UNCTAD OGTF Conference Nairobi, Kenya, 23-25 May 2007

1. NOT AN OFFICIAL UNCTAD RECORD AFRICAN REFINERS ASSOCIATION UNCTAD OGTF Conference Nairobi, Kenya, 23-25 May 2007

2. Introduction to the ARA • 50 refineries built in Africa over past 50 years • 39 currently operating • 12 closed in past 40 years • Out of 17 countries with refineries, 12 have only one refinery • Total refining capacity in Sub-Saharan Africa <1.4 million b/d (<70 million MT); • Secondary refining capacity only 20% of total nameplate crude distillation capacity

3. Introduction to the ARA

4. Introduction to the ARA • ARA provides a voice for Africa’s 39 refineries; • NGO funded by its members, associate members and sponsors; • Second AGM – March’07 in Cape Town • Third AGM – 10-15 March’08 in Cape Town

5. ARA’s Aims and Objectives • Create a voice for African downstream; • Take ownership of and address common issues (economic, environmental, social); • Promote communication, co-operation and exchange of experience; • Defend the interests of the African oil industry.

6. ARAStructure • AGM • Executive Committee: • organise AGM • ARA budget • Monitor Workgroups • Manage ARA membership • 4 Executive Committee meetings/yr

7. ARAStructure

8. 1.Threats to African Refiners

9. Gasoline: Gasoil: Planned New Refinery Construction and Upgrade Projects

10. Possible Impact on African Markets • New projects in Persian Gulf will result in estimated: • 5 million MT of gasoline, • 5 million MT of jet/kerosene, • 9 million MT of gasoil; • New projects in India (west coast): • 6.5 million MT of gasoline, • 9.5 million MT of jet/kerosene, • 15 million MT of gasoil. • A large portion of these are for export and will impact on African markets.

11. Possible Impact on African Markets A key issue is whether or not Middle East and Indian refineries (and European/Russian?) play by international trade rules? • Exports subsidised by domestic sales? • Low cost feedstock (ME/Russian)? • Low cost/free power? • Disposal of low quality by product at below cost? Are WTO rules applied?

12. Does Africa need refineries?

13. 2. Tightening product specifications

14. Product Specifications: AFRI Specs

15. Product Specifications • ARA members have committed to meeting AFRI spec targets • Meeting the higher levels will require investment that may not be achievable • Refiners need a fair, consistent “playing field” to attract investment

16. 3.Regional Price Alignment

17. Pump Prices in Africa: Regional Imbalances Gasoil:119Gasoline: 125 +16% Gasoil: 103 Gasoline: 112 +12% +16% +20% +11% +63% +129% Gasoil: 89Gasoline: 93 +41% Gasoil: 63Gasoline: 49 +90% +73% +131% Gasoil:109Gasoline: 113 Prices in US cents per litre

18. Market Structure • Wide variations in pump prices within the same region • Wide differences in ex-refinery/depot and distribution price structures • Harmonisation could lead to: • Reduction in smuggling • Facilitation of trade • Market transparency, less market distortion

19. 4. What is the value of having a refinery

20. Value of a Refinery: Do we need them? Would it matter if all African refineries close in the next 20 years and Africa buys all its products from the ME, India, and Europe/Russia?

21. Value of a refinery: Traditional arguments Traditional arguments to allow refinery subsidisation (e.g. by K-factor): • Employment • Technology • Domestic crude • Supply security ( no longer an issue?) All valuable but worth $millions not $100’s of millions (subsidy cost?)

22. Value of a refinery: Additional Arguments 1 Tax collection: • Refineries are good tax collectors • Private importers (especially at small import points) may not be • Smugglers (who operate when cross-border prices are different) do not pay taxes Quality Control: • Product quality fraud (off-spec imports) Can be worth $10’s of millions

23. Value of a refinery: Additional Arguments 2 Product Import Pricing: • Many questionable practices exist for ‘adjusting’ prices on product cargoes; more difficult to do on crude oil cargoes Privatisation: • Refineries are difficult to sell as investors averse to market regulation • Limited competition (difficult for a refinery to compete against imported products) Can be worth $10’s of millions

24. Subsidies K-Factors • extremely important to a refiner (10% on 1 million mt/yr = ~$60 million) • Blunt instrument • Inconsistent application Import taxes on products are an alternative Refiners need a consistent level playing field

25. 5. Efficiency Improvement

26. Efficiency Improvement… • Enormous improvement achieved in Africa over past 20 years • To go further need a clear consistent playing field particularly to attract much neededinvestment • Cooperation through the ARA can help with: • Benchmarking, • Training, • Experience-sharing, • Expanding supplier choice

27. Summary • African Refineries face serious threats • Advantage of local refining vs. product imports has been seriously undervalued in the past by economists • Constant pressure for closure and replacement by product imports may lead to wrong answer for Africa • African refineries can become much more efficient but need a consistent level playing field • ARA can help by encouraging cooperation among members