LPG_Ghana_pic1.jpgThis case study highlights the Ghanaian LPG promotion program, started in 1990 and still part of official planning efforts today. In a bid to stem rates of deforestation and promote healthier cooking options, the government undertook a primarily policy-based push to increase the usage of LPG for cooking. Some of the policy "levers" employed included increasing the LPG capacity of the country's oil refinery and instituting a pricing scheme (the Uniform Petroleum Price Fund) which used gasoline sales to cross-subsidize LPG and also offered marginal incentives for LPG sales more than 200 km from the refinery.

Overview
Lessons learned
  1. A policy push with technology gaps and lack of delivery mechanisms leads nowhere
  2. The law of unintended consequences strikes again
Additional Information
Thumbnail Analysis
  1. The Policy-Enterprise-Technology Balanced Approach
  2. The Enterprise-Customer Connection


OVERVIEW:


Began: In 1990, the government of Ghana started a national LPG promotion program.

What: The LPG promotion program includes several components: 1) expanding domestic LPG supply by upgrading the Tema Oil Refinery (TOR), 2) instituting the Uniform Petroleum Price Fund (UPPF) which fixed margins on many petroleum-derived products, used gasoline sales to cross-subsidize LPG, and provided financial incentives for LPG sales occurring more than 200 km from the site of the refinery

The Energy Need: More than 85% of households in Ghana rely on traditional biomass fuels to meet their cooking needs. These fuels are dirty, inefficiently used, harmful to the population’s health and create an undue burden primarily on women and children tasked with collection. In addition to that, Ghana’s forests are being unsustainably felled to produce these fuels and are disappearing at a rate of approximately 2% per year.

Investment: TOR upgrades + cost of subsidies over 18 years? Add E+Co investments?

Business Development: The GoG’s energy policy has been complemented by other actors providing business development services; 10 LPG distributors received business development services from E+Co. Anything from UNDP Rural Energy Challenge?

Now (2008): The UPPF is still in effect today, but unreliable LPG supply remains problematic.
Outcomes/Impacts: As of 2008, still only 6% of the population in Ghana uses LPG for cooking purposes, and most of these customers are located in urban areas. Additionally, many commercial vehicles have been converted to run on LPG since, with the subsidy, its ex-pump price is cheaper than that of gasoline.
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LESSONS LEARNED:


1) A policy push with technology gaps and lack of delivery mechanisms leads nowhere

The strategy for promoting LPG for cooking in Ghana has been primarily a policy-based one with several gaps. For one, the technology did not always perform as expected. The Tema Oil Refinery has suffered from periodic breakdowns over the years, creating LPG supply shortages in the entire country. With such shortages, many people revert back to wood-based fuels for cooking and others are discouraged from making the high initial investments in LPG equipment. From the end-user side, there was a notable lack of safety regulations and equipment standardization which made customers’ lives both difficult and dangerous. Many of the stoves originally available, also, were not designed to accommodate the rounded bottom pots used in Ghana.

On top of the technology gap, there is a significant gap in terms of delivery mechanisms, a gap that might have been filled by a more concerted enterprise push. The case of Ghana is actually in some ways paradoxical; on the one hand, there appear to be a lot of small and medium-sized LPG enterprises because the UPPF-capped margins encouraged the large multi-nationals (ie Shell and BP) to exit the LPG market. On the other hand, the small and medium-sized LPG distributors find their businesses limited in important ways.

Ghana_Cooking_Fuel_Composition.JPGFinancial problems include an unwillingness on the part of the local banks to make loans for seed or growth capital. Even established LPG businesses with proven track records have trouble securing short term loans for working capital or acquiring the refinery lifting guarantees at reasonable rates. Businesses are also frequently hurt by the supply shortages. Some successful businesses have been able to secure better supply connections by purchasing their own delivery trucks and obtaining legal status as an Oil Marketing Company (OMC), but even then, receiving adequate supply can depend to a great extent on maintaining good relationships with the people at the refinery.

Moving away from urban centers, both the technology and enterprise-related problems are only compounded and the rural price incentives included in the UPPF don’t even come close to being able to compensate for all the added hurdles. And then, on top of that, incomes in rural areas tend to be lower anyway. Without access to end-user finance, many of the first costs associated with switching to LPG (a stove, hose, regulator, and at least two personal cylinders) are prohibitive.

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2) The law of unintended consequences strikes again

Though the LPG program was initiated in hopes of helping the cooking sector (both domestic and commercial) transition away from the woodfuel use, other uses for LPG were discovered. The most important of these uses is automotive fuel, especially for taxis which account for a very large percentage of all LPG sales in the country.

There is nothing theoretically wrong with using LPG for transportation; it results in better air quality and fewer GHG emissions. The problem, however, is that a subsidy program intended to benefit households and spare Ghana’s remaining forests from the demands of wood-based cooking, is instead being used to bolster the taxi sector. With an already inadequate and intermittent supply of LPG, its use in taxi cabs detracts from its potential to replace firewood and charcoal for cooking.

To compound the problem, it is virtually impossible to modify the existing policy in order to promote LPG for cooking over its use as an automotive fuel. First, since the same cylinders are used both for cooking and transport, it is difficult to limit LPG sales to cooking purposes only. Second, many taxi owners have invested significant resources converting their vehicles to run on LPG and are benefiting greatly from the relatively cheaper price of LPG. They now form an important lobby and set of vested interests strongly opposed to any reduction or removal of the subsidy.

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ADDITIONAL INFORMATION


E+Co has invested a total of $1,034,236 in seven different Ghanian LPG distributors serving an estimated 44,326 households and 14,524 other customers in 2008. Since E+Co’s investment was catalytic in every case, this translates to $4.67 of investment per person benefiting from LPG as a cooking fuel (assuming five individuals per household). Including an estimated $.30 on every dollar invested for business development services, this rises to $6.07 per person. Additionally, $104,080 was lent to a LPG stove manufacturer and has so far contributed to that company producing and selling 26,095 stoves in the three years since the loan was made (2005-2008).
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THUMBNAIL ANALYSIS


The Policy-Enterprise-Technology Balanced Approach

LPG_Triangle.JPG

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The Enterprise-Customer Connection

LPG_E-C.JPG



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Summary Profile, Lessons Learned and Thumbnail Analysis:
last updated: 2/9/09

Supporting Documents: