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Cameroon shifts fuel import strategy: Major marketers gain ground, Sonara takes back seat

Cameroon shifts fuel import strategy: Major marketers gain ground, Sonara takes back seat
  • Comments   -   Monday, 18 December 2023 16:25

(Business in Cameroon) - Cameroon is getting ready to change its strategy for supplying the domestic fuel market in the coming days. The Secretary-General of the Presidency (SGPR), Ferdinand Ngoh Ngoh, made it clear in a December 14 letter addressed to the Minister of Water and Energy, Gaston Eloundou Essomba, that President Paul Biya "prescribes the liberalization of petroleum product imports."

Specifically, according to the same letter, the Stabilization Fund for Hydrocarbon Prices (CSPH) will now allocate quotas to "major importers in the sector, presenting the technical and financial profiles enabling them to immediately proceed with imports." According to internal sources, this terminology refers to members of the Group of Oil Professionals (GPP), currently chaired by Neptune Oil's CEO, Antoine Ndzengue. This includes marketers such as TotalEnergies, Tradex, Ola Energy, Nepturne Oil, and Bocom. In the same letter, the Minister is asked to "allow marketers to purchase petroleum products directly from suppliers of their choice."

With these new guidelines, President Paul Biya "reinstates" the CSPH in the "management of the process of allocating quotas to importers," a responsibility delegated to the Ministry of Water and Energy (Minee) for nearly four years, and also repositions marketers in the market for petroleum product imports, sidelining the National Refining Company (Sonara).

Sonara loses ground

Let’s recall that after the fire at Sonara's facilities in late May 2019, Cameroon exclusively sourced petroleum products through imports. To ensure regular supply to the local market, the President decided at the end of that year to grant the public refiner licenses to cover 80% of the petroleum product imports consumed by the country, leaving only 20% to marketers, per the 2020 report of the Technical Commission for the Rehabilitation of Public and Parastatal Enterprises (CTR).

Coupled with "support for the refinery" (CFA47.88 per liter of fuel sold), this decision allowed Sonara to reduce its losses from CFA107.3 billion in 2019 to CFA10.6 billion in 2020 and achieve a positive net result after taxes of CFA78.9 billion in 2021. Now, the Head of State is instructing a reallocation of market shares based on the "technical and financial profiles" of marketers, confining Sonara to merely "confirming the analyses carried out by Hydrocarbons Analysis Controls (Hydrac)" on imported petroleum products. This shift is expected to have a negative impact on the financial health of the public company. However, "it is good news for importing marketers like TotalEnergies, which have significant technical and financial capacities," comments an internal source in the GPP. Knowing that an importer makes a profit of CFA16 per liter of gasoline, diesel, and lamp oil imported, an increase in market share means increased revenue.

At the end of 2019, President Paul Biya also instructed, according to the CTR, "the selection of four international traders for the country's sustainable supply of petroleum products." Following this directive, the Ministry of Water and Energy set up a "new mechanism consisting of selecting, through quarterly international tendering, four traders to supply local petroleum product importers," with the main criterion being "the lowest premium offered to the trader."

Reduction in trader premiums

"Since then, the new supply mechanism has led to significant reductions in premiums, namely $98 per metric ton (-76.56%) for gasoline, $77 per metric ton (-63%) for diesel, and $53 per metric ton (-49%) for Jet A-1. A simulation based on this has revealed annual savings for the state in the range of CFA100 bn to CFA150 billion [on petroleum product subsidies]," according to both the CTR and the Minee. The savings, according to the same sources, are partially transferred to Sonara through the "support for the refinery" line included in the price structure since March 2020. As of September 30, 2023, this line had mobilized CFA270 billion, with the money intended to repay the numerous domestic and foreign creditors of the public refiner, whose debt is undergoing restructuring.

Despite these advantages, Paul Biya has now prescribed a return to almost the situation before, "without consultations with the sector ministries," according to several sources in these administrations, who claim to have been surprised by these new directives. Moreover, the SGPR's correspondence, echoing the presidential instructions, does not target any letters from sectoral ministries. The President's decision, however, comes at a time when the country has been experiencing a shortage of gasoline for several days. Consequently, in the oil sector and within the government, there is speculation about a causal link between the President's directives and this shortage.

"As each importer or marketer individually purchased the product, they had the freedom to impose surcharges. This resulted in varying losses for the state, with different importers charging different amounts. The tender process not only standardized import prices but also decreased the state subsidy. However, some were uncomfortable with the tender process for importing products and actively worked to highlight its limitations by deliberately causing shortages," explains an industry expert who chose not to pinpoint a specific actor. "The solution that is now abandoned was not perfect, but it already addressed a problem. That of the explosion of trader premiums and losses compensated by the state. In my opinion, it's the refusal of closer collaboration with marketers that led to the current decision," adds another connoisseur.

Non-guaranteed regulatory stocks

Nevertheless, this new mechanism has not enabled Cameroon to maintain its regulatory stocks, set at 15 days' consumption for commercial stocks. The current shortage, according to the Minister of Water and Energy, is due to "unfavorable weather and sea conditions" that delayed ships serving the country by four days. This suggests that if commercial stocks covered 15 days of consumption, this incident would not have affected gasoline availability at service stations. Moreover, sources reported that Sonara has often struggled to cover 80% of petroleum product imports consumed by the country, as granted by the state. The CTR said that in 2021, for example, "Sonara only met the needs of the national market up to 67.89%, corresponding to 1,408,486 m³." The same source points to the "scarcity of foreign currency" and "the blocking of its import operations by Beac during the last quarter of 2021, for failure to present supporting documents (customs receipts) for previous imports".

Furthermore, the importation procurement process is also often accused of causing delays in replenishing stocks. In June 2022, for example, traders selected after a tender had ultimately withdrawn, considering the premiums was too low. This forced the procurement commission, housed in the Minee, to restart the process, putting the country at risk of disruption in petroleum product supplies. Several sources within the Group of Oil Professionals indicate that the liberalization of petroleum product imports should help avoid these problems if the state and sector players capitalize on the gains of the previous mechanism. "The state already knows the level of premium that traders are willing to accept. The administration can also set a minimum premium amount to not exceed," sources said. In any case, according to Paul Biya's new directives, it is the responsibility of the Ministry of Water and Energy to "ensure that the companies responsible for the importation and distribution of various products adhere to the prices approved by the government." The stakes are indeed high. A lack of control over trader premiums could jeopardize the "support for the refinery" on which the repayment of Sonara's restructured debt relies.

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