70658 KITE ....innovating energy solutions…. VOL II GHANA LPG GAS SECTOR STUDY Submitted to the World Bank’s Oil and Gas Policy Division By Ishmael Edjekumhene Frank O. Atta-Owusu Charles Ampong February, 2007 TABLE OF CONTENTS TABLE OF CONTENTS............................................................................................................................ I LIST OF FIGURES .................................................................................................................................. III LIST OF TABLES ..................................................................................................................................... III LIST OF ACRONYMS AND ABBREVIATIONS .................................................................................. IV EXECUTIVE SUMMARY........................................................................................................................ 1 INTRODUCTION ........................................................................................................................................ 9 STUDY BACKGROUND ......................................................................................................................... 9 THE LPG MARKET IN GHANA ............................................................................................................. 9 THE LPG INDUSTRY STRUCTURE ..................................................................................................... 12 INTRODUCTION ......................................................................................................................................... 12 THE MINISTRY OF ENERGY................................................................................................................. 12 THE ENERGY COMMISSION .............................................................................................................. 12 THE NATIONAL PETROLEUM AUTHORITY ................................................................................... 12 TEMA OIL REFINERY (TOR)............................................................................................................... 13 LPG AND OIL MARKETING COMPANIES (LPGMCS/OMCS) ........................................................... 13 TRANSPORTERS AND RETAILERS ..................................................................................................... 13 LPG INDUSTRY ASSOCIATIONS ....................................................................................................... 14 KEY CHALLENGES IN THE LPG INDUSTRY...................................................................................... 14 RECOMMENDATIONS ................................................................................................................................. 16 LEGAL AND REGULATORY STRUCTURES...................................................................................... 17 EXPLORATION AND PRODUCTION LAW, 1984 (PNDCL 84) .................................................................... 17 THE NPA ACT, 2005 (ACT 691)............................................................................................................... 17 SAFETY STANDARDS ................................................................................................................................. 18 RECOMMENDATIONS ................................................................................................................................. 18 LP GAS SUPPLY........................................................................................................................................ 19 REFINERY SUPPLIES .................................................................................................................................. 19 SUPPLY BOTTLENECKS ............................................................................................................................. 20 LPG PRODUCTION IN GHANA ................................................................................................................... 21 LPG IMPORTS ........................................................................................................................................... 22 LPG CONSUMPTION ............................................................................................................................ 23 LPG CONSUMPTION PATTERN .................................................................................................................. 24 LPG EXPORT ............................................................................................................................................ 25 LPG EVACUATION FACILITIES ................................................................................................................. 26 LPG PRICING POLICY ............................................................................................................................... 26 RECOMMENDATIONS ................................................................................................................................. 29 LPG DISTRIBUTION INFRASTRUCTURE.......................................................................................... 31 IMPORT AND EXPORT FACILITIES .............................................................................................................. 31 PRIMARY DEPOTS ..................................................................................................................................... 32 MARKETERS AND DISTRIBUTORS FACILITIES............................................................................................ 32 HEALTH, SAFETY, AND ENVIRONMENT .................................................................................................... 33 TRANSPORTATION................................................................................................................................. 35 RECOMMENDATION .................................................................................................................................. 36 CYLINDERS............................................................................................................................................... 37 LPG CYLINDER MANUFACTURING FACILITIES........................................................................... 37 CYLINDER MANAGEMENT................................................................................................................ 37 Ghana LPG Study Page i KITE CYLINDER TYPES IN USE.................................................................................................................... 38 OWNERSHIP OF CYLINDERS .............................................................................................................. 38 RECOMMENDATIONS ................................................................................................................................. 38 HOUSEHOLD ENERGY........................................................................................................................... 40 COOKING ENERGY .................................................................................................................................... 40 BENEFITS OF LPG ..................................................................................................................................... 41 OTHER USES OF LPG BY HOUSEHOLDS .................................................................................................... 43 CONCLUSIONS AND RECOMMENDATIONS ................................................................................................. 43 HOUSEHOLD APPLIANCES .................................................................................................................. 44 LPG APPLIANCES ..................................................................................................................................... 44 RECOMMENDATIONS ................................................................................................................................. 45 SAFETY/IMAGE........................................................................................................................................ 46 EXISTING SAFETY ISSUES ......................................................................................................................... 46 RECOMMENDATIONS ................................................................................................................................. 46 AUTOMOBILE USE OF LPG .................................................................................................................. 48 RECOMMENDATIONS ................................................................................................................................. 49 INVESTMENT/FUNDING ........................................................................................................................ 51 FUNDING REQUIREMENTS ......................................................................................................................... 51 OPPORTUNITIES FOR INVESTORS ............................................................................................................... 52 FUNDING SOURCES ................................................................................................................................... 52 ACCESS BY THE POOR .......................................................................................................................... 53 KEY BARRIERS TO THE USE OF LPG BY THE POOR ................................................................................... 54 RECOMMENDATIONS ................................................................................................................................. 54 CRITICAL ISSUES/STRATEGIES/ACTION PLANS .......................................................................... 56 SUMMARY OF CRITICAL ISSUES/CONSTRAINTS ......................................................................................... 56 STRATEGIES/ACTION PLANS ..................................................................................................................... 60 STAKEHOLDERS CONSULTATIONS .................................................................................................. 65 BIBLIOGRAPHY....................................................................................................................................... 66 Ghana LPG Study Page ii KITE LIST OF FIGURES Figure 4-1: LPG Production Trend in Ghana.................................................................... 22 Figure 4-2: LPG Imports to Ghana ................................................................................... 22 Figure 4-3: LPG Consumption in Ghana, 1996-2005....................................................... 24 Figure 4-4: Consumption Pattern of LPG in Ghana, 1996-2005 ...................................... 25 Figure 4-5: LPG Export from Ghana, 1996-2005 ............................................................. 25 Figure 4-6: Price Movement of LPG from November 2004-May 2006. .......................... 29 Figure 8-1: Source of Energy for Cooking, 2003.............................................................. 40 Figure 8-2: Comparative Cost of Cooking Fuels in Ghana, 2000-2003 ........................... 41 LIST OF TABLES Table 4-1: LPG Price Build-Up as at December 2006...................................................... 28 Table 5-1: LPG Refilling Plants in Ghana ........................................................................ 32 Table 8-1: Efficiencies and Airborne Emissions for Household Cooking Fuels .............. 42 Table 9-1: Prices of Locally Fabricated Stoves ................................................................ 44 Table 9-2: Price of Western Type Gas Cookers................................................................ 45 Table 9-3: Prices of Cylinders........................................................................................... 45 Table 11-1: Sales of Autogas By a Retail Outlet in Kumasi............................................. 49 Table 13-1: Use of LPG by Locality and Poverty Status.................................................. 53 Table 14-1: Objectives/Targets ......................................................................................... 60 Table 14-2: Action Plan/Strategies Matrix ....................................................................... 61 Ghana LPG Study Page iii KITE LIST OF ACRONYMS AND ABBREVIATIONS ALRI Acute Lower Respiratory Infection AREED African Rural Energy Enterprise Development ATK Aviation Turbine Kerosene BOST Bulk Oil Storage and Transportation BPD Barrels Per Day BRVs Bulk Road Vehicles ¢ Cedi, the Monetary Unit of Ghana (the Cedi-to-US Dollar exchange rate as of January 23, 2007, was approximately 9,400 Cedi/US$) CDU Crude Distillation Unit COCPO Oil and Gas Center Policy Division / World Bank COPD Chronic Obstructive Pulmonary Disease CRU Catalytic Reforming Unit DVLA Driving and Vehicle Licensing Authority EC Energy Commission EPRAP Energy for Poverty Reduction Action Plan GCMC Ghana Cylinder Manufacturing Company GNAG Ghana National Association of Garages GNTCA Ghana National Traditional Caterers Association GNPC Ghana National Petroleum Corporation GoG Government of Ghana GSB Ghana Standards Board IAP Indoor Air Pollution IFC International Finance Corporation IOCs International Oil Companies LPG Liquefied Petroleum Gas LPGMCs Liquefied Petroleum Gas Marketing Companies MDG Millennium Development Goal MoEN Ministry of Energy MT Metric Tons Ghana LPG Study Page iv KITE NDT Non-Destructive Tests NNPC Nigerian National Petroleum Corporation NPA National Petroleum Authority OHESD Occupational Health, Environment and Safety Division OMCs Oil Marketing Companies PM Particulate Matter PNDC Provisional National Defense Council PPP Public-Private Partnership RFCC Residual Fluid Catalytic Cracking Unit RFO Residual Fuel Oil TOR Tema Oil Refinery SGGL Sigma Gas Ghana Limited UNDP United Nations Development Program UPPF Unified Petroleum Price Fund WLPGA World Liquefied Petroleum Association Ghana LPG Study Page v KITE EXECUTIVE SUMMARY Background. 1. This study forms part of a broader study by the Oil and Gas Policy Division (COCPO) to identify reasons for the Liquid Petroleum Gas market (LPG market) failure in some selected countries, including Ghana. It is sequel to a similar study carried out in Nigeria in 2002. It is expected that lessons learned from the Nigeria study will be cautiously applied to other countries that are likely to benefit from similar investigative and analytical work. Study Objectives 2. The objectives of this study are to: • Investigate and identify impediments to LPG market development in Ghana • Develop a strategy for market “take-off “/expansion for Ghana’s domestic LPG market • Expand access to LPG by all, including the poor in Ghana. 3. The target is to achieve a per capita LPG consumption equivalent to the average of other West African countries which, according to data available from a World Bank / World LPG Association (WLPGA) study for West Africa, has been estimated to be on the order of 3.7 kg. 4. Another recent study, the UN Millennium Project, recommends, inter alia, that countries should ensure that at least 50% of households currently using traditional biomass for cooking be provided with easier access to modern cooking fuels by 2015, if they are to achieve their Millennium Development Goals (MDGs). Findings and Strategies 5. The key findings of the study and strategies for addressing the critical issues identified during the study are summarized in the matrix under the section on Action Plan/Strategies in this report, Table 14.2. Objectives 6. The objective of extending/improving LPG access by the poor can only be achieved if policy, regulatory, infrastructural and financial constraints facing the LPG industry and inhibiting access by the poor is addressed. Streamlining the LPG industry through the removal of the existing bottlenecks is therefore vital for the attainment of the set objective of extending LPG access by the poor to all parts of the country. Ghana LPG Study Page 1 KITE Current Status 7. LPG demand in Ghana has grown steadily since the LPG promotion program in the early 1990’s. However, the LPG market, particularly in the rural and peri-urban areas, is seriously constrained by a number of bottlenecks including limited supply and distribution infrastructure. 8. LPG consumers are faced with uncertainty of supply and LPG price volatility. Bridging the access gap by embarking on a rapid scale-up of LPG access interventions and improved safety environment is essential for catalyzing LPG “market take-off� in Ghana. Policy 9. The policy objective of the government of Ghana is to facilitate the availability and utilization of LPG as a substitute for inefficient fuels like wood fuel and charcoal for residential use and small enterprises applications, with the principal aim of achieving overall medium-term social and economic benefits. To help achieve this policy objective, the government must be guided by the following principles: • Promote public-private sector partnership by securing private sector investment in partnership with the public sector for re-capitalization of the LPG supply and distribution system. • Ensure cost-recovery in LPG supply through efficient pricing of LPG to help improve the precarious financial position of the utilities and ensure uninterrupted supply of LPG. • Create adequate strategic stocks for LPG to take care of unexpected supply problems. • Expand the supply and reach of Liquefied Petroleum Gas (LPG) to substitute wood fuel use in homes and small businesses. • Strengthen existing regulatory agencies (National Petroleum Authority (NPA) and Ghana Standards Board (GSB)) to enhance the regulatory environment in the LPG industry. Legislation/Regulation 10. There is no explicit or specific LPG legislation regulating the industry in Ghana. Legal aspects of the LPG industry are covered as part of legislations for the petroleum industry. LPG sector-specific legal and regulatory measures are therefore required to strengthen the weak legal framework for the sector. 11. The NPA appears to lack the logistical capacity to monitor standards of performance and quality of service delivery in the LPG sector. Although the NPA has developed a set of operational standards for LPG refilling plants, the authority (it seems) lacks the capability to monitor and apply the appropriate sanctions where necessary. Capacity building is required to strengthen the NPA and GSB to effectively perform their regulatory functions. Ghana LPG Study Page 2 KITE 12. Urgent stakeholders consultations which will provide legislative advice are needed to help address the issues of cylinder ownership; standardization of cylinder sizes, valves, and regulators; and assign responsibility for maintenance and replacement. Capacity building and monitoring of implementation are also required. Industry Structure 13. The country has no National LPG Industry Association. There only exists an LPG Retailers/Distributors Association, which is not necessarily recognized by all stakeholders. A more inclusive and active (single) LPG Association with clear objectives and a code of conduct is recommended. The proposed LPG Association is expected to encourage its members to adopt good business and safety practices and engage government and its agencies in finding solutions to problems plaguing the LPG industry. Supply 14. Ghana’s LPG market mainly relies on supply from the Tema Oil Refinery (TOR). The inefficiencies at the TOR, coupled with the absence of sufficient storage and evacuation facilities on the refinery site, have led to unreliable supplies of the product on the market. Currently, the country relies heavily on imports and this is expected to continue until conditions at the refinery improve. This situation has compelled some consumers to switch from LPG back to wood fuel (firewood and charcoal). The current situation is putting pressure on the limited forest resources of the country as a result of felling of trees for firewood and charcoal. 15. In the short to medium term, storage facilities need to be developed in strategic locations in the country and the private sector needs to be encouraged to stock these facilities through imports. As a long-term remedy, additional refineries are required to augment LPG supplies from the TOR. Utilization of natural gas for residential consumption once the West African Gas Pipeline project is completed may also help avert the persistent shortage of LPG on the market. Distribution and Transportation 16. The TOR which is the sole bulk supplier of LPG in the country has limited storage capacity of 9,000 cubic meters (5,000 metric tons). This is only enough for a week’s consumption. The country currently has no downstream LPG depots in any the ten regions, apart from the primary storage facility located at the TOR. There is therefore an inadequate strategic reserve for the supply of LPG in Ghana. In addition, LPG delivery points (loading points) and storage facilities in and outside of the TOR are needed to facilitate access to the product. Ghana LPG Study Page 3 KITE 17. There exist limited modes of distribution in the country. Currently, road transport is the only mode for LPG distribution in all parts of the country. Other distribution options such as rail, road, and pipelines need to be considered in the future. Cylinders 18. Most cylinders in circulation are in poor condition due to the absence of a cylinder management system (maintenance and renewal) for Ghana. The two existing cylinder manufacturing companies have the capacity to manufacture a limited range of cylinder sizes. Smaller-range cylinders (3-6kg), which have been proven to improve access and affordability in similar markets in some countries in the region, are uncommon on the Ghanaian market and their production should be encouraged. 19. The current cylinder ownership arrangement allows end-users to own their cylinders. The vesting of ownership of cylinders in the hands of the end-user has been cited by most experts as a contributory factor to the inability of the state to effectively manage cylinders in circulation. The current debate on cylinder ownership is believed to favor an arrangement that allows international and local marketers to own and manage cylinders in circulation in the country. Safety 20. There are genuine safety concerns in the supply/distribution chain and the handling of LPG by end-users. Although records of LPG accidents in Ghana are limited, the industry has a poor safety image. In 2003, the Household Gas Company Limited, an LPG refilling plant which was located at the North Industrial area, was razed to the ground as the result of a fire outbreak. Again, in 2005, a bulk haulage truck was involved in a fire accident on the Tema motorway while transporting LPG from the TOR. There is currently no nationally accepted operational and safety standard in the LPG industry. This has led to operational inefficiencies on the part of most Liquefied Petroleum Gas Marketing Companies/Oil Marketing Companies (LPGMCs/OMCs) and refilling plants. Access by the Poor 21. The pattern of LPG usage as a cooking fuel shows a low level of usage among the poor. This is largely due to the fact that the basic LPG distribution infrastructure in rural and peri-urban areas, where the poor are mostly found, is limited. The rising retail price of LPG and the high initial outlay required for buying LPG end-use equipment are also contributory factors for the low penetration of the product among the poor. There is therefore a need for a massive scale-up of LPG interventions to address barriers to LPG access by the poor. Ghana LPG Study Page 4 KITE Household Cooking and Lighting Demand 22. LPG is the third most important cooking fuel in Ghana. LPG is used by approximately 10% of households to meet their cooking energy needs. Although LPG can be used for lighting and refrigeration, these uses are yet to be popularized in Ghana. The LPG distribution infrastructure in the urban/peri-urban and rural areas of Ghana needs to be developed to improve the product availability and access for household cooking and lighting purposes. Investment/Funding 23. The evidently weak and limited supply/distribution infrastructure in Ghana’s LPG sector is reflected in the low use of LPG in the country (around 14 kg per household per year). Ghana has only one refinery which is currently in need of rehabilitation to improve its capacity and delivery capability. In addition, apart from the limited LPG primary storage facility at TOR, there is no downstream storage facility in any the ten regions of the country. Massive investments in LPG supply and distribution infrastructure are therefore required to scale up the uptake of LPG as a cooking fuel in Ghana. 24. Given the relative success and growing potential of Ghana’s LPG industry, new investments (both public and private) will be needed to rehabilitate the LPG infrastructure (including distribution facilities) at the TOR and to construct storage depots and refilling plants across the country. Other funding requirements for Ghana’s LPG sector include capacity building for the regulatory authorities, public education for LPG stakeholders, establishment of a cylinder management system for the country and stimulating demand for the product among the poor. 25. Both external and internal commercial and non commercial sources of financing will have to be explored to meet the investment requirements for the sector. Grants and public investments will be needed in areas such as institutional capacity building and public education, since they may not meet commercial investment criteria. Potential funding options for Ghana’s LPG sector include public investments (by the government), private investments and public-private collaborations. This mix of potential funding options is considered suitable in the case of Ghana. 26. The introduction of incentives by the government and the establishment of an effective regulatory and safety environment will help attract the interest of private investors to invest in the industry. It is worth noting that the deregulation of Ghana’s petroleum sector has opened up the LPG sector to private actors. As result, the private sector currently dominates the distribution link of the LPG market in the country. Ghana LPG Study Page 5 KITE Recommendations 27. Summarized below are the main recommendations made to help address the critical issues identified. The full recommendations are provided in the matrix under the section on Action Plan/Strategies in this report, Chapter 14. Policy/Regulation 28. This includes the following provisions: • The Government needs to put in place the needed policy measures and strategies to support the policy objective of promoting LPG as the preferred cooking fuel • The capacities of the regulatory bodies NPA and GSB need to be boosted to enable them establish and enforce relevant laws and regulations for the smooth operation of the LPG industry. • Legally enforceable safety standards should be established for the industry • Appropriate legislations is required to clarify who owns, who fills, and who maintains the cylinders, and what range of cylinder sizes is needed for the Ghanaian market Availability/Distribution 29. To boost LPG availability and distribution capability. The following measures will be needed: • Get LPG closer to consumers by effectively decentralizing storage away from the TOR siteto improve reliability of supply and access to the product • Improve evacuation facilities for LPG at the TOR • Establish additional refineries to augment supplies from the TOR. • Consider the use of alternative modes of transport such as pipelines, rail, and marine coastal trade. Institutional Development 30. Establish an all-inclusive and nationally recognized, empowered and resourced LPG industry association to undertake the following functions: • Serve as spokesman and representative for dialogue with stakeholders • Promote the benefits and safe use of LP Gas • Secure recognition from policymakers and the regulatory authority • Work with the regulatory authority to develop or adopt internationally recognized technical standards and codes for the LPG industry Safety and Standards 31. For the sake of safety and to better attract foreign investment, the safety standards and their enforcement need to be improved as follows: Ghana LPG Study Page 6 KITE • Develop nationally accepted safety regulations and standards to address safety concerns in the LPG sector. • Involve the Ghana LPG Association in the development of LPG safety regulation and standards. • Enhance the capacity of the regulatory authority to enforce safety regulation throughout the country. • Disseminate safety and regulatory information among all stakeholders using a systematic and long-term mass-media campaign. • Make mandatory the periodic inspection and re-certification of all LPG cylinders in the country to ensure compliance. • Establish a central pressure testing facility for cylinders. • Institute a training program for staff of refilling plant facilities. • Establish a dialogue between the NPA and industry association on safety practices. Access by the Poor 32. Access by the poor is low in Ghana and needs to be improved as follows: • Establish appropriate financing mechanism for the poor to purchase LPG equipment • Focus subsidy on initial investment (cylinders and cookers) rather than variable/recurrent costs, in keeping with international best-practices • Information on LPG application and benefits should be communicated to the general public particularly people in the rural and peri-urban areas. • Adopt LPG access to the poor as a government flagship policy. Investment Needs and Opportunities 33. The industry investment needs and opportunities include: • Primary transportation (coastal, rail, pipeline, road) • Primary storage/supply depots in strategic locations outside of the TOR • LPG refilling plants (LPG retailing) • Cylinder and equipment manufacture • Institutional capacity building for the regulatory authorities/agencies • Public education and training on safety LPG benefits and safety issues 34. Potential sources of funding that could be explored include: • Local and international financial institutions. Available information indicates that some local financial institutions currently provide financial support to LPG enterprises in the country. The challenge however is that most local financial institutions have limited knowledge of the LPG sector which affects their evaluation and willingness to invest in the sector. • International clean energy funding programs such as the African Rural Energy Enterprise Development (AREED). Currently, eight enterprises, representing 62% of the total AREED investments in Ghana are in the LPG industry. Ghana LPG Study Page 7 KITE • Public-Private sector partnerships. Under the UNDP sponsored “LPG Substitution for Woodfuel Project�, in Ghana, a public, private collaboration was explored • Government sources and grants from Ghana’s development partners. Ghana LPG Study Page 8 KITE 1 INTRODUCTION STUDY BACKGROUND 1.1 This study forms part of a broader comparative study of the lessons learned from the Nigerian LPG market in the light of the successful outcome of the Nigeria LPG Sector Improvement Study. The World Bank has suggested that lessons learned should be tentatively applied to other countries that are likely to benefit from similar investigative and analytical work. The main objective in the present study is to investigate the development and operations of the LPG industry in Ghana 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 Ghana. THE LPG MARKET IN GHANA 1.2 In relation to other petroleum products produced and marketed in Ghana, the LPG market can be described as a small one, accounting for only 3.3% of all products sold each year. However, since 1990 the LPG market has been growing at an average annual rate of 14%; making LPG the fuel with the fastest growth in consumption over the past fifteen years. 1.3 The phenomenal and sustained growth in the demand for LPG was attained by an LPG Promotion Program launched by the government of Ghana in 1990. The LPG Program had the short-term objective of eliminating the flaring of gas (estimated at 26,000 metric tons annually) at the Tema Oil Refinery (TOR), which is the only refinery in Ghana at the moment. The long-term objective was to ensure a wider use of LPG as a substitute for charcoal and firewood. 1.4 This was to be accomplished by making it more affordable for charcoal and fuel wood users to switch to LPG by reducing the upfront costs associated with the switch, by improving the distribution of LPG throughout the country, by increasing public awareness in the safe use of LPG and by promoting the establishment of a local manufacturing industry for moderately priced LPG appliances. 1.5 The promotion targeted urban households which depended predominately on charcoal, public institutions requiring mass catering facilities, and the informal Ghana LPG Study Page 9 KITE commercial sector including small-scale food sellers. Extensive promotional and educational campaigns were also carried out to ensure that environmental, health and safety regulations were observed and that the benefits of switching to LPG was communicated to the public. 1.6 As part of the promotion, the Ministry of Energy (MoEN) procured and put in circulation 350,000 LPG cylinders for use in the country. To forestall the perennial shortage and lower the cost of cylinders on the local market, the Government of Ghana established the Ghana Cylinder Manufacturing Company Ltd (GCMC) with an US$8 million concessionary loan provided by the Government of the Republic of South Korea. Since then a second cylinder manufacturing plant – Sigma Gas Ghana Ltd – has been established in Accra. 1.7 The LPG program also helped to improve LPG distribution to various parts of the country following the establishment of new re-filling plants in three regional capitals – Takoradi, Tamale and Bolgatanga in 1995. 1.8 The cumulative effect of the promotional/educational campaign was a more than six-fold increase in the consumption of LPG from 5,267 metric tons in 1989 to 34,000 MT in 1995. Cylinders in circulation also rose from 80,000 in 1989 to 600,000 in 1997. 1.9 The increase in domestic consumption of LPG created a supply shortfall, which had to be bridged through imports. Between 1996 and 2002, Ghana was on the average importing over 80% of the LPG consumed locally; indeed LPG imports started to exceeded local supplies as early as 1997. 1.10 In October 2002, a secondary conversion unit (Residual Fluid Catalytic Cracker – RFCC) was commissioned under Phase 2 of an expansion and modernization program carried out at the TOR from 1997-2002. This led to a more than four-fold increase in the LPG production capacity at the TOR, from 26,636 to 117,142 MT/yr. With current annual domestic consumption of LP Gas estimated at just over 72,000 MT, Ghana technically has an excess capacity for LPG production. 1.11 The household or residential sector is the biggest consumer of LPG in Ghana, responsible for 72% of total consumption. LPG use in the residential sector is predominately for cooking. The industrial sector accounts for 20% of the total annual LPG consumption, while the commercial/services sector is responsible for the remaining 8%. LPG use in the transport sector is currently said to be negligible but growing at a fast pace, following the full implementation of government’s deregulation policy which has resulted in significant increases in the price of liquid petroleum products. 1.12 Although commendable strides have been made in promoting LPG as a cleaner cooking and transport fuel, a significant market potential still remains untapped. Currently, less than 10% of the households in Ghana are using LPG for cooking. Wood-based cooking fuels continue to be the fuel of choice between 88% and 90% Ghana LPG Study Page 10 KITE of households. Only 10% of urban households rely on LPG to meet their cooking energy needs compared to 0.6% of their rural counterparts. 1.13 Meanwhile, there is evidence to suggest that LPG is the preferred fuel for cooking among Ghanaian households. In a recent ESMAP study1 conducted among 300 households in 20 communities in Ghana, 65% of respondents who were not using LPG indicated their preference for it. 1.14 The Government announced a policy of deregulation of the sector in the 2004 Budget Statement with a view to addressing the fundamental problems of the petroleum industry in the country. 1.15 The deregulation of the petroleum sector aims at removing the inefficiencies in the sector by allowing private sector participation in the procurement of oil, which has previously been limited to the TOR. 1.16 Under the deregulated regime, the private sector is now allowed to import finished petroleum products (about a third of total oil demand) into Ghana through open and competitive bidding. 1 See Edjekumhene 1, et al, 2005 Ghana LPG Study Page 11 KITE 2 THE LPG INDUSTRY STRUCTURE Introduction 2.1 The LPG industry in Ghana is a sub-sector of the petroleum sector and is characterized by a mix of public and private sector participants. The following are the key players in Ghana’s LPG sub-sector: the Ministry of Energy (MoEN), the National Petroleum Authority (NPA), the Tema Oil Refinery (TOR), a host of LPG Marketing Companies (LPGMCs) and Oil Marketing Companies (OMCs), transporters and retailers. Others include the Cylinder Manufacturing Companies, manufacturers of LPG accessories, and importers of LPG cylinders and tanks. What follows in this section is a description of the various roles played by these actors and an analysis of how their roles impact on the performance of the LPG market. The MINISTRY of ENERGY 2.2 The Ministry of Energy is the sector ministry responsible for the formulation of energy policies as well as the coordination of all organizations operating in the energy sector for the achievement of the government’s energy objectives. Prior to the establishment of the NPA, the MoEN was solely responsible for setting the prices of all petroleum products including LPG. THE ENERGY COMMISSION 2.3 The Energy Commission (EC) was established in 1997 by the Energy Commission Act (Act 541). The EC is tasked with the responsibility of licensing, regulating and monitoring energy services providers; the development of national energy plans; and providing advice to the Minister of Energy on energy policy issues. Basically the EC is in charge of technical regulations of the energy sector. THE NATIONAL PETROLEUM AUTHORITY 2.4 The National Petroleum Authority was established by an Act of Parliament (Act 691) in 2005 to regulate, oversee and monitor activities in the deregulated petroleum downstream industry in Ghana. The NPA, among other things, is responsible for licensing, monitoring and regulating operations of LPGMCs and OMCs, and of all retailers in the LPG industry. The NPA also prescribes the Ghana LPG Study Page 12 KITE petroleum pricing formula and monitors ceilings on the price of petroleum products in accordance with that formula. The NPA is a public institution funded primarily by the government of Ghana. TEMA OIL REFINERY (TOR) 2.5 The Tema Oil Refinery, TOR, is the only refinery in Ghana. It is wholly owned by the government of Ghana. Established in 1963, the TOR specializes in the downstream oil industry and is primarily responsible for importing and refining crude oil, which is lifted mainly from Nigeria. 2.6 The TOR provides Ghana with a wide range of finished petroleum products such as LPG, Gasoline, Kerosene, Aviation Turbine Kerosene (ATK), Diesel/Gasoil, Premix Fuel, and Residual Fuel Oil (RFO). Diesel, gasoline and RFO constitute the largest share of fuels produced at the refinery. The TOR is the sole producer, importer and supplier of LPG in Ghana. Production of LPG appears not to be the core business of the TOR, with the fuel accounting for an average of 3.3% of the products produced at the refinery over the past six years. 2.7 Currently, the TOR meets about 80-85% of Ghana’s demand for petroleum products. Plans are afoot to raise US$6 billion through the privatization of the refinery aimed at expanding the refinery’s capacity from the current daily production level of 45,000 to 145,000 barrels per Day (BPD), with the view of capturing a bigger slice of the regional market. LPG and OIL MARKETING COMPANIES (LPGMCs/OMCs) 2.8 The LPGMCs and OMCs are in charge of the distribution and marketing of petroleum products in Ghana. There are currently twenty seven (27) petroleum- based Marketing Companies licensed by the NPA. Out of this number, seven deal solely in LPG. The remaining 20 deal in LP Gas in addition to all the other petroleum products refined in Ghana. The LPGMCs and OMCs operating in Ghana are made up of both foreign and local Ghanaian firms. TRANSPORTERS and RETAILERS 2.9 The Transporters serve as the link between the LPGMCs/OMCs and the Retailers. The Transporters haul LP Gas from the TOR to the various retail outlets across the country on behalf of the LPGMCs/OMCs. Some LPGMCs/OMCs own a fleet of LPG tank trucks and thus double as transporters of the product as well. The OMCs mostly deal directly with industrial clients while the LPGMCs focus on retailers. 2.10 Bulk Road Vehicles (BRVs) are the dominant means of product delivery. Ghana LPG Study Page 13 KITE 2.11 Retailer outlets (stations) operate under franchise arrangements with the LPGMCs and OMCs. The retailer outlets are owned by the LPGMCs, by the OMCs, or by private entrepreneurs. 2.12 There is a burgeoning retail market for LPG with new retail outlets/refilling plants mushrooming over the years in the capital cities. The number of LPG filling stations in Ghana has increased by close to 40% (from 85 to 118) between 2000 and 2006. LPG INDUSTRY ASSOCIATIONS 2.13 Currently there is no National LPG Industry Association. There only exists an LP Gas Retailers/Distributors Association, which is not necessarily recognized by all stakeholders. However, four LPG User Associations have been formed at the district-level as part of the United Nations Development Program (UNDP), which funded an LPG Substitution for Woodfuel Project in the Northern Region. The total membership of these four Associations was 598 as of September 2005. 2.14 A more inclusive and active national LP Gas Association is thus recommended for Ghana. The Association, once formed, should have clear objectives and a code of conduct that will encourage its members to adopt good business and safety practices in the interest of the LP Gas industry, consumers, and the general public at large. KEY CHALLENGES in the LPG INDUSTRY 2.15 The LPG Industry Structure described above does not in itself impose market constraints. While a thriving and profitable LPG market exists in the urban centers, especially in the regional capitals, the same cannot be said of the rural LPG market. The following barriers/constraints have been identified as the major causes of market failure of the LPG market in Ghana. Absence of an efficient and reliable supply chain for LPG 2.16 Although currently the TOR has sufficient capacity to meet the domestic demand for LPG, there is a persistent shortage of LPG in the country, even in Accra the national capital. The supply of LPG from the TOR is unreliable and erratic. This is due mainly to long and frequent down times at the refinery coupled with limited operational LPG storage facilities at the TOR. 2.17 A characteristic feature of the market, therefore, are spells of sustained shortages and long queues at retail outlets throughout the country, leaving customers with no option than to revert to the use of fuelwood. Ghana LPG Study Page 14 KITE Lack of effective policy measures and regulatory regime 2.18 A shortage of legally enforceable standards and regulations continue to hinder the smooth development of the LP Gas sector. LPGMCs and OMCs are currently using their own safety standards and practices. The non-uniformity of standards coupled with blatant disregard for standards by some oil marketing companies creates an uneven playing field. While the big OMCs invest heavily in ensuring that environmental health and safety standards are observed, the smaller companies do very little in this area. This situation has led to the withdrawal of some of the principal OMCs, such as Shell and Total, from the LPG retail market in Ghana. 2.19 A lack of effective policy measures and regulatory environment is also a contributing factor to the low investment in LPG distribution networks in rural and peri-urban areas. Currently, Ghana has no system in place to periodically certify or decommission cylinders in operation. In addition the importation of used cylinders, whose age and condition is unknown, is widespread High recurrent cost of refilling large cylinders 2.20 The price of LPG has been identified as major barrier to the use of the fuel for cooking. After having enjoyed a price subsidy for the greater part of the promotional campaign, a government deregulation policy has led to the removal of subsidies and has moved the price of LPG price toward cost-reflective levels. This has resulted in increases in the cost of LPG. Given that the majority of households using LPG have 14-kg cylinders, the cost of refilling the canisters is becoming unaffordable, forcing many of them to go back to the use of wood fuels. Insufficient knowledge about health and environmental benefits associated with the use of LPG 2.21 Interest in LP Gas is highest among the educated, middle- to high-income group in the urban and peri-urban communities. The average households still consider the fuel to be too expensive, and a significant proportion perceives the fuel as inherently dangerous. Other reasons 2.22 Other reasons for the failure of the LPG market in Ghana include: • high up-front costs of end-use equipments such as cylinders and stoves • lack of credit facilities to facilitate acquisition of end-use equipment for switching to LPG; • Insufficient awareness on the part of financial institutions about the financing needs and potential business opportunities associated with the LPG sector Ghana LPG Study Page 15 KITE Recommendations Improve Reliability of Supplies of LPG from the Refinery 2.23 Urgent attention is required to ensure that the TOR addresses the perennial supply shortfalls of LPG to make the fuel more accessible. 2.24 Among other things, an effort should be made to increase the country’s strategic storage capacity for LPG. In addition, a central clearing house for storage should be established outside the premises of the TOR. Furthermore, inland depots for LPG should be provided to make the product available in other parts of the country. 2.25 Improvement in the supply situation is expected to encourage the private sector to invest in the distribution infrastructure to meet consumer demand Targeted Subsidies 2.26 The household sector has a high growth potential for LPG demand. The switch from wood fuel to LPG use can be accelerated through the introduction of appropriate financing mechanisms and transitional subsidy schemes to help reduce both the upfront and recurrent cost associated with the use of the LPG. However, care must be taken that temporary remedies, such as subsidy programs, do not develop long-run dependency problems that eventually become unsolvable political and economic liabilities. Safety Standards and Regulations 2.27 The NPA in conjunction with other stakeholders such as the Energy Commission and the Ghana Standards Board should work together to institute a comprehensive regulatory framework for the LPG industry, which will ensure the safe distribution and use of LPG. 2.28 The regulatory framework should, inter alia, establish a legally enforceable safety code and standards for the entire LPG industry. Furthermore, a national uniform system for cylinder management should also be developed with a view to making periodic inspections and re-certifications of cylinders mandatory, as well as promoting the more efficient use of cylinders in circulation. Ghana LPG Study Page 16 KITE 3 LEGAL AND REGULATORY STRUCTURES 3.1 There is no specific legislation governing the LPG industry in Ghana. However, legal and regulatory issues relating to the industry are either explicitly or implicitly covered as part of legislations for the entire petroleum sub-sector. Exploration and Production LAW, 1984 (PNDCL 84) 3.2 The Petroleum Exploration and Production Law, 1984 (PNDC L 84), regulates oil and gas exploration and production in Ghana. The law deals extensively with petroleum contracts, the rights, duties, and responsibilities of contractors, and compensation payable to those affected by activities in the petroleum sector. This law is administered by the Ghana National Petroleum Corporation (GNPC). The NPA Act, 2005 (Act 691) 3.3 The National Petroleum Authority Act provides the framework/legislation for governing the down stream petroleum industry including LP Gas. 3.4 The object of the Authority is to regulate, oversee and monitor activities in the petroleum downstream industry and, where applicable, to do so in pursuance of the prescribed petroleum pricing formula. 3.5 To achieve this objective, the NPA is under the law expected to perform the following functions. i. monitor ceilings on the price of petroleum products in accordance with a prescribed petroleum pricing formula; ii. grant licenses to applicants; iii. maintain a register and keep records and data on licenses, petroleum products and petroleum service providers; iv. provide guidelines for petroleum marketing operations; v. protect the interests of consumers and petroleum service providers; vi. monitor standards of performance and quality of petroleum services; vii. initiate and conduct investigations into standards of quality of petroleum products offered to consumers; Ghana LPG Study Page 17 KITE viii. investigate on a regular basis the operations of petroleum service providers to ensure conformity with best practice and protocols in the petroleum downstream industry; ix. promote fair competition amongst petroleum service providers; x. conduct studies relating to the economy, efficiency and effectiveness of the petroleum downstream industry; xi. collect and compile data on: • international and domestic petroleum production, supply and demand, • inventory of petroleum products, and • pricing of petroleum products for the information of the public which the Board considers necessary for the performance of its functions; xii. periodically review, in consultation with petroleum service providers, the prescribed petroleum pricing formula and publish it in the Gazette. 3.6 Plans are under way by the NPA to establish Petroleum Marketing Regulations for the downstream petroleum industry to regulate activities of LPGMCs/OMCs. Safety Standards 3.7 As mentioned earlier, there are no uniform safety standards and regulations, which is a major barrier to the development of a safe LPG industry. 3.8 Under the UNDP LPG Substitution project, a national Standard and Safety Regulations and LP Gas Code of Practice was initiated to establish a legally enforceable safety code for the LP Gas Industry. Work on the safety standards is still not complete. It has however been recommended that the work-in-progress be properly handed over to the regulatory authorities, i. e., the NPA and GSB, to review and finalize it into a legally enforceable safety code. Recommendations 3.9 The capacity of the independent regulator, NPA, should be strengthened to enable it establish and enforce relevant regulations for the trouble-free operation of the LP Gas industry. 3.10 The development of legally enforceable safety standards for the industry should be hastened to help boost the investors’ confidence in the industry and to protect consumers and the general public. Ghana LPG Study Page 18 KITE 4 LP GAS SUPPLY Refinery Supplies 4.1 The Tema Oil Refinery is the sole bulk producer and supplier of LPG in Ghana. The refinery obtains the LPG from its crude oil processing operations and through the importation of LPG. The LPG produced in Ghana is a mixture of propane (70%) and butane (30%). 4.2 The TOR is located in Tema in the Greater Accra Region, about 18 kilometers from Accra, the national capital. The refinery covers a total land area of 440,000 square meters. 4.3 The TOR at present consists of a Crude Distillation Unit (CDU), a Residual Fluid Catalytic Cracking (RFCC) Unit, a Catalytic Reforming Unit (CRU), a Desulphurization Unit and Storage Facilities. The CDU is usually referred to as the primary conversion system while the rest of the units are collectively termed the “secondary conversion system�. 4.4 TOR came into operation in 1963 as a simple hydro skimming plant with a CDU installed capacity of 28,000 barrels of oil per day (BPD), a Catalytic Reforming Unit (CRU) of 5,000 BPD, and a Utility Unit (UU), which provides the heat, electricity and steam to operate the plant. 4.5 The CRU (also called premium former unit) converts the heavy naphtha and light gasoline from the CDU into premium gasoline. 4.6 In 1998, the CDU was expanded from 28,000 BPD (1.25 million metric tons of oil per year) to 45,000 BPD (about 2 million metric tons of oil per year) of crude oil. However the CRU and the utility unit were not expanded correspondingly. 4.7 The reformer unit should have been expanded by at least 3,000 BPD, to 8,000 BPD capacity, when the CDU was revamped. 4.8 The failure to concurrently increase the CRU capacity leaves the plant unable to utilize all the naphtha produced during the distillation process. The Unit is now obsolete and inefficient due to old age, leading to regular breakdowns and high Ghana LPG Study Page 19 KITE maintenance costs. The surplus naphtha is exported at discounted prices to procure finished products from elsewhere. 4.9 The expanded CDU also led to the production of more residual fuel oil, which is about one-third of CDU oil intake. The additional RFO had to be exported at a discount until October 2002 when the Residual Fuel Catalytic Cracker (RFCC) with a capacity of 14,000 BPD was commissioned to process it into more gasoline and LPG. 4.10 The TOR has five crude oil storage tanks with a total capacity of 285,000 cubic meters, capable of sustaining the plant for five weeks. There are also storage facilities for semi-finished and finished products. Significant pressure will be brought to bear on existing storage capacity in the face of increasing market demand for petroleum products. 4.11 The desulphurization unit has a capacity of 8,000 BPD and it is used for the production of aviation turbine kerosene. Supply Bottlenecks 4.12 The TOR has been cited as an inefficient organization. It processes a barrel of crude oil at a much higher cost (between US$2.00 and $2.23) than the industry benchmark of US$1.80-$1.90. 4.13 Key factors contributing to the refinery’s inefficiencies include low capacity utilization (85% compared to international standards of 95% required for economic viability) due, in part, to inadequate levels of crude oil imports, a dysfunctional CRU, and a utility system that is obsolete and lacks the capacity to run the TOR’s operations efficiently.2 4.14 As explained earlier, the secondary operating units (CRU and UU) have not been upgraded in keeping with the expansion of CDU. While the capacity of the CRU remains the same at its 1963 level, that of the CDU doubled in size. This made it virtually impossible for the refinery to operate at optimal through-put levels. 4.15 The utility system/unit is made up of steam boilers, electric generators, air compressors, and cooling pumps which together provide energy (i.e., steam electric power, compressed air, cooling water and fuel for the plant). 4.16 For the TOR to operate at maximum efficiency, the utility system needs to be capable of powering all three units (CDU, CRU and RFCC) concurrently. The sequential operation of the units, as currently required, leads to waste of energy and causes technical difficulties. 2 See Petroleum PSIA, 2003 Ghana LPG Study Page 20 KITE 4.17 Unfortunately, because the utility system at the refinery has not received major rehabilitation since the commissioning of the refinery in 1963, it is unable to achieve this desired purpose. Consequently, the TOR uses more crude oil for internal heating purpose than allowable under industrial standards. While the refinery’s internal consumption and losses are estimated at 6%, the acceptable standard for comparable plants worldwide is 4.0-4.5%. 4.18 The CRU which converts heavy naphtha to high octane gasoline is in a state of disrepair due to a lack of capital reinvestment. As a result, it experiences frequent breakdowns resulting in high maintenance costs. The dysfunctional catalytic reformer in turn reduces the refinery’s capacity to maximize its output of premium gasoline and diesel, using the outputs (e.g., light gasoline, heavy naphtha) produced by the CRU. 4.19 The RFCC was originally configured to accommodate a petroleum demand growth of 4-5 percent per annum and to produce an anticipated fuel product mix favoring gasoline (as opposed to gas oil). Based on these projections, the RFCC was expected to be self financing; the excess LPG and gasoline produced from the RFCC was to be exported and the proceeds used to service the loan contracted for the construction of the plant. 4.20 However, with demand growing at 10+% per annum, the RFCC is only able to meet 70% of the nation’s diesel and gasoline requirements. The 30% shortfall is met through imports. In effect, what was intended to be a self-financing project has now given rise to servicing a debt of about US$12.6 million per annum on the RFCC. 4.21 In summary, obsolete equipment and poor planning (i.e., failure to make the necessary complementary investments to maximize the capacity of the RFCC) have collectively contributed to the TOR’s inefficiency. It is estimated that revamping the catalytic reformer unit and the utility systems would more than double TOR’s gross margin (from $16 million to $33.5 million). The increase would result primarily through increased output of LPG and gasoline3 LPG Production in Ghana 4.22 The production of LPG at the TOR has increased from a little over 10,000 MT in 1996 to about 78,500 MT in 2005 as shown in Figure 4-1. That Figure reveals that LPG production oscillated between 5,000 and 11,000 metric tons from 1996 and 2001. From 2002, however, the production of LPG assumed a steady growth curve following the commissioning of the RFCC unit, which increased the LPG production capacity at the refinery from 26,636 metric tons per year to 117,142 metric tons per year. 3 See Petroleum PSIA Report, 2004 Ghana LPG Study Page 21 KITE LPG Production in Ghana, 1996-2005 100000 80000 Prodn in M 60000 40000 20000 0 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Production in MT 10152 4334 4800 11620 9668 6953 24371 52,55 65,518 78289 Year Figure 4-1: LPG Production Trend in Ghana Source: Energy Commission, 2006 4.23 The estimated output capacity of 117,142 metric tons of LPG per year is based on the assumption that the TOR would be operating at full capacity. 4.24 However, due to the TOR’s inefficiencies mentioned above, the refinery has failed to utilize the full capacity of the RFCC, which has led to under-production of LPG. LPG Imports 4.25 Ghana imports LPG to supplement its domestic production from the TOR. Figure 4-2 shows the trend in LPG imports over a ten-year period. As evident from that Figure, the importation of LPG has decreased significantly from approximately 33,000 MT in 1996 to 7,000 MT in 2005. As is to be expected, the fastest decline in the LPG imports coincided with the commissioning of the RFCC in late 2002. LPG Imports to Ghana, 1996-2005 50,000 40,000 Imports in M 30,000 20,000 10,000 0 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Imports (MT) 32,838 42,313 35,163 35,641 35,424 34,558 31,962 16,691 11,011 7,077 Year Figure 4-2: LPG Imports to Ghana Source: Tema Oil Refinery, 2006 Ghana LPG Study Page 22 KITE 4.26 The importation LPG (just like all other petroleum products) used to be sole preserve of the TOR. Currently, however, the refinery has been stripped of this role as part of the deregulation of the downstream sector. 4.27 The responsibility of importation of refined products has been shifted to the Bulk Oil Storage and Transportation Company Limited (BOST) and the Marketing Companies. 4.28 Under the deregulation policy, the TOR only advises the NPA regarding its requirements for refined products and the delivery date ranges. The NPA in turn organizes a competitive tender to meet the refinery’s supply requirements. 4.29 Although the TOR has enough capacity to meet current domestic demand and export, the importation of petroleum products is inevitable due to its long down times and limited operational storage capacity. 4.30 Currently, the country only has the capacity to import 2,500 metric tons of LPG at a time (equivalent to one week’s national consumption), due to the limited storage facilities at the TOR. LPG CONSUMPTION 4.31 The consumption of LPG, mainly as a cooking fuel, has also been increasing over the past 10 years as shown in Figure 4-3. Consumption of LPG in Ghana has increased by 84% between 1996 and 2005. Figure 4-3 also shows that there have been consistent annual increases in the consumption of the product over the ten- years with the exception 1997 and 2000, when there were slight reductions in consumption. The highest growth in LPG consumption occurred between 2001 and 2002 when a percent growth of approximately 20% was recorded. Consumption growth since then has been slowing down. Ghana LPG Study Page 23 KITE LPG Consumption in Ghana, 1996-2005 80,000 Consumption in M 60,000 40,000 20,000 0 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Consumption in MT 39,552 35,935 37,377 42,363 39,478 42,667 51,119 58,656 67,576 72,768 Year Figure 4-2: LPG Consumption in Ghana, 1996-2005 Source: Tema Oil Refinery, 2006 LPG Consumption Pattern 4.32 LPG is consumed by four major consumer groups: the household/residential sector, the industrial sector, the commercial and services sector, and the Volta Aluminium Company Ltd (VALCO). Figure 4-4 shows the consumption pattern for LPG in Ghana from 2000-2005. 4.33 Rising from 28,510 MT in 2000 to 52,507 in 2005, the household/residential sector has been the largest consumer of LPG in Ghana accounting for up to 72% of the fuel over the past six years. At 19% of the LPG consumed, the industrial sector is the second largest LPG consumer. Its consumption grew from 3,257 MT in 2000 to 5,998 MT in 2005. The commercial and services sectors comes in third, at 8% of the Ghana’s LPG consumption, followed by VALCO, at one percent. 4.34 Although some commercial as well as private vehicles that originally ran on gasoline have been converted to LPG, the use of LPG as an automotive fuel is said to be negligible. There are no records of the number of vehicles running on LPG at the moment even though industry experts and policy makers believe that LPG use in the transport sector is on the ascendancy and fast competing with residential uses of the fuel. Ghana LPG Study Page 24 KITE LPG Consumption by Sector 703 2005 13487 5998 52507 653 2004 12535 5575 48801 561 2003 10773 4791 Year 41941 494 2002 9483 4217 36916 412 2001 7915 3520 30813 382 2000 7323 3257 28510 0 10000 20000 30000 40000 50000 60000 Consumption in MT Households Commercial & Services Industry VALCO Figure 4-3: Consumption Pattern of LPG in Ghana, 1996-2005 Source: Tema Oil Refinery, 2006 LPG Export 4.35 A limited amount of LPG produced in Ghana is exported, mainly to neighboring Mali and Burkina Faso, Europe and the USA. Figure 4-5 depicts the volumes of LPG exported by the TOR from 2000 to 2005. It is evident from Figure 4-5 that exports of LPG do not follow any clear pattern. LPG Exports from Ghana, 1996-2005 15,000 Exports in M 10,000 5,000 0 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Exports in MT 3,865 1,971 2,830 4,450 6,237 1,161 4,475 11,178 8,989 12,541 Year Figure 4-4: LPG Export from Ghana, 1996-2005 Source: Tema Oil Refinery, 2006 Ghana LPG Study Page 25 KITE 4.36 In absolute terms, the exportation of LPG has increased from approximately 3,900 to 12,500 MT over the past 10 years. The export volumes shown in Figure 4-5 suggest that the TOR has been meeting part of its export obligations through imports. LPG Evacuation Facilities LPG Delivery Point 4.37 The Tema Oil Refinery has only one LPG delivery point (loading point) for the whole country. This results in long queues and delays during rush periods even when there may be gas in storage. LPG Pricing Policy 4.38 The price of LPG is determined in conjunction with prices of all petroleum products. Until the establishment of the NPA, the MoEN, acting in consultation with key stakeholders, had the regulatory authority of setting the ex-refinery price of petroleum products (including that of LPG). 4.39 In 2001, the Government of Ghana (GoG) as part of its deregulation policy, published a petroleum products pricing formula, ostensibly to enhance transparency and to automatically adjust ex-refinery prices based on changes in the world market price of crude oil, the import parity price of petroleum products, and the exchange rate of the cedi to the U.S. dollar. 4.40 The petroleum pricing policy is intended to achieve the following objectives: • To gear energy prices to levels based on the principles of full cost recovery of all investments made to procure, refine, transport and market energy services, and to ensure that ex-refinery prices are set equal to or lower than the import parity price. • To use price to generate resources for current and future investments in specific areas (e.g., oil and gas exploration, development of strategic (reserve) stock for gasoline, gas oil, kerosene and LPG, Road Fund, Bulk Oil Storage and Transportation (BOST) operations etc.), as well as to provide a portion of the annual national revenues for implementing the government’s development programs. Special levies and taxes for the purpose of revenue generation have therefore been incorporated into the price structure. • To ensure that retail prices are the same throughout the country. 4.41 Thus the petroleum pricing policy is guided by the principles of cost recovery, revenue generation and price uniformity. Ghana LPG Study Page 26 KITE 4.42 The retail or ex-pump prices of petroleum products consist of three essential components: (1) the ex-refinery price, (2) government taxes and levies, and (3) distribution margins. 4.43 Levies payable as part of petroleum price build-up include: Debt Recovery Levy, Road Fund, Energy Fund, the Stock Fund and the Exploration Fund. The debt recovery levy goes to the TOR to service its accumulated domestic debt, the Energy Fund goes to the EC, the Stock Fund for the development of strategic oil stock for the country goes to the MoEN, and the Exploration Fund goes to the Ghana National Petroleum Corporation (GNPC). 4.44 The Margins are the BOST margin, Distribution Incentive Fund (DIF), Unified Petroleum Price Fund (UPPF), the Dealers and Marketers Margin. The DIF is an incentive fund for tankers who go to remote and rural locations of the country while the UPPF is a fund meant to ensure price uniformity throughout the country, irrespective of geographical locations. 4.45 Excise duties are the main taxes payable as part of the petroleum price built-up. The excise duty is assessed at 15% of the ex-refinery price. 4.46 Parliamentary approval is required before the taxes and levies are fixed. The margins for the distribution companies are fixed annually through negotiations between the Ministry of Energy and the OMC’s. They are usually higher for kerosene because it is consumed in remote rural areas. 4.47 Notwithstanding the government’s stated policy of full cost recovery pricing, petroleum products in Ghana are generally subsidized. The de facto policy of petroleum product subsidization is also at odds with the government’s stated policy of generating revenue from the petroleum sector since subsidies do not increase revenues but increase government expenditures. 4.48 Prior to a price hike in 2003, consumers enjoyed a subsidy on all petroleum products at the expense of the TOR which was selling its products below cost. That resulted in a substantial build-up in the debt of the TOR. By December 2002, the TOR’s debt amounted to ¢2.4 trillion or 17 percent of the domestic debt. In response, the government transformed a portion of the refinery’s debt into government bonds to minimize the exposure of the banking system to the TOR. 4.49 In January, 2003, ex-refinery prices were raised by 100% on average (retail prices rose on average by 90%). This increase roughly aligned ex-refinery prices with import parity according to the petroleum pricing formula, and revised upward various margins accruing to the refinery and to oil marketing companies and distributors. Ghana LPG Study Page 27 KITE 4.50 Following the price increase in 2003, the government introduced a petroleum pricing formula which was intended to achieve the overall objectives of its pricing policy mentioned above. The formula was however never enforced until the NPA came into being in June 2005. 4.51 Currently, the NPA reviews the prices of petroleum products based on a prescribed pricing formula and sets new price ceilings for the products. Once the price ceiling has been determined by the NPA, the OMCs and other distributors are allowed to set retail prices for the petroleum products in accordance with the pricing formula without prior review or approval from the NPA. 4.52 The end-product of the government’s deregulation exercise is that market forces will determine the prices of petroleum products under the superintendence of the NPA. This has yet to be fully attained. 4.53 Table 4-1 shows the price build-up of LPG as of December 2006. Table 4-1: LPG Price Build-Up as at December 2006 LPG Price Build up Cost/Price Cost/Price Build –up Build–up (cedis/liter) (dollars/liter) Ex-Refinery Price 6,403.59 0.69 Excise Duty 722.46 0.08 Debt Recovery Fund Levy 500.00 0.05 Deregulation Mitigation Levy 0.00 Cross-Subsidy Levy -1,840.42 -0.20 Ex-Depot Price 5,785.63 0.62 Unified Petroleum Price Fund Margin (UPPF) 500.00 0.05 Gross Margin 621.19 0.07 Filling Plant Costs(Margin) 377.21 0.04 Distribution Compensation Margin 30.00 0.00 MAX INDICATIVE RETAIL PRICE 7,314.03 0.79 Source: National Petroleum Authority, 2006 4.54 The issue regarding subsidization of LPG is a controversial one. While government officials insist that the fuel is subsidized, analysts, opposition party spokespersons, and social commentators in a section of the media think otherwise. 4.55 From Table 4-1, the only apparent subsidy is the cross-subsidy levy of 1,840 per liter. However, the subsidy could be much bigger, given the fact that LPG is one of the least taxed fuels. The fact that waived taxes constitute lost revenue to government goes to support the government’s position that LPG is subsidized. The counter view however is that since the price is higher than the ex-refinery price, the government cannot in the strict sense of the word claim to be subsidizing LPG. Ghana LPG Study Page 28 KITE 4.56 It is worthy of note that the ongoing liberalization program has led to significant increases in the price of LPG (just like all other petroleum products) as shown in Figure 4-6. 4.57 Given that the demand for LPG as a cooking fuel has been found to be elastic in Ghana (save Accra) 4 , it is plausible to conclude that price liberalization is likely to impact negatively on the promotion of LPG as a substitute for wood fuels in households. Indeed evidence from the UNDP LPG Substitution Project indicates that increases in the price of LPG during the life of the project actually dampened demand for the fuel.5 Figure 4-5: Price Movement of LPG from November 2004-May 2006. Source: Abavana and Amadu, 2006 4.58 Incidentally, while price liberalization of petroleum products has impacted negatively on demand within the household and commercial/services sectors, it has opened up the market for autogas as more and more private and commercial vehicles convert to the use of LPG since the price of LPG is relatively cheaper than gasoline. Recommendations 4.59 The various inefficiencies identified at the TOR should be addressed to improve upon the production and delivery of the product from the refinery. 4 See Petroleum PSIA, 2004 5 See Abavana and Amadu, 2006 Ghana LPG Study Page 29 KITE 4.60 There is a need to get LPG closer to consumers by effectively decentralizing storage away from the refinery. This must be done by increasing storage, loading and unloading facilities across the country. 4.61 A well targeted subsidy for the cost of LPG-related appliances is recommended to minimize financial barriers to the adoption and widespread use of LPG. Ghana LPG Study Page 30 KITE 5 LPG Distribution Infrastructure Import and Export Facilities 5.1 Ghana imports crude oil mainly from Nigeria under a crude allocation contract, renewable annually, with the Nigerian National Petroleum Corporation (NNPC) for the supply of 30,000 barrels of crude oil a day. 5.2 The TOR transports its crude oil liftings from Nigerian loading ports to Tema via a time-chartered Panamax tanker (60,000 to 80,000 metric tons deadweight). The time-charter arrangement enables the TOR to have the vessel continuously available for use and also to lock-in favorable freight rates for the duration of the contract. 5.3 Ghana has an oil jetty (berth) that can dock 20,000 metric tons at a time. The oil jetty which is located at the Port of Tema is available to the refinery for the loading and discharging of cargoes. Built in 1963, the oil jetty, has a draft of 9.6 meters and therefore limits the vessel size. 5.4 Crude oil from ocean tankers docking at the Tema seaport is pumped straight from the seaport to the refinery through a 24-inch pipeline. 5.5 There are four pipelines for transporting refined petroleum products. These are an 18-inch pipeline for diesel or RFO, a 14-inch pipeline for gasoline or diesel, a 10- inch pipeline for Jet A1 and naphtha (heavy gasoline) and a 6-inch pipeline for LPG. 5.6 Taking cognizance of growing shipments in merchandise cargo at the Tema seaport, a dedicated Single Buoy Mooring (SBM) System to service the oil tankers is being constructed at the seaport to address any potential problem of congestion by vessels at the harbor. This will enable the TOR to bring crude oil vessels at lower cost due to economies of scale accruing from the use of bigger consignments of crude delivered by bigger oil vessels, and it will free up the existing berth to take on more available to product vessels, thereby drastically reducing demurrage payments. Ghana LPG Study Page 31 KITE Primary Depots 5.7 The current operational storage facility for LPG at the TOR is estimated at 9,000 cubic meters (5,000 metric tons). An additional 6,000 cubic meters are currently under construction to increase the operational storage capacity to 15,000 cubic meters. 5.8 There are no other LPG depots in Ghana apart from the limited primary storage at the TOR, which means that all retailers have to drive to Accra to procure the products 5.9 There exists a huge potential for private participation in the construction of primary LPG depots across the country to facilitate access to the product. Marketers and Distributors Facilities 5.10 A typical refilling plant or retail installation consists of bulk storage tanks (ranging from 9 to 50 metric tons), pumps, weighing scales, pipes, dispensers, and water tanks/sprinklers. 5.11 These LPG retail outlets are either fully owned by private individuals or in partnership with LPGMCs/OMCs, or they are solely owned by LPGMCs/OMCs. The recent trend is that most OMCs are withdrawing from the establishment of refilling plants and concentrating on bulk deliveries of LPG. 5.12 There are a total of 118 LPG refilling plants located across the country as shown in Table 5-1. Table 5-1: LPG Refilling Plants in Ghana Location No. of LPG Plants Greater Accra 70 Ashanti 15 Western 9 Eastern 4 Central 6 Volta 6 Brong Ahafo 6 Northern Region 2 Upper East 1 Upper West 1 Total 118 Source: National Petroleum Authority, 2006 5.13 The most remarkable thing about the statistics in Table 5-1 is the fact that about 72% of LPG re-filling stations are located in 2 out of the 10 regions in Ghana with Ghana LPG Study Page 32 KITE the Greater Accra region alone accounting for approximately 60% of them. This constrains accessibility of the products to households in regions with fewer re- filling plants, especially the Northern, Upper East and Upper West regions which play host to less than 4% of the refilling facilities in Ghana. Health, Safety, and Environment 5.14 After over 15 years of LPG promotion in Ghana, the country has no national safety standards and practices on the use and distribution of LPG. Due to the absence of a properly regulated environment and the perceived ineffectiveness of the regulatory authorities, each LPGMC/OMC uses its own safety standards and practices at their respective refilling plants. 5.15 The non-uniformity of standards, together with the disregard by some retail outlets of the standards of their own OMCs has resulted in an uneven playing field. 5.16 There are no measures in place to ensure the safe use of cylinders, maintenance and recertification, nor guidelines for good safety practices in the LPG industry. None of the LPGMCs/OMCs has a recertification facility for cylinders. Cylinder safety valve replacement is undertaken by only a few LPG filling stations in the country. 5.17 There is virtually no public education on the lifespan, maintenance schedule and handling of cylinders, safety valves and other cylinder fittings 5.18 The present Regulatory Framework and Safety Standards within the LPG industry consist of an inspection checklist for LPG refilling plants which is administered by the NPA. This checklist is inadequately enforced due to the limited operational capacity of the NPA. 5.19 The checklist covers infrastructure requirements, housekeeping, occupational health and safety, and regulatory requirements. 5.20 Compliance with the requirements in the inspection checklist for LPG refilling plants is used by the NPA as the basis for issuing a license to a new refilling plant, suspension of a license or closure of a refilling plant. 5.21 Bulk road vehicles used to ship LPG are expected to go through ultrasonic thickness tests and non destructive tests (NDT) before they are licensed for the haulage of LPG in the country. 5.22 Very little has been done so far to establish legally enforceable safety standards for the LPG industry. 5.23 There are several departments within the TOR such as Health Services, Environmental Services, and Safety Services, each headed by a Manager who reports directly to the General Manager of the Occupational Health, Environment Ghana LPG Study Page 33 KITE and Safety Division (OHESD). The functions of the OHESD include controlling oil spillage at the installations and into the environment. Leaks, breaks and spills from the TOR’s processing equipments and facilities are captured in various backup systems and therefore pose no negative environmental impact. Ghana LPG Study Page 34 KITE 6 Transportation 6.1 Bulk transportation of LPG in Ghana is by road using mainly BRVs. Transportation by rail, pipeline and maritime routes is currently not being used although these transit means are being used for the transportation of other petroleum products. The exclusive dependence of road transport causes delays in the movement of the fuels from the refinery to other parts of the country. 6.2 Most of the haulage trucks operating in the country are owned by LPGMCs/OMCs; only few trucks are owned by private transport operators. Due to the perennial shortage of LPG on the Ghanaian market, most retailers are also investing in haulage trucks so that they can secure their allocations in times of shortages. 6.3 The TOR is the only point for intake of LPG by haulage trucks in the country. The absence of regional storage depots means that all tankers in the country have to travel to Tema, located at the south-eastern corner of Ghana, before they can load the product. 6.4 In the recent past, some retail outlets operated what was called a “door to door service�. This service involved on-the-spot deliveries of LPG to households in their homes from the haulage truck directly into empty cylinders. However, this practice exposed both the end-users and the retailers to enormous danger as limited safety precautions were taken when the haulage trucks served densely populated residential areas leading to the subsequent banning of this practice to the relief of many stakeholders. It is however reported that some recalcitrant retailers still engage in this dangerous practice. 6.5 The deteriorated condition of Ghana’s road network and poor maintenance culture on the part of most haulage truck operators is another source of concern for the distribution of LPG in the country. All of this results in rampant breakdowns of haulage trucks on the high ways and in city/town centers which poses a significant danger to the general public. 6.6 Sea water is in most cases found in the imported LPG and concerns have been raised about the possibility of the sea water causing what is termed a “Boiling Liquid Expansion Explosion� during transportation and distribution of the product. Ghana LPG Study Page 35 KITE 6.7 Leakages are reported during the process of transporting and distributing petroleum products. This at times occurs at the Tema loading gantry during the process of connecting and disconnecting loading tubes and also during the process of discharging products at the retail outlets. This situation calls for extra vigilance during the transportation and distribution of the product. 6.8 Varying modes of transport are used by consumers to transport filled LPG cylinders to points of use. Common modes used by consumers include, head carriage, bicycles/motorbikes, trolleys/wheel burrows, and automobile vehicles. The dilapidated nature of some cylinders in circulation in the country makes the use of any of the above modes of transport very dangerous to the end-users and the general public. Recommendation 6.9 There is an urgent need to establish LPG depots in strategic locations across the country. This will help improve the efficiency of road transportation and reduce distribution costs since LPGMCs/OMCs and transporters will no longer need to send their trucks to the TOR. It is expected that the establishment of central clearing houses/depots outside TOR will reduce the distances covered by transporters before they can take delivery of the product and reduce waiting time at the refinery. Ghana LPG Study Page 36 KITE 7 Cylinders LPG CYLINDER MANUFACTURING FACILITIES 7.1 LPG cylinders used in Ghana are either produced locally or imported second-hand. There are two LPG cylinder manufacturing companies in Ghana. These are the Ghana Cylinder Manufacturing Company (GCMC) and the Sigma Gas Ghana Ltd (SGGL), both located in Accra. These companies have a combined annual production capacity in excess of 135,000 units. The products from these companies compete favorably with used imported cylinders and other LPG accessories. The cylinders are sold through agencies and dealers to the general public. CYLINDER MANAGEMENT 7.2 The country has no cylinder management system in place. Given that on the average each household uses two cylinders, it is estimated that from 1990, when the government embarked on LPG promotion, to the present, the number of cylinders in circulation in the country rose to about six million (6,000,000) units. 7.3 Currently a large number of cylinders in circulation is feared not to be in good shape and is either due for maintenance or disposal. However, these cylinders are still in use due to the absence of a cylinder management mechanism. 7.4 Experts in the LPG industry have described this situation as a “time bomb� which is waiting to explode anytime soon. The already precarious situation is worsened by the indiscriminate importation of “second hand� or used (over-aged) LPG distribution equipment and cylinders into the country. These cylinders are potentially unsafe and present a significant danger of explosion. This risk is accentuated by the fact that there are no systems or procedures in place to have such used cylinders tested before entering the Ghanaian market. In addition, the regulatory authority, the Ghana Standards Board (GSB), does not have cylinder testing facilities. 7.5 Although the process of enacting appropriate legislation has been ongoing, a formal law is yet to be enacted. It is worth noting however that a Bill has been passed by Parliament that seeks to ban the importation of secondhand LPG cylinders primarily because of safety considerations. Until such a ban is approved and Ghana LPG Study Page 37 KITE enforced, unsafe cylinders continue to enter the Ghanaian market through unapproved routes. 7.6 The two cylinder manufacturing firms in Ghana have been mandated to offer testing and refurbishment services to customers. The shortfall with the exercise is that it is voluntary and the LPG consuming populace is not obliged to comply. In addition, since both cylinder manufacturing firms are located in Accra, willing consumers located outside Accra will be prohibited from doing so by the sheer distance to send their cylinders for testing. CYLINDER TYPES in USE 7.7 The LPG cylinders in use in Ghana can be classified into two categories, residential and commercial cylinders. The residential cylinders have sizes ranging from 2kg to 14.5kg while the commercial cylinders typically fall between 25kg and 52kg. OWNERSHIP of CYLINDERS 7.8 Ownership of cylinders in the country is currently vested in the end-user. At the early stages of the LPG promotion program, the participating LPGMCs/OMCs owned and maintained the cylinder and the consumer paid a rental fee, or a deposit, for its use. Under the Deposit Refund system customers are required to deposit an amount of money less than the cost of a cylinder. The customer is then allowed to take the filled cylinder home once he/she pays for the cost of its content. 7.9 All the LPGMCs/OMCs have stopped operating the deposit refund system due to the following challenges: • The customers’ preference to take home new or nicer looking cylinders, • The absence of small and varying sizes of cylinders to enable customers make choices based on their disposable income, • The inability of customers and LPGMCs/OMCs to undertake “cross filling�. That is refilling of a competitors cylinder by another company. 7.10 Most owners of LPG cylinders in Ghana do not know that LPG cylinders have a specified lifespan and hence need to be refurbished and recertified. The vesting of ownership of cylinders in the hands of the end-user is also a contributory factor to the inability of the state to effectively manage the cylinders in circulation. Recommendations 7.11 As a preventive measure and to ensure safety of life and property, mandatory periodic checks should be carried out on all cylinders by a competent public or private institution. Ghana LPG Study Page 38 KITE 7.12 Cylinder safety certification or cylinder usage certification should be introduced in the country. All cylinders in the country should be checked and certified by a competent agency for a period of five years as safe or user-worthy, a measure akin to the annual recertification of vehicles by the Driving and Vehicle Licensing Authority (DVLA). 7.13 Requisite modalities should be put in place to facilitate the reversion of cylinder ownership to the LPGMCs/OMCs. 7.14 A national policy on cylinder management, supported by an appropriate legal and regulatory framework, should be developed and implemented to ensure that periodic inspection and re-certification of LPG cylinders in the country is mandatory. Ghana LPG Study Page 39 KITE 8 Household Energy Cooking Energy 8.1 Energy for cooking and for illumination (lighting) are the two basic energy service needs of households in Ghana. LPG is predominantly used for cooking. 8.2 Although the household sector is the largest consumer of LPG in Ghana, only 9% of the total population uses the fuel for cooking as shown in Figure 8-1. Source of Energy for Cooking, 2003 Other Kerosene/ Animal w aste 1% Crop residue/ Gas Electricity oil 0% saw dust 9% 0% 1% 1% Charcoal Firew ood 32% 56% Figure 8-1: Source of Energy for Cooking, 2003 Source: Ghana Statistical Services, 2003 8.3 From Figure 8-1, firewood (56%) and charcoal (32%) are the two most important forms of energy used for cooking in Ghana. The use of electricity for cooking is virtually non-existent. 8.4 An inverse relationship exists between the cost of fuels and the number of households using it for cooking. Ghana LPG Study Page 40 KITE 8.5 Figure 8-2 presents a comparative cost analysis of various cooking fuels in Ghana. As evident from that Figure, electricity is the most expensive cooking fuel (hence the least used fuel for cooking from Figure 8-1) while firewood is the least expensive (the main fuel used for cooking in Ghana. Benefits of LPG 8.6 If the cost of fuel were the only consideration in the selection of household fuels, one would expect that the fuel consumption pattern presented in Figure 8-1 would likely continue with the dominance of wood fuels as the leading cooking fuel in Ghana. COOKING FUEL COST (US CENTS/KWh) 8.0 7.3 FIREWOOD 7.0 CHARCOAL KEROSENE 6.0 LPG ELECTRICITY 5.0 5.0 4.8 Cents/KWh 4.2 4.0 3.6 3.0 2.7 2.7 2.7 2.4 2.4 2.4 2.2 2.0 1.5 0.9 1.0 0.7 0.7 0.7 0.5 0.5 0.5 0.0 2000 2001 2002 2003 Figure 8-2: Comparative Cost of Cooking Fuels in Ghana, 2000-2003 Source: Ahiataku -Togobo, 2004 8.7 However LPG has several health and environmental advantages over other cooking fuels, which justifies it use. Health Benefits 8.8 Indoor Air Pollution (IAP) caused mainly by smoke generated by incomplete 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. Ghana LPG Study Page 41 KITE 8.9 Illnesses caused by smoke include Acute Lower Respiratory Infection (ALRI), Chronic Obstructive Pulmonary Disease (COPD), lung cancer, pulmonary tuberculosis, asthma and cataract. 8.10 It has been found that the most effective way of reducing or removing IAP from homes and saving the majority of these lives is to switch to a cleaner fuel, such as LPG. Environmental Benefits 8.11 The environmental benefits of switching to LPG from traditional fuels (and most other fossil fuels) can be considerable. LPG produces virtually no soot (particulate matter, PM) and, relative to most other non-renewable fuels, low emissions of carbon monoxide (CO), unburned hydrocarbons (HC), and oxides of nitrogen (NOx) - the principal precursors of ozone which produces smog. In addition, there are low but potentially damaging emissions in wood fuels of toxic gases that can cause serious health problems if breathed in close to the point of combustion. These are absent in LPG, which makes that fuel highly suitable for household cooking. 8.12 Fuel-cycle emissions of CO2, a greenhouse gas and the primary source of global warming, are also lower than those of most other fossil and traditional fuels. Table 8-1 indicates the relative efficiencies and emissions levels characterizing various household cooking fuels. Table 8-1: Efficiencies and Airborne Emissions for Household Cooking Fuels Fuel Overall Stove Emissions (g/MJ Delivered Energy) Thermal CO2 CO Methane TNMOC* N20 Efficiency LPG 53.6 126 0.61 Neg. 0.19 0.002 Biogas 57.4 144 0.19 0.10 0.06 0.002 Kerosene 49.5 138 1.9 0.03 0.79 0.002 Wood Fuel 22.8 305 11.4 1.47 3.13 0.018 Crop Residues 14.6 565 36.1 4.13 8.99 0.028 Charcoal 14.1 710 64.0 2.37 5.60 0.018 Dung Cake 10.0 876 38.9 7.30 21.80 0.022 * Total non-methane organic compounds. Source: US Environmental Protection Agency data 8.13 Reducing the demand for wood and charcoal by switching to LPG has the added environmental benefit of slowing down the rate of deforestation, estimated at 3% per annum. Ghana LPG Study Page 42 KITE Ease of Use 8.14 LPG is particularly well suited to residential cooking and heating because of its clean-burning attributes and practical advantages over traditional fuels. It is more convenient, safer and easier to cook with LPG. LPG is also portable and has a high calorific value by volume and mass. Other Uses of LPG by Households 8.15 Although LPG can provide lighting and refrigeration, it is rarely used for such purposes in Ghana. Kerosene, followed by electricity, are the main sources of lighting in Ghana. Energy for refrigeration is met through grid electricity. Conclusions and Recommendations 8.16 From the health, time-saving, and environmental perspectives, there is widespread agreement that the choice of LPG is desirable even though it is a fossil fuel. Intensive public education will be required to sensitize households to these benefits. 8.17 The possibility of using LPG for lighting and refrigeration in off-grid locations should also be promoted. Ghana LPG Study Page 43 KITE 9 Household Appliances 9.1 There are primarily two types of LPG end-use appliances in Ghana – locally fabricated stoves and imported finished products. LPG Appliances 9.2 Locally fabricated stoves (Gas cookers) are designed and produced by local metal artisans. The stoves are normally designed to be compatible with the round- base pots and large pots that are used in Ghanaian homes and commercial restaurants. The stoves are thus customized for the Ghanaian household and commercial users. These stoves normally come as single or double burners with high pressure regulators. There is a variety of designs and shapes for these stoves. Materials used in the fabrication of the stoves include used tire rims and metal sheets. The products of most these local metal artisans involved in the fabrication of LPG stoves are not certified by the GSB and this could be a potential source of risk to the LPG consuming populace. The locally fabricated stoves are normally displayed for sale by the road side and in the shops of the artisans. Table 9-1: Prices of Locally Fabricated Stoves Single ($) Double-Burner($) Household 22 55.56 Commercial 44 100.0 Source: KITE Market Survey, 2006 9.3 Western type stoves (Gas cookers). A variety of western type gas cookers can be found on the Ghanaian market. Theses stoves can be classified as stand-alones or table-tops. The standalone gas cookers normally have four burners and an oven chamber. The table-tops on the other hand range from a single burner to four burners. Currently two firms namely RKA and SGGL are involved in the manufacturing of western type stoves in Ghana, which are sold through a network of retailers across the country. Ghana LPG Study Page 44 KITE Table 9-2: Price of Western Type Gas Cookers Type Price ($) 3-Burner Table Top 14.00 4-Burner Table Top 17.50 Standalone Gas Cookers 200-300 Source: KITE Markey Survey, 2006 9.4 Commercial Gas Ovens are in wide use among bread bakers and producers of confectionary in the cities and major town centers. They are also fabricated by local metal artisans. 9.5 The LPG Cylinders on the market can be classified into two categories: residential and commercial cylinders. The residential cylinders vary from 2kg to 14.5kg. The commercial cylinders on the other hand vary from 25kg to 52kg. Table 9-3: Prices of Cylinders Type Price ($) 5kg Cylinder 17.4 14.5 kg Cylinders 26.7 KITE, Markey Survey, 2006 Recommendations 9.6 There is a need to focus on building the capacity of local artisans involved in the fabrication of LPG appliances. The technical capabilities of the artisans could be strengthened through periodic workshops. Sensitization programs on the use of quality materials in production should be incorporated in the proposed training workshops. Local artisans should also be sensitized to the need to adhere to regulatory standards during production of LPG appliances. 9.7 In addition, the capacity of the regulatory authorities, the GSB and the NPA, should be strengthened. They should be equipped to be able to carry out testing and certification of LPG appliances that are fabricated locally or imported into the country. Ghana LPG Study Page 45 KITE 10 Safety/Image Existing Safety Issues 10.1 There are genuine safety concerns in the supply/distribution chain and the handling of LPG by end-users. However, safety is not a major inhibiting factor in the use of LPG in the country. Rather, the lack of appropriate legislation and regulation continues to be a bane to private-sector investment in the LPG sub-sector. The lack of standards and regulations backed by appropriate legislation is also hampering efforts by the regulatory agencies to police the sector. 10.2 The use of faulty filling heads by retailers appears to be widespread. It has been observed that many cylinder valves and regulators are damaged at retail plants during refilling. In addition, the absence of a system to periodically certify or decommission cylinders in operation is another cause for concern. The current consumer-ownership system makes it difficult to enforce safety standards. Faulty cylinders that are rejected by one refilling plant are at times accepted by others since consumers are free to refill at any refilling plant of their choice. Clarification of liability and responsibility at the retail and end-user level when it comes to safety issues is non existent in Ghana’s LPG industry. 10.3 There is basically no public education on the lifespan, maintenance schedule and handling of cylinders, safety valves and other LPG appliances and fittings. Therefore, the general public is unaware of the safety requirements involved in the handling and usage of LPG. The Ghanaian media talks about LPG only when there is a shortage on the market. The absence of public education and sensitization on how to install, operate and generally maintain LPG appliances means there is a lack of adequate appreciation of the safety precautions to be taken on the part of end- users. End-user safety precaution is therefore minimal in the Ghanaian context. Recommendations 10.4 The appropriate safety legislation and guidelines for the LPG sector should be developed as a matter of urgency. In addition, there is a need to organize periodic training for LPGMCs/OMCs and retail outlets involved in the distribution chain to promote basic safety practices in the market. Ghana LPG Study Page 46 KITE 10.5 A comprehensive public education campaign on the lifespan, maintenance schedule, and handling of cylinders, safety valves and other cylinder fittings will have to be developed to raise public awareness on safety requirements during the handling and usage of LPG. Community level stakeholders and media involvement in the campaign is highly recommended. Ghana LPG Study Page 47 KITE 11 AUTOMOBILE USE OF LPG 11.1 The use of LPG in automobiles in Ghana is generally believed to be on the ascendancy. However there are no official statistics regarding the number of vehicles running on LPG. Although the proliferation of the use of LPG in motor vehicles and the withdrawal of subsidies by the government have long been cited as the principal reasons for the perennial shortage of LPG on the market for residential uses, there are no records as to the number of vehicles using LPG or the exact quantity of LPG consumed by the transport sector. 11.2 The DVLA is charged with the responsibility of registering, inspecting and certifying motor vehicles which are fitted to operate on LPG. However, because the majority of the vehicles currently using auto gas did not have the facilities at the time of their registration, the DVLA’s records show that only few cars use LPG. According to DVLA sources, less than 10 cars registered each year have the gas facility already fitted at registration. 11.3 This means that almost all the vehicles operating on LPG had their fuel systems retrofitted in Ghana by local artisans. An attempt was made to interview two well- known auto mechanics reputed to be ‘experts’ in the installation of autogas systems in Kumasi. 11.4 One of them, probably aware of the illegality associated with their trade, would not talk to the authors without an introductory letter from the Ministry of Energy. The other one spoke with us, but it became apparent during the interview that he had no records of the number of cars that are converting to LPG. He mentioned that their business is seasonal and that business booms soon after an announcement of fuel price increases. However, he was unprepared to disclose how much he normally charges for his services. 11.5 An interview with a leading LPG retail outlet in Kumasi (Lambark Gas) and personal observation at the refilling plant during the visit pointed to the fact that small commercial vehicles (taxi cabs) and a few private cars are the types of vehicle that use auto gas. Table 12-1 shows autogas sales for the said refilling plant between June and December 2006. Ghana LPG Study Page 48 KITE Table 11-1: Sales of Autogas By a Retail Outlet in Kumasi Type of Use Month Residential/ Autogas as % of Auto Gas (kg) Total (kg) Commercial (kg) Total Sales (%) June 14,554 81,736 96,290 15.1 July 24,133 94,358 118,491 20.4 August 47,882 115,668 163,550 29.3 September 13,666 101,772 115,438 11.8 October 12,380 55,257 67,637 18.3 November 24,461 90,964 115,425 21.2 December 25,099 91,525 116,624 21.5 TOTAL 162,175 631,280 793,455 20.4 Source: Lambark Engineering Services, 2007 11.6 Table 12-1 shows that autogas sales averaged 20% of total sales over the seven month period with the highest sale of approximately 48 MT recorded in August 2006. 11.7 Informal discussions with some drivers using LPG in their vehicles revealed that it is very economical to use the fuel, which led to their decision for switching. Even though the price of LPG has been increasing, the drivers pointed out that it is still cheaper to run their vehicles on LPG rather gasoline, whose price is also increasing anyway. 11.8 It should be noted that cars using autogas also maintain their gasoline fuel systems as backstops and easily switch back to gasoline anytime there is shortage of LPG on the market. 11.9 Judging from the responses from the users of autogas, it could be concluded that it is feasible to convert from gasoline to LPG. Apart from the economic benefits accruing from such a switch there are environmental benefits as well. 11.10 Automobile usage of LPG has also boosted the sales volume of re-filling plants, making it easier for them to attract loans and deal with credit facilities. Recommendations 11.11 A study should be conducted to determine the number of vehicles running on LPG, the rate at which new cars are converting to autogas, total autogas consumption and similar autogas-related information. The study should also examine the safety implications and related issues associated with autogas. 11.12 To develop a basis for effective regulation, the Driving and Vehicle Licensing Authority should work with the Ghana National Association of Garages (GNAG) to identify and register mechanics who engage in LPG installations in automobiles. Ghana LPG Study Page 49 KITE 11.13 The DVLA should organize training sessions on safety precautions required for safe use of LPG in vehicles. Ghana LPG Study Page 50 KITE 12 INVESTMENT/FUNDING Funding Requirements 12.1 Annual energy needs per capita for cooking have been estimated at approximately 1 gigajoule. This translates to 40kg of LPG per person per year if this energy need is met exclusively by LPG, accounting for energy efficiencies of 53.6% which is typical for the types of stoves used in Ghana.6 With an average household size of 5 persons in Ghana, a typical Ghanaian household will require 200kg of LPG each year to meet its cooking energy needs. 12.2 The 2000 Population Census puts the total number of households in Ghana at a little over 3.7 million. This translates to an average annual LPG consumption of 14.2 kg per household (2.8 per capita), using 2005 LPG consumption figures (Figure 4-4). The average household consumption of 14.2 kg represents less than 10% (7%) of the estimated total annual cooking energy of households in Ghana meaning that the rest of the energy needs are being met from other sources. The estimated average consumption figure for Ghana correlates with the cooking energy consumption pattern shown in Figure 8-1, which shows that fewer than 10% of households are using LPG for cooking. 12.3 The UN Millennium Project has concluded that countries will fail to meet their Millennium Development Goals (MDGs) without adequate and improved access to modern energy services. MDG-compatible targets have therefore been set for energy services. The MDG-compatible target for cooking fuels requires countries to make modern fuels accessible to 50% of those who at present use traditional biomass for cooking. Meeting this target in Ghana means that over 1.6 million households would have to be provided with modern cooking fuels by 2015. 12.4 The Energy for Poverty Reduction Action Plan (EPRAP) for Ghana has estimated that about US$1.254 billion will be required to provide 1.6 million households with LPG over the ten-year period. The total amount is broken down into US$1.176 billion recurrent fuel cost and US$78 million hardware (cylinders and cook stoves). It does not however include the cost of expanding the capacity of the TOR to meet 6 See Modi, V. et al, 2006 Ghana LPG Study Page 51 KITE the increase in demand and of enhancing the distribution/storage infrastructure to distribute the fuel to retail outlets. 12.5 The total indicative investment requirement is expected to be financed through a combination of private household/end-user contributions, domestic government spending and increased/additional external assistance. It is expected that private households/end-users will bear the largest share of the total cost of investment in the household sector. To be viable in the long run, i.e., allowing for interim subsidies, the consumers will eventually have to bear the full costs by themselves. 12.6 It is worth noting that an appropriate funding mechanism is required to support the poor to purchase LPG end-use equipment and accessories Opportunities for Investors 12.7 Enormous opportunities exist for public and private sector investment in Ghana’s LPG industry. These opportunities include establishment of new refineries, LPG storage depots, transport systems, refilling plants and manufacturing/sales of equipment and end-use appliances. Funding Sources 12.8 Public-Private Partnerships (PPPs) are a potential source of funding. They could be instrumental in securing private sector investment in partnership with the public sector, for the capitalization of the LPG supply system to expand supply and distribution networks to all parts of the country. In addition, a PPP will be required to upgrade the storage and evacuation infrastructure at the TOR. 12.9 Other funding sources would include sector (technology) specific programs and initiatives such as the African Rural Energy Enterprise Development (AREED) and financial institutions such as the International Finance Corporation (IFC) and local traditional banks and financial institutions. Ghana LPG Study Page 52 KITE 13 ACCESS BY THE POOR 13.1 In Ghana, approximately 90% of all households (96% of rural households and 79.8% of urban households) rely on wood fuels for cooking, with only 10% of households using modern cooking fuels, such as LPG (9%) and kerosene (1%), as indicated in Figure 8-1. 13.2 Table 13-1 shows the percentage distribution of households using LPG for cooking, by region and poverty status. Table 13-1: Use of LPG by Locality and Poverty Status Region Locality and Poverty Status Rural Rural Poor Urban Urban Poor Total Greater Accra 7.8 0.0 32.5 10.7 29.4 Ashanti 1.4 0.0 13.5 1.2 7.5 Western 1.9 0.0 14.2 0.9 6.3 Eastern 1.5 0.0 9.8 0.9 4.6 Central 1.4 0.0 9.9 4.4 4.6 Brong-Ahafo 0.2 0.0 6.2 0.0 2.7 Volta 0.6 0.0 7.3 0.8 2.3 Northern 0.0 0.0 4.1 0.0 1.3 Upper East 0.1 0.0 6.7 0.0 1.2 Upper West 0.0 0.0 4.9 0.0 1.1 Source: Core Welfare Indicators Questionnaire Survey, 2003 13.3 Table 13-1 depicts the low usage of LPG as a cooking fuel across the country. With the exception of the Greater Accra Region (29.4%), all the other regions have less than 10% of total households using the fuel for cooking. More significantly, the Table reveals that none of the households among the rural poor use LPG for cooking. The situation is not much better among the urban poor. Ghana LPG Study Page 53 KITE Key Barriers to the Use of LPG by the Poor 13.4 Price is the most important barrier to the use of LPG among poor households. Although the fuel is generally unavailable throughout the country, several poor households that have indicated a preference for the fuel are not using it because they claim they cannot afford the associated cost.7 This explains why even in cities such as Accra where there is no shortage of re-filling outlets, only 10% of the urban poor use LPG for cooking. 13.5 Poor households are usually unable to afford both the upfront and recurrent cost of modern cooking fuels such as LPG if equipment and fuel prices are based solely on the principle of cost recovery. The government petroleum pricing policy, which seeks inter alia to achieve full-cost recovery, has been found to impact negatively on the use of LPG in Ghana.8 13.6 As indicated earlier in this report, the demand for LPG in Ghana has been found to be very elastic across all income groups implying that it is a relative luxury among rural and other urban consumers. A 10% increase in the price of LPG resulted in 26% decline in demand among the rural poor following the 2003 petroleum price hike. The consumption of charcoal and firewood increased at the same time, particularly among rural dwellers. This suggests that not only have increases in the price of LPG prevented new households from switching over to use LPG, but they have also caused existing LPG users to revert back to the use of wood fuels. 13.7 The absence of an efficient and reliable supply chain for LPG in many areas is another key barrier to the use of the fuel. As mentioned earlier, the distribution and supply of LPG has been limited to the urban centers to the neglect of rural areas where most of the poor live. This supply bottleneck would have to be addressed before the poor can have access to the fuel. Recommendations 13.8 The following interventions should be made to help address the barriers identified above so as to improve access to LPG in all parts of the country: i) Development of sustainable LPG supply and distribution chains: a conscious effort should be made to develop a sustainable LPG supply and distribution chain through the use of appropriate policies and measures aimed at encouraging the development of an LPG supply and distribution infrastructure across the country. 7 See Edjekumhene, I et al, 2005 8 See Petroleum PSIA, 2004 Ghana LPG Study Page 54 KITE ii) Development of financing mechanisms to facilitate the establishment of rural LPG retail enterprises and the acquisition of end-use appliances: Where the initial cost of end-use appliances such as stoves and cylinders is a barrier to fuel switching to LPG, this should be removed or addressed through the establishment of micro-credit financing arrangements targeted at the poor to facilitate their acquisition. In addition, a financing facility should be established to provide support to entrepreneurs who want to provide LPG services in un-served or under-served communities. iii) Design and implementation of a comprehensive public awareness and education campaign on LPG: Another important proposal is the design and implementation of a comprehensive public awareness and education campaign on LPG. This will facilitate the dissemination of information to raise awareness among households and other potential users of LPG about its costs and practical benefits compared with traditional fuels. iv) Promotion of productive uses of LPG: The use of LPG for agricultural processing and micro-enterprises such as shea butter processing, brick and tile firing, bread baking, groundnut oil and palm nut oil extraction, and pito brewing for local consumption should be encouraged. It is expected that the use of LPG to facilitate commercial activities will result in tremendous productivity gains, direct income-generation, and economic growth. v) Formation of LPG user associations: the formation of LPG user associations will help influence market development, increase investment and expand availability of LPG in all parts of the country. vi) Devising of appropriate financing mechanisms to help households overcome affordability constraints: While there is no unanimous view regarding the role of subsidies for recurrent fuel costs, there is a strong case for financing support systems to be instituted to help poor households switch from the use of wood fuels to cleaner fuels. Commonly used mechanisms include micro-financing, and credit and loan arrangements. Ghana LPG Study Page 55 KITE 14 Critical Issues/Strategies/Action Plans Summary of Critical Issues/Constraints Objectives: Findings from the study emphasize 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. There is, however, 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 must be taken to stimulate demand for the product in all parts of the country. Current Status: The LPG industry has made some strides since the launch of the LPG promotion program 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 on 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 most potential users. The perennial shortage of the product is partly due to bottlenecks in the delivery infrastructure for LPG at the TOR 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. Policy: The government’s LPG policy can not 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 investment is necessary. That policy should also be designed to help elevate the LPG industry to an improved level of performance. Ghana LPG Study Page 56 KITE 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 and the LPGMCs/OMCs involved in the LPG industry. Regulation: The NPA and the GSB are not only perceived to be ineffective but 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 very 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. Supply: The LPG supply in Ghana has been erratic due to unreliable deliveries from the TOR. 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. Refinery: Inefficiency and limited storage and loading facilities at the TOR have greatly affected the LPG industry in Ghana. Long down times at the TOR and inadequate loading facilities when LPG is available are hindering LPG availability on the Ghanaian market. The operating efficiency of the TOR has to be improved and other refineries 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. 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 increased to facilitate improved service delivery and availability of LPG to all Ghanaians. 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 Ghana LPG Study Page 57 KITE 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. Cylinders: The country has no cylinder management system in place and a large number of 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 volume of dangerous cylinders circulating in the country. 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. 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 the existing appliances to meet local needs at home will help improve the acceptability of LPG among Ghanaians. 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 instil consumer confidence in the product. In addition, the media should be properly engaged to support public education on LPG safety. 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 PPPs. The PPP involves securing private sector investment in partnership with the public sector for capitalization of the Ghana LPG Study Page 58 KITE LPG supply system to expand supply and distribution networks to all parts of the country. Ghana LPG Study Page 59 KITE Strategies/Action Plans Objectives/Target Table 14-1: Objectives/Targets Objectives Target 1. Develop a Strategy for revamping the ƒ LPG per capita consumption of 3.7 LPG industry in Ghana. kg per year 2. Expand LP Gas access by the poor ƒ Ensure that at least 20% of households currently using traditional biomass for cooking are provided with access to LPG by 2015 Ghana LPG Study Page 60 KITE Table 14-2: Action Plan/Strategies Matrix Critical Issues Strategy Action Plan 1 Objectives: The study has two main objectives, Pursue both objectives concurrently. ƒ Completion of a business plan in 1. Revival of the domestic LPG market. accordance with the finalized road map. 2. Expanded access to LPG by the poor. ƒ Determine priorities and timescale for implementation of the roadmap. 2 Government Policy on LPG Program Make government an active partner of the ƒ Complete and present the report to secure 1. The government LPG program which ongoing process and obtain government’s. acceptance from the relevant government commenced in the early 1990s has not been formal endorsement of the study's roadmap. agencies, that is, the Ministry of Energy. sustained. The LPG industry is plagued by a ƒ Organize a forum to discuss content of number of challenges and the majority of report with all relevant stakeholders. Ghanaians still do not have access to LPG. ƒ Secure endorsement of the Minister of 2. The study objective is in line with the Energy and key stakeholders for the target government’s proposal to provide 15,000 set (per capita usage and access by the households in 300 rural communities with poor). access to LPG over a four-year period under ƒ Secure clarification of government’s long the Ghana Poverty Reduction Strategy paper and short term plans for the LPG industry (GPRS II paper). and role of LPG in the development agenda of the country. 3 LP Gas Industry Structure/Market Controls: Develop an effective LPG industry ƒ Establish an LPG industry association for The industry is composed of a variety of players - association with national recognition and Ghana - the Ghana LPG Association large and small - but lacks a single authoritative clearly defined roles and mandates. (GLPGA). and representative organization to serve as its ƒ Affiliate the GLPGA with the WLPGA to mouth piece and coordination point. benefit from available technical and financial support. ƒ Empower and resource the GLPGA to deal with industry problems. Ghana LPG Study Page 61 KITE 4 Regulation: Strengthen the weak legislative and ƒ In consultation with the MoEN and NPA, 1. There is no explicit and specific LPG regulatory environment for the industry to prepare a report which highlights legislation regulating the industry in Ghana. facilitate revitalization of the industry. regulatory and structural impediments in Legal aspects of the LPG industry are the industry, and make recommendations, covered as part of the legislation for the where appropriate, for legislative actions petroleum industry. by government. 2. The regulatory authority (NPA) has a limited ƒ Develop a constructive dialogue with the capacity and resources rendering it unable to relevant agencies and authorities for police the LPG industry nationwide. The LPG collaboration in efforts to streamline the regulatory functions of the NPA need to be legislative and regulatory environment in clarified. the LPG sector. ƒ Advocate the establishment of an LPG Division under the NPA with a clear mandate for regulating the industry. 5 LP Gas Supply/Refineries/Storage/Distribution: LPGMCs/OMCs/private investors must be ƒ Encourage the LPG industry to initiate a 1. The TOR which is the sole bulk supplier of encouraged to establish private storage constructive dialogue with the TOR/MoEN LPG in the country has limited storage depots to provide adequate and reliable regarding the economic and social benefits capacity of 9,000 cubic meters (5,000 metric product supply in all parts of Ghana. In that will accrue from timely and efficient tons). There is therefore inadequate reserve addition, new economic and efficient LPG evacuation when the product is capacity for the supply of LPG in Ghana. transport modes such as rail and pipelines available at TOR. Additional LPG delivery points (loading should be developed. ƒ Encourage suppliers and supply chain points) and storage facilities in and outside of operators to improve inland transport the TOR are required to facilitate access to performance and standards. the product. ƒ Promote the introduction of alternative 2. The road transport infrastructure, which is the transportation modes, for example rail and major mode of transport for the industry, is pipeline, for safer and more economical underdeveloped. inland supply of LP Gas. ƒ Raise and enforce technical standards in order to remove substandard equipment and practices. ƒ Advocate the removal of import duty on LPG equipment. Ghana LPG Study Page 62 KITE 6 LP Gas Cylinders: Clarify who owns, who fills, who maintains ƒ . Make mandatory the periodic inspection Most cylinders in circulation are in poor condition the cylinders and establish standard cylinder and re-certification of all LPG cylinders in due to the absence of a cylinder management sizes for the Ghanaian market. the country. system (maintenance and renewal) for Ghana. ƒ Prepare and cost a program central pressure testing facility for cylinders. ƒ Encourage the LPG industry association to work with the appropriate regulatory authority to phase out dangerous cylinders from the market. ƒ Empower and resource the GSB to monitor cylinders at various ports of entry. 7 LP Gas Appliances: Suitable, affordable appliances to be made ƒ Encourage LPG marketers to work with A variety of LPG appliances can be found in the available to prospective LPG consumers the manufacturers and vendors to secure Ghanaian market. Conspicuously missing are throughout the country. suitable, affordable appliances for the appliances for applications such as refrigeration consuming populace. and mechanical power. 8 Safety/Image: Improve LP Gas safety throughout the ƒ Clarify cylinder ownership and The existing Code of Practice for the industry is distribution chain and at the point of use. maintenance obligation outdated. Although records of LPG accidents in ƒ Make mandatory the periodic inspection Ghana are limited, the industry has a poor safety and re-certification of all LPG cylinders in image. There are currently no nationally accepted the country. operational and safety standards in the LPG ƒ Strengthen the NPA and other Regulatory industry. bodies to monitor and undertake periodic checks on refilling plants and LPG distribution facilities. ƒ Educate Public on the life span of equipment. ƒ Form LPG Associations (from OMCs to End Users) to assist in the formulation of regulatory policy. ƒ Produce a readily accessible document on regulatory and safety procedures for the industry. Ghana LPG Study Page 63 KITE ƒ Effectively enforce the ban on the importation of used cylinders into the country. 9 Access by the Poor: The initial hardware-related Promoting access by poor people to LPG ƒ Provide access to credit for private cost of switching to LPG is a real barrier for the should be formally adopted as a guiding entrepreneurs to establish refilling plants in poor, not least because consumer credit is a rarity principle for all industry stakeholders. rural and peri-urban communities. in Ghana. Uncertainty regarding availability and ƒ Provide access to credit for end users, to pricing, together with safety concerns, are buy LPG equipment and cylinders if deterrents. necessary. ƒ Promote extensive use of smaller cylinders (3kg - 6kg) to reduce the recurrent cost of refilling for the poor. ƒ 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 ƒ Prepare a comprehensive business plan for Both external and internal sources of financing investment and skills essential for improving the LPG industry. have to be explored to meet the funding access and service delivery in the LPG ƒ Organize a donor/investors forum to sell requirement for the sector. Grants and public industry. various investment opportunities to investments will be needed in areas such as potential investors. institutional capacity building and public education ƒ Encourage government to provide since they may not meet commercial investment incentives and an improved regulatory and criteria. safety environment to attract private investors. ƒ Establish a specialized fund for the LPG industry with seed funds from the petroleum levy. Ghana LPG Study Page 64 KITE STAKEHOLDERS CONSULTATIONS Day Discussion Stakeholders ƒ ƒ th Tuesday 19 LPG supply Mr. Dennis Baidoo, Shipping December, Manager TOR 2006 ƒ LPG distribution infrastructure ƒ Mr. Quartey, Emmanuel Kwatelai, ƒ Transportation General Manager of Occupational Health, Environment and Safety Division-TOR Tuesday 19th ƒ Legal and regulatory structure ƒ Mr. Dan Amoah-responsible for December, pricing, NPA 2006 ƒ LPG pricing ƒ Mr. Joseph Essandoh, Policy ƒ Supply and consumption trends Planning Division, Energy Commission ƒ Industry safety issues Monday ƒ Autogas ƒ 2 Auto Mechanics involved in the January 8, conversion of gasoline-fuel cars to 2007 LPG Wednesday, ƒ Autogas ƒ Mr. Akwasi Badu, Supervisor, January 10 Lambark Engineering Services Ltd. Friday ƒ Autogas ƒ Cabbie Drivers January 12 Ghana LPG Study Page 65 KITE BIBLIOGRAPHY Abavana, G. C. and Mahama Amadu, 2006 “LPG Substitution for Woodfuel Project�, Project Completion Report submitted to the UNDP, Ghana Edjekumhene I, et al, 2006, “Energy for Poverty Reduction Action Plan for Ghana: A Roadmap to Targeted Delivery of Modern Energy Services to the Poor�, Ministry of Energy, Accra Edjekumhene I, et al, 2004, “Energy Sector Reform and the Pattern of the Poor: Energy Use and Supply – the Case of Ghana�, Two-part Report submitted to the ESMAP – World Bank. Ghana LPG Rural Energy Challenge Workshop Report, KITE August 2003 Guidelines for LP Gas Use in Rural Energisation, WLPGA report KITE, 2003, “Background Paper on the LPG Industry in Ghana� UNDP/WLPGA LP Gas Rural Energy Challenge Modi, V., S. McDade, D. Lallement, and J. Saghir, (2006). “Energy and Millennium Development Goals�, New York, Energy Sector Management Assistance Programme, United Nations Development Programme, UN Millennium Project, and World Bank. NDPC/UNDP, 2004, “Poverty and Social Impact Analysis: Distributional Impact and Effects of Ghana’s Petroleum Pricing Policy, Draft Report WB86526 C:\Documents and Settings\WB86526\My Documents\Ghana LPG Improvement Study Report.doc 1/16/2007 12:15:00 AM Ghana LPG Study Page 66 KITE