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

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.  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. ARA Structure  AGM  Executive Committee:  organise AGM  ARA budget  Monitor Workgroups  Manage ARA membership  4 Executive Committee meetings/yr

7. ARA Structure WORK GROUPS SpecificationsDatabaseStrategy Health & Safety

8. 1. Threats to African Refiners

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

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

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 needed investment  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