Refineries in Central Africa highly unprofitable

Small refiners of Cameroon, Congo and Gabon are today suffering from a lack of profitability. But far from uniting to escape, they opt for a flight forward.

The national refining company (Sonara) is now thankful to the Government of Cameroon. Since July 1, the price of fuel at the pump frozen for six years was readjusted, relieving the pressure on its finances. But the political decision does not end completely the problem of solvency of the sole refinery in the country.

Debts to suppliers and local banks amount to 550 billion CFAF (840 million euros), which goes over the national banking sector what the international monetary Fund (IMF) termed, in 2012, 'systemic risk'. The State owes nearly 300 billion CFAF in respect to compensation for the difference between the cost of production of a litre and the price "administered".

In Cameroon just like Gabon and Congo, late payment of the compensation led refiners to finance in the "short-term, very high rates to keep them in operation", says Robert Nken, Congolese Officer of KPMG in charge.

Set up more than thirty years with the aim of gaining energy sovereignty, the refineries of Central Africa have long set aside any concern of profitability. Despite the injunctions of the Bretton Woods institutions, which require replacement rates administered by targeted aid, this public support is not taking that as an option.

'Subsidies remain a major challenge to the profitability of African refineries which, to a large extent, is related to the degree of local regulation', said Rolake Akinkugbe, the Department responsible for energy and natural resources at the First National Bank.

The issue of prices at the pump is not the only concern: the under-use of installed capacity increases greatly the price of production. Theoretically capable of handling one million tons annually, the Congolese of refinery (Coraf) rarely goes beyond 600,000 tons of the fact of obsolete installations. "These factors, combined with a large payroll and expensive technical assistance, make these installations less competitive than refineries in Nigeria, Venezuela, and even Europe," observes Elias Pungong, responsible for hydrocarbons at Ernst & Young.

In 2013, the Gabonese refining company (Sogara) has thus experienced a twenty-seven day strike in February, and the refinery was stopped for 28 days following a technical incident. Finally, the regional refineries face a problem of critical size: unity of Port-Gentil (Gabon) can handle 500 000 tonnes per year and his Cameroonian counterpart, 2.1 million tons. However, "for a refinery to be competitive, it must have at least a production capacity of 7 million tons per year.

In Chad, the refining of 'n' N'Djamena (SRN) company, whose production capacity is around 1 million tonnes a year, entered into service in June 2011. Cameroon intends to carry the potential of Sonara to 3.5 million tonnes, and reconfigure its installation to process local crude oil and reduce its dependence on imports from Nigeria, Equatorial Guinea and Angola at a cost of 550 billion CFAF. The relevance of these projects, of which the objective is to improve technology and increase margins,however remains doubtful.