9th Africa Oil and Gas, Trade and Finance Conference Exhibition

1. 9th Africa Oil and Gas, Trade and Finance Conference Exhibition NOT AN OFFICIAL UNCTAD RECORD BNP PARIBAS PRESENTATION May 31th - June 3rd, 2005 Maputo

2. OIL TRADE FINANCING: THE OIL BILL IN SUB - SAHARAN COUNTRIES Séverine Mateo and Guillaume Leenhardt Energy & Commodities

3. OUTLINE 1.SUB-SAHARAN COUNTRIES STRONGLY HIT BY THE OIL PRICE HIKE 2. MACRO-ECONOMIC IMPACT OF THE OIL PRICE HIKE 3. DOWNSTREAM INDUSTRY UNDER PRESSURE 4. FINANCING CHALLENGES

4. PART 1. SUB-SAHARAN COUNTRIES STRONGLY HIT BY THE OIL PRICE HIKE • Soaring oil prices: a hidden oil crisis since 3 years ? • Brent evolution • Explained by fundamentals: • Concentration of reserves in the Middle-East (increasing OPEC bargaining power) • Acceleration of world demand growth, and notably in China / Far East • Short-term political elements • Speculators bet on rising costs • + 80% between 2002 and 2005 average Brent prices • + 165% over 10 years • 2005 YTD Brent @ 50 $/bbl. • Future: US$ 80-100/bbl ? • Short term & Long term issues • How to predict the future? • Increasing price decks • For the mid-term prices are to remain relatively high and there is a need to cope with new environment

5. PART 1. SUB-SAHARAN COUNTRIES STRONGLY HIT BY THE OIL PRICE HIKE

6. PART 1. SUB-SAHARAN COUNTRIES STRONGLY HIT BY THE OIL PRICE HIKE • The oil products FOB prices have followed the same trend since 2002: • +82% for Gasoline premium Unleaded (444$/MT YTD05) • +119% for Jet NWE (498$/MT) and for Gasoil USLD (482$/MT) • African delivered prices were increased by • High Freight costs (stressed in summer 04) • High Logistics & local transportation costs (e.g.: up to 200$/MT for DRC) • land-locked countries which depend on the availability of import/transit facilities • The impact was reinforced in the area because of: • Limited substitution (no nuclear energy, no LNG facilities for African markets) • Higher energy intensiveness (Africa intensiveness ratio = 235 vs. 100 for OECD countries) • Gasoil overtaking gasoline prices since august 04, significantly impacting African importers • The oil bill for Sub-Saharan countries almost doubled in 3 years to reach an estimated of USD 20 billion for 2005 • What is the impact in the region?

7. PART 2. MACROECONOMIC IMPACT OF THE OIL PRICE HIKE ON SUB-SAHARAN ECONOMIES. • Limited macroeconomic impact and GDP changes among the countries (according to IMF) • AIE estimates that a crude oil increase by 10 USD/bbl results in a GDP decrease of 0.4% for China and 3% for Sub-Saharan Countries

8. PART 2. MACRO-ECONOMIC IMPACT OF THE OIL PRICE HIKE ON SUB-SAHARAN ECONOMIES • Macro-economic compensation or deterioration depends on key factors: • Net oil importer or net exporter: partial (Cameroon, Ivory Coast) or full (Nigeria) natural hedge • Structure of trade balance / national income • Share of oil imports in trade balance and / or national income, • Diversification in other exported commodities, ex: metals • Diversification of exports, ex: services, trade, etc. • Degree of substitution • Local oil (pan-African co-operation?), coal ? • Limited substitution for transportation uses • Recovery of flared gas (Nigeria, Congo) • Sensitivity of the local currency to CFA/€ or USD, • Oil Intensive industries

9. PART 2. MACRO-ECONOMIC IMPACT OF THE OIL PRICE HIKE ON SUB-SAHARAN ECONOMIES

10. PART 2. MACRO-ECONOMIC IMPACT OF THE OIL PRICE HIKE ON SUB-SAHARAN ECONOMIES • Inequalities among countries at the macro level: • Most countries benefited from a relative natural protection thanks to increasing commodity prices in general (2002-2004): • Aluminium (+38%), copper (+61%), coffee (+54%) or iron ore(+25%) prices increase partially/fully compensated the rise in oil prices. • Oil producing countries recorded a strong growth and benefited from a natural hedge over oil products imports. Ex: Nigeria, Angola • Some countries have been “squeezed”, • Penalised by rising oil bill and low & volatile commodity prices in strategic exports: • Cocoa prices lost 13% between 2002 & 2004. Beg 05 recording recovery. • Cotton prices fell from a high 79 c/lb. in March 03 to a low 48 by Dec04 (Mali, Burkina Faso) • Exogenous shocks: drought, locust plague, etc… bringing add. constraints • Limited price elasticity of the local demand (of oil products) • Some countries could not bear the cost and have reduced their imports (Zimbabwe) • Different potential impacts given each country’s specificity: • Inflation, pressure on the budget & the economy, draining exchange reserves at the Central Banks, depreciation of local currency (speculation, increased indebtedness, enhancing social and political instability... • Anyway, actors of the petroleum chain have strongly been hit

11. PART 3: HOW A DOWNSTREAM INDUSTRY UNDER PRESSURE REACTS TO OIL PRICES HIKE

12. PART 3: HOW A DOWNSTREAM INDUSTRY UNDER PRESSURE REACTS TO OIL PRICES HIKE • Downstream is undergoing organisational changes: • DEREGULATION • The deregulation is characterised by: • The end of the traditional state-owned monopoly-like model • Deregulation and liberalisation at all levels of the supply chain • Competition for imports, transport, storage, distribution and supply • Multiple players : private, state-owned companies, IOCs, and mixed co. • Price are driven by supply and demand • State’s role shall be limited to supervision

13. West African Model East African Model • A prominent importer (State-owned or oligopolistic importer) • A regulated distribution market with a limited number of players (presence of a State-owned company or a State control via licence granting) • Regulated price structure • Some prices subsidies • No monopolistic importer • Direct imports by the marketers • Development of wholesale specialists (Fuel marketers, …) • Market price • No prices subsidies PART 3: HOW A DOWNSTREAM INDUSTRY UNDER PRESSURE REACTS TO OIL PRICES HIKE • Deregulation trend in Sub-Saharan countries: • All countries have started the process but are at different stages • 2 models: West-African / East-African • Examples: • Nigeria: end of import monopoly, double circuit (State and private) • Mauritania: deregulated distribution and supply • Madagascar: deregulated until the oil price increase becomes unbearable • Tanzania, Kenya, Uganda: market price • Seychelles, Ethiopia: fully regulated

14. PART 3: HOW A DOWNSTREAM INDUSTRY UNDER PRESSURE REACTS TO OIL PRICES HIKE • Who pays ? Different adjustments to pay the oil bill depending on the regulation model • the “Deregulated East-African” model: • Consumer • State, trough reduced taxation. • the “Regulated West-African” model: • Consumer, trough price cap revaluation, • State-owned importers, sometimes being forced to reach the limits of bankruptcy, • Private importers/marketers (no long term solution), • State, through reduced taxation (Burundi) or subsidies to marketers/importers • Stabilisation funds (Ethiopia), • Some countries with porous borders often “subsidise” neighbours’ energy needs when oil pricing mechanisms are very different

15. PART 3: HOW A DOWNSTREAM INDUSTRY UNDER PRESSURE REACTS TO OIL PRICES HIKE • Whatever the model, • Oil prices increase is one way or the other (fully or partially) passed through all along the supply chain to the final customers… • States face difficulty • Shortages / Scarcity • Black Market... • Unsustainable pressure from lobbying groups • State shall remain active / “in charge” in case of high prices (directly or not): • In order to ensure security of supply & maintain social stability (threshold effect) • Oil/refining industry is more strategic than in low oil price scenario • State-owned co. can temporarily be used as “buffers” (negative margins) • Impact is important in terms of fiscal discipline

16. High Pressure on local banks and currency reserves PART 4: COPING WITH INCREASING FINANCING NEEDS • Role of the multilateral institutions • Despite a clear policy to support full market price mechanism, in some countries : flexibility and sometimes increasing financing from multilateral institutions (IMF/WB) • Loans generally focused on budgetary issues, aids and grants at the country level • Keep the country « on track », by more flexible reserve or tax targets, • Debt relief / debt rescheduling programs • Ex: Zambia, Uganda, Mali • Support oil stabilisation funds initiatives (Ethiopia, Zambia) • International Suppliers • Payment terms have increased throughout the continent as well as delays

17. PART 4: COPING WITH INCREASING FINANCING NEEDS • International commercial banks are facing new issues and challenges • Increasing needs of commercial financing in a new environment where risks drastically increase • More actors (incl. local actors), more complex flows… • More pressure on hard currency and local banks (incl. Central Banks) • Increased needs: increased country exposures (BNPP: +20 to 50%) • New risk appraisal requiring greater due diligence and comprehensive knowledge • Local responses to crises difficult to analyse from an “outsider” point of view • From a quasi sovereign risk to a corporate risk • Smaller size of borrowers (different from majors) in a competitive market, • Lower level of support from State, • Fragmented flows that are thus viewed as less strategic • The counterparts can no longer bring same level of securities / comfort level

18. PART 4: COPING WITH INCREASING FINANCING NEEDS • Development of partnerships between international and local banks acting both as partners and/or security agents. • Play a major and increasing role in the oil chain financing • Local expertise, knowledge and relationships • But need financial support from international banks • Development of new structures (security, tenor, etc.)

19. CONCLUSION • Current oil prices are definitely a major impediment for Sub-Saharan economies and most analysts predict these price levels are to stay • Diverse short-term fixtures have been found thanks to support of historical credit partners • How long can the countries tighten expenses and keep on track with their economic reforms, and avoid new traumas? • Thinking of LT solutions… • Additional write-off of the HIPC and other countries debt burden by multilateral agencies • Should OPEC create an oil solidarity fund for Africa poorest countries ?

20. CONTACT LIST Séverine Mateo, Africa Business Development Manager, ECEP +331-4298-1558 severine.mateo@bnpparibas.com Guillaume Leenhardt, Regional Head for Africa and Middle East of ECEP + 331-4298-6586 guillaume.leenhardt@bnpparibas.com THANK YOU !