Chase Petroleum: Trading and Distribution of Petroleum Products in Ghana and West Africa

Interview with Kingsley Sarpong, Managing Director of Chase Petroleum Ghana Ltd

What is your scope of business? What is the state of the oil and gas sector in Ghana?

The oil and gas sector in Ghana is still growing. The upstream is strong, the midstream has a bit of challenges in terms of refineries, and the downstream has done very well and continues to grow. We have seen some changes over time, from when the industry was instituted to date, and there have been a lot of reforms as we go along. The government has allowed a lot of players to come in. We have some multinationals as well as local companies which are growing. There are also local content policies in place to support the local players. The industry has really improved. We are regulated by the National Petroleum Authority (NPA) whose key policy focus is on the removal of government control (deregulation) with the following objectives: Removal of restrictions on the importation of crude oil and petroleum products, Removal of restrictions on the establishment and operation of facilities, Price De-control (Price liberalization). The last phase of the deregulating the sector will be to take government control off the transportation. Price liberalization in 2015 has removed Government subsidy and allowed market force to determine prices to the benefit of consumers. NPA monitors and ensures service providers do not cheat consumers. We have about 129 OMCs. We have about 31 BDCs. We have about 42 LPG OMCs. We have 12 companies with storage depots in the country. The state controls about 74% of the storage capacity in Ghana. The private sector today controls about 26% of the storage facilities in Ghana. Total annual national consumption is about 3.5million tons and storage capacity in Ghana is a little bit above 1 million metric tons. We have four refineries, the highest of them with a refinery capacity of 45,000 barrels a day with at least one having about 1,700 barrels a day of production capacity. In terms of transport operators, we have 432 operators in the country. We have over 3,000 bulk registered vehicles (BRVs) for the movement of products from one location to the other. In terms of retail outlets in Ghana today, we have about 5,600 retail outlets in the country. The country has a Zonalization Policy aimed at of decentralizing the distribution of petroleum products retail outlets to load products from nearest depot. We have five main loading and distribution zones i.e Kumasi, Takoradi, Buipe, Bolgatanga and Tema. The Tema zone controls over 50% of national consumption and Kumasi controls about 29% with the others controlling 21%. We have been regulated under the NPA Act 691 of 2005 with L.I. 2186 that defines the pricing formula for petroleum products in Ghana.

What kind of impact did COVID-19 have on the sector as a whole and your business?

It did have a massive impact on our business. Looking at the industry during the era of the lockdown, in terms of the market demand, we realized that the global supply chain was distorted. In Ghana today, about 80 to 90% of product is imported. So, we had issues with our supplies from our majors and the demand for products was also drastically reduced locally. Reduced demand with backwardated oil prices resulted in exposure for BDCs and OMCs holding early priced stocks. The demand went down as low as 30 to 40% during the lockdown. So, the customers were not buying, B2B and B2C were both affected. So, we were greatly affected. Today, demand has increased to around 80% to 90%. A lot of projects had to be put on hold. We, as Chase Petroleum, sported some unique opportunities in the mist of the challenges and worked on it to our advantage. Business has bounced back following removal of lockdown restrictions and things are picking up.

Is manufacturing locally a viable option?

In the long term, our plan is to become a major, like the multinationals out there, where we can actually source directly from around the world and achieve our goal to become the leading distributor of petroleum product in West Africa and beyond.

With the distortion of the global supply chain, every country and every economy has to look within. How can you actually feed yourself and produce your own product? When it comes to petroleum products, do we have the refinery capacity for local production? Luckily for us as a country, we do have crude oil in commercial quantity. So, it makes it easier for local production. The challenge is the refinery. At the moment, in Ghana, we have TOR the National Refinery which has a capacity of 45,000 barrels, but today it does not operate at full capacity. That makes it very difficult and it needs to be retooled fully which is a huge investment. The government will need to make a decision as to whether they can get it up to operation. It can only supply about 50% of the national demand, but as it stands now, it is not producing to full capacity. The question is whether we need a new refinery. The answer is certainly, yes. TOR alone cannot produce enough to meet the national demand. The government has plans to build a petroleum hub that will come up with export-oriented refineries with production capacity of about 160,000 barrels a day. It is a very huge investment and there certainly has to be government and private sector partnerships to do this. In the interim, we need to retool TOR to meet about half of the national demand and then PSPs will import the rest. Luckily for us, we have seen a few refinery projects in West Africa under developments which will make us self-sufficient and reduce the high cost of delivering petroleum from other parts of the world. This will grow indigenous African companies and further enhance trade amongst ourselves.

Has business bounced back from the lockdown period or are you still in recovery?

The business has come back. There are people moving around. Business is back to about 80 to 90%. We cannot tell if there are going to be more restrictions as we go along.

What are your competitive advantages?

The major advantage is being able to have a secured supply chain. We have a strong partnership with our suppliers and our financers. We have the infrastructural storage backbone through our sister company (Tema Tank Farm) which the biggest, preferred and most efficient private depot in Ghana to support our trades, which is very important because the industry is moving to logistics monopoly. We also have very good relationships with players in the market, the OMCs, LPGMCs, with the regulators, with our suppliers and our banks, and other state agencies within the industry. Another competitive advantage is that we ensure that we bring in quality products meeting the national import specification. We also ensure that we deliver product at competitive prices to our customers. In that vein, we form stronger relationships with our suppliers to ensure that the best prices are delivered to our customers. We have also increased our distribution channels across the country to meet the needs of our customers. We have increased our product lines with LPG and we are still developing other product lines as well. We do not consider customers as just customers but as partners. Our objective is to develop existing and new businesses with our customers to ensure together we control the full chain. We have strength for the landlock countries, developing new businesses for the export market.

How competitive is the oil and gas industry?

The industry is very competitive. It’s a buyers’ market where customers look at the best price. When I joined the industry 2009, there were only three players. Today, there are 31 registered BDCs. And in terms of our volume, this year we expect to do around 260,000 to 280,000 tons by the end of the year. In terms of rating, looking at the products that we trade in, we are number five in terms of gasoline trade, when it comes to gas oil, we are number six, and also number six on LPG as the end of July 2020. We are at number eight among the 31 BDCs for all petroleum products consumed nationally. We had industry challenges few years back as a result of legacy debt to the industry which resulted in reduced financing lines and massive decline in business for BDCs including Chase, who had their working capital stuck in the legacy debt. From last year when the debt was fully settled by the government, we have seen massive growth in our business. We are bouncing back and as at the end of July we are at number eight. We have done very good volumes in the months after July and by the end of year we should move up to being in the top six in the industry. We see our 2020 success as a driver for growth in 2021.

What are the current issues and challenges that are affecting the industry?

In this industry, we have safety issues. A few years ago, we had a few gas explosions. Safety requirements are much stronger now than before. We also have had some illegal activities, which have been curtailed. We have an issue of export leakages where products meant for export are turned back on the market, but that is being managed by the government through a task force that is trying to curb those illegal activities. We also have issues of pricing, where sometimes some people find ways to undercut the market by means which are not legal. The issue of quality has been handled very well. Ghana has moved to a new specification. In Ghana today, the maximum sulfur level is 50 ppm. Notwithstanding, we still have a bit of illegal products coming in through the ports and off spec products which sometimes come in but regulators and the state agencies are trying to find ways to curb that. When regulations are not fully enforced, people will tend to find a way around these channels. We also have inadequate storage capacity across some of the areas in the country. In terms of infrastructure, Tema is doing alright. Tema has a lot of storage capacity, but the other zones need to be looked at. There is also inadequate port infrastructure, which is a challenge for us. One major challenge we have as BDC is that we have only one CBM/SPM for discharge of products. You have to queue up to discharge your cargo and we keep incurring demurrage. That is one area that we need to look at as a country. With that infrastructure challenge, there is no fallback option, and the whole country will be at risk. Private players with storage infrastructure should be allowed to own the discharge point reduce the cost of discharge. The huge demurrage cost on the books of importers can be used to extend cheaper prices to consumers. A final challenge is that the banks always see risk. So, the banks are not giving a lot of funding. Currently, we are being supported by suppliers who will give us some amount of open credit, but it also comes at a cost to us. It is an advantage that we can give back to the consumer if we do not have those costs. We need to create that enabling environment and give support to local players to migrate to become multinational trading companies.

Many of your challenges come from the external. What are your strategies to solve challenges that come from the internal?

In the space of financing, we have engaged several banks. We are also looking for funding outside to be able to meet our growing business demand. In terms of LPG, the infrastructure is not enough. We are looking at putting up our own tank farm for LPG to be able to control the supply chain. In terms of product sourcing, we are forming partnerships with some of the major suppliers because the competition is getting tough and every single cent is very important. So, you should be able to provide the best or the cheapest prices to the market. We have seen massive improvement in our business for the year 2020 despite the challenges and effects of COVID on businesses. In terms of profit, we might not have done a lot of volumes, but we are on track. We have other initiatives that we are looking at to have a fully integrated chain and strong presence in the export space. We are then trying to diversify within the downstream as well which will also improve our business in 2021.

Are you looking for partners, either locally or internationally?

We are looking for partnerships both local and international in terms of financing to increase our infrastructure, import and our product lines.

What is your goal for Chase Petroleum in the short term?

For Chase, the short-term goal is to cut out all the channels of distribution, to deliver quality products at competitive prices through strong partnerships with our suppliers, customers and financiers. We are working to ensure we have a fully integrated supply chain, because once you have full control of the supply chain, you can deliver the best prices because your cost is reduced. We also want to look more into the export market. We have presence in Mali and we want to grow that. We have presence also in Burkina where we try to win tenders every quarter. We also want to form partnerships within these landlocked countries so that we can actually increase volume into those countries. Apart from that, we also try and work on partnerships with our local customers to have a secured market for our products. We also want to look at other product lines and improve on our LPG space as well. We started the year at zero and today we are number six in the LPG space. It shows that we have done a very good job in that area and there is more room for improvement. The goal is actually to regain our market position locally and also increase our export business. Where there is a need to have some form of a trade partnership within these export countries with the option of also infrastructure in those areas, we are looking at all of that in totality to grow the Chase brand. In the long term, our plan is to become a major, like the multinationals out there, where we can actually source directly from around the world and achieve our goal to become the leading distributor of petroleum product in West Africa and beyond.

Do you have presence in other countries in West Africa or in Africa as a whole?

We just won tenders to supply products into Burkina. We have partners in Mali who buy from Ghana. There have been some challenges loading from Ghana to Mali. Ghana does only about 2% of the Malian business, which is very, very low. The rest of the business is going to Ivory Coast, Senegal, and Niger. Ghana cannot be the gate way when there are internal restrictions limiting us to 2% of the Malian market. The problem as a country is not in knowing what should be done, but in doing what we know should be done. We have huge storage infrastructure with great potential to meet the needs of the export market, but we keep pushing these export customers to other countries as inappropriate laws makes Ghana very uncompetitive. For us as Chase we will keep pushing and engage stockholders to see the need to open up Ghana for the export with measures that protect the interest of the country. Today Chase is known to a law-abiding export company. We need to find ways to grow our market share for the export market. That is what Chase is spearheading today. In terms of export outside, we have put in place extra measures to ensure that product that is loaded for export leaves Ghana and gets to its final destination. We have put extra operational measures in place to support the operations of our export customers. Certainly in 2021, the export business will improve tremendously once the government also helps with policies that support legitimate export.

Have you won any special awards?

The greatest award is the confidence that our customers have in us today. For the past three years, they have seen consistent growth and strong presence for us in the market. In 2019, we decided to give ourselves a theme “Regain market confidence through value innovation”, which we did very well. We were able to go back to the other channels of distribution. 2020’s theme was Re-Positioning for Excellence. This is trying to cut costs, and deliver the best price in the market, which has been achieved this year, despite the challenges with COVID. 2021 will be the year of growth. So, we are going to actually build upon our achievements of 2019 and 2020 to grow massively in 2021.

What CSR activities do you do?

We are not an island to ourselves. Our guide is to be a responsible member of the community and we take CSR initiatives very seriously. Our CSR initiative has been in the area of providing potable drinking water to deprived communities under a project called “Water is Life “. We also have educational support, health, sponsorships, donation to charity and other areas that makes a positive social impact. Through our Group, we jointly do support in terms of our CSR projects with the most recent one being donation for the construction of an altra modern private sector led infectious disease to manage COVID-19 cases and other infectious diseases in Ghana. We intend to actually increase our brand presence and one major area will be through our CSR initiatives. We will increase our CSR initiatives and give more to the society that we operate in.

What are your current projects?

Currently, we are looking at LPG supply chain. We are looking for strategic partners so together we can have a fully integrated chain from infrastructure to importation and distribution. We want to construct our own infrastructure because we are facing a challenge in terms of storage for LPG. The amount of LPG we can import depends on third party infrastructure. A lot of work has been done and now we are engaging and looking for strategic partners.

How are you looking for partners?

We are open to engaging partners who are already in the LPG business and/or investors who want to invest. We are not leaving everything to chance as we have the market relationship to be able to throughput and sell huge volumes of LPG both locally and export.

What are your immediate investment needs?

Certainly, we are looking at partners, both locally and outside. We are also looking at some major LPG companies who want to have a strong presence in Ghana and West Africa. That infrastructure can be used as a storage to serve other West African countries because there is a huge export demand for LPG. Now, if you look at Ghana, LPG penetration is under 50%. There is still potential for growth and we are ahead of the potential export countries in the region.

You have been in this business for 10 years. What is the next step for you?

I believe a local African company through the right initiative and leadership can evolve into a multinational and become a global brand. Chase and the CH Group offer such unique opportunity. Looking at where we have come from as a company and where we are going, the future looks very good. There is potential for growth, to become a strong energy company in Africa through strategic innovation and efficient deployment of resources. I joined Chase Petroleum as a sales and marketing executive and over the years, through hardwork and dedication to the vision of the company, I climbed to my current position. From where Chase was before, the crisis we had in the industry, we are growing again and the signs are positive. I want to also help with the energy sector in my country by building strong brands. We see huge opportunity even within Africa itself. Chase stands the greatest chance of evolving to become a multinational within Africa and even outside.

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