LPG In Ghana

LPG in Ghana: From Crisis to 50% Access: Issues and Options

Presentation

to the

Stakeholder Committee

by Energy Commission.

7th September 2011

Outline of Presentation

• Introduction

• What Are the Issues?- Increasing demand

- Increased Use by Motorists

- Inadequate Infrastructure – Storage facilities, Transportation & Access

• What are the Options: Policy Interventions?

• Conclusions and Recommendations

Introduction

• LPG has become a major fuel for heating and cooking in all sectors of the economy

• It is most important in the urban areas especially the cities and big towns

• Over 80% of households in Accra –Tema use LPG (EC Survey 2010) from 22% in 2000 (GSS)

• LPG use in the rural areas is also increasing – EC Survey Results

Informal

Sector

Residential

(National)

Residential

Rural

Residential

Urban

Accra-Tema

Educat'nal

Institutions

Guest Houses

& Hotels

Restaurants

EC 2010 7.4 39.6 23.2 49.2 85.7 33.0 67.5 82.0

GSS 2000 6.2 1.1 11.8 22.4

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

Per

cen

t

LPG Use by Sector (%)

Sector Number of Respondents

Hholds 4,219

Offices 230

Stores & Super Markets 908

Educational Institutions 118

Guest House & Hotels 200

Informal Industry 1,441

Formal Industry 21

Chop Bars & Restaurants 768

Hospitals 179

Total 8,084

What are the Issues?

• Consumption has increased about five-fold from 45,000 tonnes in 2000 to 220,000 tonnes in 2009 but declined to 178,000 tonnes in 2010

• The reduction in consumption in 2010 was as a result of frequent shortages in supply

45 42.550

56.365.7

70.5

8893.3

117.6

220.6

178.4

0

50

100

150

200

250

Tho

usa

nd

To

nn

es

('0

00 t

on

ne

s)

Consumption

Maximum Production Capacity of TORAverage Production from TOR

Production

2008 2009 2010

('000 tonnes)

('000 tonnes)

('000 tonnes)

Production (TOR)

54.6 14.0 31.6

Imports 67.8 150.6 148.0

What are the Issues?

37%63%

Vehicular Use

Hhold & Others

• Frequent shortages in recent times –long queues of people & taxis

- Increasing demand

- Increased use of LPG in vehicles (taxis mainly)

- Inadequate supply infrastructure (storage, transportation, distribution retail outlets or filling stations)

• EC survey in 2008 showed 37% of LPG consumption was in transport sector

• Safety concerns – explosions and fire during the transportation, storage and use of LPG

Increasing demand/consumption

• Increasing demand (averaging over 40% per year increase in demand between 2000 and 2010)

• Increased use of LPG in vehicles has increased with more vehicles converting to LPG (taxis mainly)

45 42.550

56.365.7

70.5

8893.3

117.6

220.6

178.4

0

50

100

150

200

250

Tho

usa

nd

To

nn

es

('0

00 t

on

ne

s) Consumption

Maximum Production Capacity of TORAverage Production from TOR

Production

Increased use of LPG by motorists

Vehicular Consumption of LPG -2007 Regional breakdown of Vehicular Use

37%63%

Vehicular Use

Hhold & Others

RegionTotal Regional Consumption

Vehicular Consumption

Proportion of Vehicular

Consumption

(‘000 tonnes) (‘000 tonnes) (%)

Greater Accra 54.6 25.4 46.52

Central 1.38 0.02 1.45

Eastern 2.43 0.47 19.34

Western 4 1.1 27.50

Volta 8.37 0.93 11.11

Brong-Ahafo 2.7 0.86 31.85

Ashanti 7.38 1.18 15.99

Northern 0.86 0.13 15.12

Upper East 0.65 0.27 41.54

Upper West 0.28 -

Total 82.65 30.36 36.73

Increased use of LPG by Motorists

• EC Survey in 2011 covering 200 taxis indicated that the daily consumption of LPG per taxi ranges between 20 and 70 litres.

• Average Daily Consumption per taxi of the surveyed sample is 34.14 litres.

Daily LPG Consumption by Taxis in Accra-Tema – EC Survey

0

10

20

30

40

50

60

70

80

22 2 2 1 1 2 3 17 1 36 2 11 1 1

Lit

res/

Day

FrequencySample Daily Cons Average Daily Cons

Revenue Loss due to Replacement of Gasoline with LPG

• The Ex-Depot Price of LPG (GHp85.5187/kg) is lower than the Ex-Refinery Price (GHp98.1983) by GHp12.6796 (13% of Ex-Refinery). This is the first major concern for NPAregarding the LPG Price Build-Up especially for the importation of LPG.

• 1 kg of LPG contains the energy equivalent of 1.41 litres of gasoline.

• By replacing 1 kg of LPG the equivalence in the price build-up is for 1.41 litres of gasoline.

• Government revenue loss per kg of LPG used to displace gasoline is estimated at between GHp51.356/kg or about 49% of the current price of LPG of GHp104.76

Revenue Loss AnalysisLPG Consumption, litres /day 20.00 32.00 34.14 40.00 70.00

LPG Consumption, kg/day 11.20 17.92 19.12 22.40 39.20

Gov't Revenue on LPG

Gov't Revenue on Gasoline Equivalent Difference

Revenue Loss

Revenue Loss

Revenue Loss

Revenue Loss

Revenue Loss

(GHp/kg) (GHp) (GHp) GHc/day (GHc/day) (GHc/day) (GHc/day) (GHc/day)

Excise Duty 0.725 3.92 3.195 0.3578 0.5725 0.6108 0.7157 1.2524

Debt Recovery Levy 5 11.28 6.28 0.7034 1.1254 1.2006 1.4067 2.4618

Road Fund 0 8.46 8.46 0.9475 1.5160 1.6174 1.8950 3.3163

Energy Fund 0 0.071 0.071 0.0080 0.0127 0.0136 0.0159 0.0278

Exploration Levy 0 0.141 0.141 0.0158 0.0253 0.0270 0.0316 0.0553

LPG Promotion Levy 0 0 0 - - - - -

Cross-Subsidy Levy -18.404 7.05 25.454 2.8508 4.5614 4.8664 5.7017 9.9780

Primary Distribution Margin 0 3.525 3.525 0.3948 0.6317 0.6739 0.7896 1.3818

BOST Margin/Bulk Storage Margin 0 4.23 4.23 0.4738 0.7580 0.8087 0.9475 1.6582

Total Taxes, Levies, Margins & Subsidies -12.68 38.676 51.356 5.7519 9.2030 9.8184 11.5037 20.1316

Days per year of work 310 310 310 310 310

Gov't Revenue Loss/taxi/year (GHc) 1,783.08 2,852.93 3,043.72 3,566.16 6,240.78

Inadequate Infrastructure for LPG Distribution

Number of Filling Stations By Region % of Filling Stations by Region

0

20

40

60

80

100

120

No

of

LPG

Fill

ing

Stat

ion

s

2011

2007

Inadequate Infrastructure for LPG Distribution

Access to LPG Filling Stations by Region

Region Population

Average regional Hhold size

No. of filling stations (2011)

Pop/Filling Station

Hhold/Filling Station

Gt. Target Index

Greater Accra 3,909,764 4.6 113 34,599.68 7,522 1.00

Eastern2,596,013 4.6 38 68,316.13 14,851 1.97

Volta2,099,876 4.7 16 131,242.25 27,924 3.71

Central2,107,209 4.4 41 51,395.34 11,681 1.55

Western2,325,597 4.7 26 89,446.04 19,031 2.53

Ashanti4,725,046 5.3 53 89,151.81 16,821 2.24

Brong Ahafo2,282,128 5.3 30 76,070.93 14,353 1.91

Northern2,468,557 7.4 5 493,711.40 66,718 8.87

Upper East1,031,478 7.2 4 257,869.50 35,815 4.76

Upper West677,763 6.4 3 225,921.00 35,300 4.69

Total24,223,431 329 2.13

National Average 73,627.45 25,002

0

20

40

60

80

100

120

No

of L

PG

Fil

lin

g S

tati

ons

2011

2007

Policy Interventions

Pricing Approach

• Equalisation of prices between LPG and the alternative fuels (Gasoline and Diesel)

• Set price of LPG equal to the price of Gasoline or Diesel based on their energy densities (GHp/GJ)

• Motorist will not see any benefit between LPG and the alternative fuels

LPG incl Cross-

Subsidy

LPG excl Cross-

Subsidy

LPG inclu other

levies on Gasoline

LPG Price @

Gasoline Energy

Equivalent

LPG Price @ Diesel Energy

Equivalent

104.76 123.16 136.42 214.09 195.39

0.00

50.00

100.00

150.00

200.00

250.00

G

H

p

/

k

g

Comparative Ex-pump Prices of LPG (GHp/kg)

Pricing Approach

• Other attractions are that:

- Gov’t revenues will be enhanced

- Levies and margins will be increased to provide funds for expanding LPG storage, transportation and distribution

- LPG Promotion levy should be re-introduced to enhance availability, access and use

Pricing Approach Analysis

LPG Price including Subsidy

LPG Price excluding Subsidy

LPG incl same levies & Margins as Gasoline

Gasoline DieselLPG Price Gasoline Equivalent

LPG Price Diesel Equivalent

Price Build-up of LPG GHp/kg GHp/kg GHp/Kg GHp/litre GHp/litre GHp/kg GHp/kg

Ex-Refinery price 98.1944 98.1944 98.1944 108.8600 118.9287 98.1944 98.1944

Excise Duty 0.7246 0.7246 0.7246 2.7800 1.8000 2.7000 1.8000

Debt Recovery Levy 5.0000 5.0000 5.0000 8.0000 8.0000 8.0000 7.9000

Road Fund 0.0000 0.0000 6.0000 6.0000 6.0000 7.0000 7.0000

Energy Fund 0.0000 0.0000 0.0500 0.0500 0.0500 2.0000 2.0000

Exploration Levy 0.0000 0.0000 0.1000 0.1000 0.1000 1.0000 1.0000

LPG Promotion Levy 0.0000 0.0000 0.0000 0.0000 0.0000 6.0000 8.0000

Cross-Subsidy Levy -18.4042 0.0000 0.0000 5.0000 -2.6967 0.0000 0.0000

Primary Distribution Margin 0.0000 0.0000 2.5000 2.5000 2.5000 10.0000 7.0000BOST Margin/Bulk Storage Margin

0.0000 0.0000 3.0000 3.0000 3.0000 20.0000 15.0000

Total Levies, Margins & Subsidies

-13.4042 5.0000 11.1500 19.1500 11.4533 24.0000 25.9000

Ex-Depot 85.5148 103.9190 115.5690 136.2900 137.6820 154.8944 147.8944

UPPF 6.3000 6.3000 5.3000 5.3000 5.3000 9.7000 9.0000

Marketers Margin 4.4128 4.4128 5.8700 5.8700 5.8700 9.5000 9.0000

Dealers’ Margin 3.4532 3.4532 4.6100 4.6100 4.6100 10.0000 9.5000

LPG Filling Plant Costs 4.7753 4.7753 4.7753 0.0000 0.0000 15.0000 10.0000Distribution Compensation Margin

0.3000 0.3000 0.3000 0.0000 0.0000 15.0000 10.0000

Distribution & Marketing Margins

19.2413 19.2413 20.8553 15.7800 15.7800 59.2000 47.5000

Indicative Maximum Price (GHp/kg, GHp/litre))

104.7561 123.1603 136.4243 152.0700 153.4620 214.0944 195.3944

GHc per GJ 23.17 27.24 30.17 47.35 43.21 47.35 43.21

Policy InterventionsPricing Approach - Limitations

• Domestic consumers will lose benefit of subsidy and face over 17.6% increase in LPG price (from GHp 104.76/kg to GHp123.16/kg)

• At the extreme the price of LPG will increase from GHp104.76 to GHp 214.09/kg) if the pricing is based on the equivalent energy cost of gasoline

• At the extreme, the price of LPG will be increased by 104%

• Higher LPG Price will lead to a shift to cheaper fuels (firewood & charcoal) for heating and cooking

• More woodfuel use and perceived over exploitation of forest resources for energy

LPG Price including Subsidy

LPG Price excluding Subsidy

LPG incl same levies & Margins as Gasoline

Gasoline Diesel

LPG Price Gasoline Equivalent

LPG Price Diesel Equivalent

Price Build-up of LPG GHp/kg GHp/kg GHp/Kg GHp/litre GHp/litre GHp/kg GHp/kg

Ex-Refinery price 98.1944 98.1944 98.1944 108.8600 118.9287 98.1944 98.1944

Excise Duty 0.7246 0.7246 0.7246 2.7800 1.8000 2.7000 1.8000

Debt Recovery Levy 5.0000 5.0000 5.0000 8.0000 8.0000 8.0000 7.9000

Road Fund 0.0000 0.0000 6.0000 6.0000 6.0000 7.0000 7.0000

Energy Fund 0.0000 0.0000 0.0500 0.0500 0.0500 2.0000 2.0000

Exploration Levy 0.0000 0.0000 0.1000 0.1000 0.1000 1.0000 1.0000

LPG Promotion Levy 0.0000 0.0000 0.0000 0.0000 0.0000 6.0000 8.0000

Cross-Subsidy Levy -18.4042 0.0000 0.0000 5.0000 -2.6967 0.0000 0.0000

Primary Distribution Margin 0.0000 0.0000 2.5000 2.5000 2.5000 10.0000 7.0000

BOST Margin/Bulk Storage Margin

0.0000 0.0000 3.0000 3.0000 3.0000 20.0000 15.0000

Levies, Margins & Subsidies -13.4042 5.0000 11.1500 19.1500 11.4533 24.0000 25.9000

Ex-Depot 85.5148 103.9190 115.5690 136.2900 137.6820 154.8944 147.8944

UPPF 6.3000 6.3000 5.3000 5.3000 5.3000 9.7000 9.0000

Marketers Margin 4.4128 4.4128 5.8700 5.8700 5.8700 9.5000 9.0000

Dealers’ Margin 3.4532 3.4532 4.6100 4.6100 4.6100 10.0000 9.5000

LPG Filling Plant Costs 4.7753 4.7753 4.7753 0.0000 0.0000 15.0000 10.0000

Distribution Compensation Margin

0.3000 0.3000 0.3000 0.0000 0.0000 15.0000 10.0000

Distribution & Marketing Margins

19.2413 19.2413 20.8553 15.7800 15.7800 59.2000 47.5000

Indicative Maximum Price (GHp/kg, GHp/litre))

104.7561 123.1603 136.4243 152.0700 153.4620 214.0944 195.3944

GHc per GJ 23.17 27.24 30.17 47.35 43.21 47.35 43.21


Regulatory Approach

• Enforce existing Regulations on LPG use in vehicles – Road Traffic (Use of LPG) Regulation, 1994 (LI 1592)

• LI 1592 provides for examination, issue of certificate and registration in respect of suitability of LPG fittings in vehicles

• It also provides for a sticker which is renewable every six (6) months or (12) months

LPG incl Cross-

Subsidy

LPG excl Cross-

Subsidy

LPG inclu other levies on Gasoline

LPG Price @ Gasoline

Energy Equivalent


Equivalent

104.76 123.16 136.42 214.09 195.39

0.00

50.00

100.00

150.00

200.00

250.00

G

H

p

/

k

g



Use of Legislative Instruments

• Use LI 1592 as vehicle to rationalise the use of LPG in vehicles

• Mandatory inspection and certification and issue of sticker

• Cost of sticker (annual) should be equivalent to:

- the difference in prices, including Gov’t revenue losses, between LPG and Gasoline; or

- the cost of the cross-subsidy on LPG at the minimum

LPG incl Cross-

Subsidy

LPG excl Cross-

Subsidy



Energy Equivalent


Equivalent

104.76 123.16 136.42 214.09 195.39

0.00

50.00

100.00

150.00

200.00

250.00

G

H

p

/

k

g



Use of Legislative Instruments

• Average use of LPG by taxi is estimated at 34 litres per day

• Cost of sticker could be calculated on the basis of:

- Cross-subsidy in price build-up

- Gov’t Revenue Losses

- Energy Equivalent Pricing

• The calculations do not include administrative costs for DVLA services

Loss/kg

34 Litres/day Taxi

40 Litres/day Taxi

GHp/kg of LPG GHc/year GHc/yearCross-Subsidy Loss 18.4042 1,090.85 1,277.99

Gov't Revenue Loss 51.3559 3,043.97 3,566.15Energy Equivalent Pricing Loss 109.3383 6,480.70 7,592.45


Use of Legislative Instruments - Limitations

• Difficulty with implementation

• Experience with LI 1592 and many others not too good

• Administrative costs could be high and should have to be accounted for in cost of sticker

• LPG fillings station attendants not cooperating

• Apathy from the police with respect to regular inspection of vehicles and institution of “spot fine”

Loss/kg34 Litre/day Taxi

40 Litre/day Taxi

GHp/kg of LPG GHc/year GHc/year

Cross-Subsidy Loss 18.4042 1,090.85 1,277.99

Gov't Revenue Loss 51.3559 3,043.97 3,566.15

Energy Equivalent Pricing Loss 109.3383 6,480.70 7,592.45


Infrastructure Development

• Build more bulk storage facilities – TOR, BOST and private sector

• Increase bulk storage capacity nation wide by about 100,000 tonnes from current

• Facilitate bulk transportation business by fiscal incentives –waiver of import duties on new Bulk Road Vehicles (BRVs) – Used BRVs do not qualify

LPG BULK STORAGE FACILITIES IN GHANA

Capacity, tonnes

No. of tanks

Capacity per tank, tones

Cost per tank , US$

Total Cost, US$

Existing (TOR) 9,800 6 1,633 3,910,416 23,462,495

Existing GOIL 200 4 50

Planned Additional (TOR)

13,440 8 1,680 4,975,000 39,800,000

Planned Additional GOIL

6,000 1 6,000

Recommended National 100,000 60 1,680 4,975,000 298,500,000

Policy InterventionsInfrastructure Development

• Build more filling stations to increase access

• About US$ 21 million required to bring up access nation wide to Greater Accra level

• Increase bulk storage capacity nation wide by about 100,000 tonnes from current level of less than 10,000 tonnes.

(Expected Jubilee Field production is 300,000 tonnes per annum).

Region Population

No. of filling stations (2011)

Hhold/Filling Station

Gt. Target Index

Stations Reqd to meet Gt Target

Additional Stations Reqd to meet target

Investment Reqd (GHC)

Greater Accra 3,909,764 1137,522

1.00 113 0-

Eastern 2,596,013 3814,851

1.97 75 372,669,120

Volta 2,099,876 1627,924

3.71 59 433,128,223

Central 2,107,209 4111,681

1.55 64 231,634,115

Western 2,325,597 2619,031

2.53 66 402,867,653

Ashanti 4,725,046 5316,821

2.24 119 664,723,158

Brong Ahafo 2,282,128 3014,353

1.91 57 271,963,936

Northern 2,468,557 566,718

8.87 44 392,836,374

Upper East 1,031,478 435,815

4.76 19 151,084,545

Upper West 677,763 335,300

4.69 14 11798,601

Total24,223,431 329 2.13 290 20,907,126

Policy InterventionsInfrastructure Development - Limitations

• Major limitation is financial resources

• Encourage private sector –fiscal an financial incentives

• Ensure adequate margins for operators in the business:

- Bulk storage, transportation, and distribution

LPG incl Cross-

Subsidy

LPG excl Cross-

Subsidy



Energy Equivalent


Equivalent

104.76 123.16 136.42 214.09 195.39

0.00

50.00

100.00

150.00

200.00

250.00

G

H

p

/

k

g


Conclusions & Recommendations

Conclusions

• LPG has become a major fuel in the national energy mix.

• The sector is facing challenges:

- Shortages in supply

- Safety concerns

• A number of options are available to address the challenges but each has its limitations

Key Recommendations

• To deal with the issues of shortages deploy a two-prong approach

- Price Build-up to account for cross-subsidy and Gov’t revenue loss

- Regulate by certification and sticker at a sticker cost high enough to bring the total cost of LPG to the equivalent of Gasoline in energy terms

Conclusions & Recommendations

Conclusions

• Access is limited owing to inadequate infrastructure across the whole LPG value chain

• LPG has become a major fuel in the national energy mix.

• Safety Concerns

Key Recommendations

• Encourage both public and private sector investments in LPG infrastructure

• Introduce Bulk Storage Margin high enough to attract Investments

• Deploy fiscal and financial instruments to incentivise investor

• Use tax waivers and increased margins in the price build-up to encourage operators to invest

• Re-Introduce LPG Promotion Levy and use to finance infrastructure in Public Institutions, door to door LPG distribution, public awareness on safety etc.

• Develop & Enforce Safety Regulations

Thank You for your attention

Documents

LPG In Ghana