expand LP Gas access by the poor. • Ensure that at least 20% of households currently using traditional biomass for cooking are provided with access to LPG by 2015 LPG Nigeria, Cameroon, Ghana Page 54 Merklein Table 4-2: Action Plan/Strategies Matrix - Ghana Critical Issues Strategy Action Plan 1 Objectives: The study has two main objectives, Pursue both objectives concurrently. Completion of a business plan in accordance with 1. Revival of the domestic LPG market. the finalized road map. 2. Expanded access to LPG by the poor. Determine priorities and timescale for implementation of the roadmap. 2 Government Policy on LPG Program Make government an active partner of the Complete and present the report to secure 1. The government LPG program which commenced ongoing process and obtain government’s. formal acceptance from the relevant government in the early 1990s has not been sustained. The endorsement of the study's roadmap. agency, that is, the Ministry of Energy. LPG industry is plagued by a number of Organize a forum to discuss content of report with challenges and the majority of Ghanaians still do all relevant stakeholders. not have access to LPG. Secure endorsement of the Minister of Energy and 2. The study objective is in line with the key stakeholders for the target set (per capita government’s proposal to provide 15,000 usage and access by the poor). households in 300 rural communities with access Secure clarification of government’s long-term and to LPG over a four-year period under the Ghana short-term plans for the LPG industry and role Poverty Reduction Strategy paper (GPRS II of LPG in the development agenda of the paper). country. 3 LP Gas Industry Structure/Market Controls: Develop an effective LPG industry association Establish an LPG industry association for Ghana - The industry is composed of a variety of players -large with national recognition and clearly defined roles the Ghana LPG Association (GLPGA). and small - but lacks a single authoritative and and mandates. Affiliate the GLPGA with the WLPGA to benefit representative organization to serve as its mouth piece from available technical and financial support. and coordination point. Empower and provide resources for the GLPGA to deal with industry problems. 4 Regulation: Strengthen the weak legislative and regulatory In consultation with the Ministry of Energy 1. There is no explicit and specific LPG legislation environment for the industry to facilitate its (MoEN) and the NPA, prepare a report which regulating the industry in Ghana. Legal aspects of revitalization. highlights regulatory and structural the LPG industry are covered as part of the impediments in the industry, and make legislation for the petroleum industry. recommendations, as appropriate, for legislative 2. The regulatory authority (National Petroleum actions by government. Authority or NPA) has a limited capacity and Develop a constructive dialogue with the relevant inadequate resources rendering it unable to police agencies and authorities for collaboration in the LPG industry nationwide. The LPG regulatory efforts to streamline the legislative and functions of the NPA need to be clarified. regulatory environment in the LPG sector. Advocate the establishment of an LPG Division under the NPA with a clear mandate for regulating the industry. LPG Nigeria, Cameroon, Ghana Page 55 Merklein Critical Issues Strategy Action Plan 5 LP Gas Supply/Refineries/Storage/Distribution: LPG marketing companies, oil marketing Encourage the LPG industry to initiate a 1. The Tema Oil Refinery which is the sole bulk companies, and private investors are to be constructive dialogue with the TOR/MoEN supplier of LPG in the country has limited storage encouraged to establish private storage depots to regarding the economic and social benefits that capacity of 9,000 cubic meters (5,000 metric provide adequate and reliable product supply in will accrue from timely and efficient LPG tons). There is therefore inadequate reserve all parts of Ghana. In addition, new cost-effective evacuation when the product is available at the capacity for the supply of LPG in Ghana. and efficient transport modes such as rail and refinery. Additional LPG delivery points (loading points) pipelines should be developed. Encourage suppliers and supply chain operators to and storage facilities in and outside of the refinery improve inland transport performance and are needed to facilitate access to the product. standards. 2. The road transport infrastructure, which is the Promote the introduction of alternative major mode of transport for the industry, is transportation modes, for example rail and underdeveloped. pipeline, for safer and more economical inland supply of LP Gas. Raise and enforce technical standards in order to remove substandard equipment and practices. Advocate the removal of import duties on LPG equipment. 6 LP Gas Cylinders: Clarify who owns, who fills, and who maintains Make mandatory the periodic inspection and re- Most cylinders in circulation are in poor condition due the cylinders and establish standard cylinder sizes certification of all LPG cylinders in the country. to the absence of a cylinder management system for the Ghanaian market. Prepare and cost a central pressure testing facility (maintenance and renewal) for Ghana. for cylinders. Encourage the LPG industry association to work with the appropriate regulatory authority to phase out dangerous cylinders. Empower and provide resources to the Ghana Standards Board to monitor cylinders at various ports of entry. 7 LP Gas Appliances: Suitable and affordable appliances to be made Encourage LPG marketers to work with the A variety of LPG appliances can be found in the available to prospective LPG consumers manufacturers and vendors to secure suitable, Ghanaian market. Conspicuously missing are appliances throughout the country. affordable appliances for the consuming for applications such as refrigeration and mechanical populace. power. 8 Safety/Image: Improve LP Gas safety throughout the distribution Clarify cylinder ownership and maintenance The existing Code of Practice for the industry is chain and at the point of use. obligation outdated. Although records of LPG accidents in Ghana Make mandatory the periodic inspection and re- are limited, the industry has a poor safety image. There certification of all LPG cylinders in the country. are currently no nationally accepted operational and Strengthen the NPA and other Regulatory bodies to safety standards in the LPG industry. monitor and undertake periodic checks on refilling plants and LPG distribution facilities. Educate the public on the life span of equipment. Form LPG Associations (from Oil Marketing Co’s to End Users) to assist in the formulation of regulatory policy. LPG Nigeria, Cameroon, Ghana Page 56 Merklein Critical Issues Strategy Action Plan Produce a readily accessible document on regulatory and safety procedures for the industry. Effectively enforce the ban on the importation of used cylinders into the country. 9 Access by the Poor: The initial hardware-related cost of Promoting access by poor people to LPG should Provide access to credit for private entrepreneurs to switching to LPG is a real barrier for the poor, not least be formally adopted as a guiding principle for all establish refilling plants in rural and peri-urban because consumer credit is a rarity in Ghana. industry stakeholders. communities. Uncertainty regarding availability and pricing, together Provide access to credit for end users, to buy LPG with safety concerns, are deterrents. equipment and cylinders if necessary. Promote extensive use of smaller cylinders (3kg - 6kg) to reduce the recurrent high cost of refilling for the poor. Use of cooperatives (LPG User Associations) to guarantee LPG cylinder and equipment purchases for rural consumers and the poor. 10 Investment/Funding/Implementation: Attract local and external or foreign investment Prepare a comprehensive business plan for the LPG Both external and internal sources of financing have to and skills essential for improving access and industry. be explored to meet the funding requirements for the service delivery in the LPG industry. Organize a donor/investor forum to sell various sector. Grants and public investments will be needed in investment opportunities to potential investors. areas such as institutional capacity building and public Encourage government to provide incentives and an education since they may not meet commercial improved regulatory and safety environment to investment criteria. attract private investors. Establish a specialized fund for the LPG industry with seed funds from the petroleum levy. 11 Special Issues- Linkage with Other Donors: Coordinate assistance with other international Get in touch with the Millennium Challenge There is a strong emphasis among many donor donors to maximize the impact of the Ghana LPG Corporation, which has a $547 million institutions, including the World Bank, to encourage project. assistance compact in place to reduce poverty transparency and political integrity among recipient in the Ghanaian agricultural sector. nations. Ghana is among the top African countries in Establish contact with USTDA to determine if there terms of moving towards free markets and political and is interest in taking on all or part of the action financial integrity. To the extent that this has attracted plan and, if so, to coordinate the work with international donors, coordination with them is USTDA and the MCC. recommended. Establish contact with USAID to determine interest and, if present, effect similar coordination. LPG Nigeria, Cameroon, Ghana Page 57 Merklein The Way Forward 4.17 Implementation of the final, agreed roadmap depends critically on commitment from key stakeholders—government and industry. Commitment to LP Gas sector recovery and extended access, together with clarification of the respective roles of government and industry, are essential outcomes. They must also be set in an agreed, realistic timeframe. 4.18 The thrust of this study is that the LP Gas industry/private sector should initiate and carry through the various action plans while the government/public sector acts as the enabler. In order to achieve this the LP Gas industry will need to put in place the resources and structures necessary to implement many of the action plans essential for achievement of the study objectives. LPG Nigeria, Cameroon, Ghana Page 58 Merklein APPENDIX POST-POWER-POINT-PRESENTATION NOTES Cameroon Ghana LPG Sector Study May 27, 2007 This presentation was given at the World Bank. Present were: • Mr. Mourad Belguedj, Lead Energy Specialist, Oil and Gas Policy Division; Oil, Gas, Mining & Chemicals Division,( COCPO ) • Mr. Helmut Merklein, Consultant to COCPO • Mr. Peter A. Van der Veen, Division Chief COCPO, Acting-Director, COC • Mr. Jose Espejo, Sr. Investment Officer, Oil, Gas and Chemicals, IFC • Mr. Oleodoro Mayorga Alba, Lead Energy Economist, COPCO • Mr. Robert Bacon, Consultant COPCO Mr. Belguedj provided an overall review of the origin and purpose of the study, “Lessons learned from the Nigeria LPG Study� and its deliverable. It was followed by a PP Presentation and description of the strengths and deficiencies of the Cameroonian LPG market and an action plan designed to restore it to sustainable growth. Mr. Merklein then reviewed and presented an action plan of the Ghanaian LPG market with proposed solutions to structural problems and bottlenecks. The discussion which followed was centered on what next steps would be useful to develop in order to implement the conclusions and recommendations which emerged from the two studies. They can be summarized as follows: On Cameroon: Of the two countries discussed, Cameroon has a better chance to rapidly move forward, if only because the supply issue is likely to be resolved sooner. Cameroon is moving towards full recovery of the Rio del Rey associated gas through the Equatorial Guinean gas export deal. It will thus be assured of a substantial increase in LPG supply from this project. Also, the World Bank has a good ongoing dialogue with the Government of Cameroon, which will likely require further support in the project’s preparation and implementation by identifying and working with a local “Champion� at the Government and/or at the Parastatal level. It is recommended that a market-driven approach, as opposed to mere demand stimulation, be designed as well as making the case for meeting the requirements of the local LPG market and improving its operations and safety by “developing the S&D numbers� and identifying the need for critical investments and ways to mitigate the appalling safety record of the industry. On Ghana: LPG Nigeria, Cameroon, Ghana Page 59 Merklein This is a more complex case especially because the LPG market is almost entirely dependent on imports. These imports enter the country either in the form of direct LPG deliveries to the storage facilities of the Tema Refinery or they are produced at the refinery from imported crude. Either way, all of the LPG destined to reach Ghanaian consumers must pass through the Tema Refinery facilities, which is the main bottleneck to any serious development of the industry that is characterized by a lack of access throughout the country, even in urban centers where most consumption is concentrated. The Bank does not at this time have an ongoing dialogue with the Government of Ghana on the LPG sub-component in the energy sector, but it is engaged in serious discussions regarding the country’s deforestation problems. Both the Forestry Ministry and the Environment Ministry have a vested interest in seeing the LPG market developed since the fuel is a natural alternative to wood that, if widely used in the household sector, will attenuate current deforestation and desertification trends. Either the Forestry or Environment Ministry would likely be an ally and a high-level insider Champion to lead the LPG Market development effort within the Government of Ghana. Talking to Mats Karlson, the Bank’s Country Director, to investigate further this option is a good starter. Making the Forestry & Environment Authorities the entry points to the Ghana industry and from there making the case to the Ministry of Finance to deal with policy and logistical issues is a possible strategy. In the face of the political impossibility to privatize the Tema refinery, it is necessary to bypass it altogether in starting this initiative. One way to approach the problem is to set the LPG price free with the support of the Finance Ministry and allow anyone to freely import LPG. In short, leave out the refinery, which would be free to export its LPG or to supply it to the domestic market, in competition with local private importers. Let the private sector build storage capacity where and when needed, including port facilities, to allow-market dictated growth of the storage facilities, first to major urban centers where the critical mass of demand resides and from there, as time goes by, let the market grow to outlying regions. This two-prong approach will be summarized for and discussed with ESMAP, to seek funding for further work in this critical field and to move the clean energy agenda in both countries. LPG Nigeria, Cameroon, Ghana Page 60 Merklein