Rationalization of imports, refineries and distribution of petroleum in Sub-Saharan Africa

This paper outlines policies to secure and reduce the cost of oil supplies in Sub-Saharan Africa (SSA), taking into account the existing forces at play: limited foreign exchange, competition for increasingly scarce funds, and the likely emergence of Africa as the fastest growing centre of energy demand over the coming decade. It identifies major inefficiencies in petroleum procurement, refining and distribution, and analyses the specific bottlenecks at each stage of the supply chain. Many of the diseconomies, estimated to yield savings of US$1.4 per year, are traced to an inefficient regulatory set-up in SSA countries, as well as unnecessary government interference in the downstream petroleum sector. In particular, price controls, small topping refineries, monopolistic agencies, government subsidies and opaque management structures prevent the working of efficient market mechanisms. The paper discusses the importance of policy reform, outlining what changes need to be implemented on the levels of institutional arrangements, closing of inefficient units, petroleum pricing and encouraging foreign investment in the sector.