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A refined approach.

Despite its oil riches, there seems little prospect of Africa taking control of its own oil and gas sector. State run companies play a big role in major producing countries like Algeria, Nigeria and Angola, yet involvement by the private sector is incredibly limited. A large number of local companies are attempting to become sizeable players on Nigerian marginal fields but there is little or no prospect of any of them challenging the majors that dominate the sector, even in the long term. With Energy Africa now in overseas hands, it is to be hoped that another African champion can come to the fore.

Supply and modernisation difficulties have long plagued the African refining sector. Now, however, it appears that an environmental commitment could trigger a new round of investment.

At a meeting of sub-Saharan African environmental and energy ministers in Dakar two years ago, it was decided that the continent should push for a ban on lead in petrol by 2005. Some countries made some progress on the promise but hopes of a widespread ban seemed to disapper. However, at a new ministerial meeting in Nairobi earlier this year, many governments renewed their promise and southern Africa now looks like leading the way in improving fuel standards on the continent.

Mozambique had resisted the ban because of the perceived need to upgrade existing vehicles to run on the new, lead-free fuel but World Bank representatives have now talked the Maputo administration around. The country's environment minister, John Kachamila, has promised that only lead-free petrol will be on sale in Mozambique by the end of next year. Unleaded petrol has been on sale in Maputo since the start of the year and is becoming more widely distributed around the country.

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Many governments have sought to sell off unprofitable refineries, and operations in Madagascar, Mauritania, Sudan, Tanzania, DR Congo and Eritrea have all been closed down in recent years.

However, South Africa and all five north African countries have continued to maintain their refining sectors--partly on strategic grounds. Angola is hoping to construct a massive new refinery to supply the whole Southern African Development Community (SADC) region as well as further afield.

The Lobito plant will concentrate on the production of cleaner fuels, including lead free petrol. With capacity of 200,000 barrels a day (b/d), the plant has the potential to supply much of southern Africa's requirements, but Sonangol may find it difficult to secure partners on the $3-$5bn project.

While improving air quality is the main motivation behind the campaign to remove lead from petrol, such thinking has made little headway in Africa's biggest oil producer, Nigeria, which continues to struggle to supply its own fuel needs.

The Nigerian federal government is attempting to attract either private sector management or purchasers of the country's existing refineries, which have operated at well below capacity for many years.

Commercial fuel pricing is a prerequisite for attracting foreign investors into the refining sector, which yet again raises the issue of finally abolishing government subsidies. Over the past year, government ministers have argued that Nigeria needs to be able to supply its own fuel needs on security grounds but there seems little chance that the general public will change its opposition to price hikes.

Some politicians have claimed that fuel prices could be reduced if Nigeria had more refineries. Bolu Akin-Olugbade of the Peoples Democratic Party (PDP) said: "The government should build the refineries in each of the six geopolitical zones in the country. There would be no fuel price hike again."

While it is true that increased domestic refining capacity would remove the transport costs associated with fuel imports, prices still need to rise if fuel refiners are to make a profit or break even. This is an issue that is likely to run and run for a while yet.
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Title Annotation:oil and gas refining,africa
Publication:African Business
Geographic Code:60AFR
Date:Aug 1, 2004
Words:642
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