Sierra Leone has emerged as one of the most competitive countries for productive investments in Africa due to many factors. Some of them include its strategic geographical location in the West Coast, competitive costs, with a young and talented population. It is an attractive place within the Mano River basin and currently has an open economy and political stability with huge growth potential.
Sierra Leone equally has a competitive business environment as the government of President Julius Maada Bio continues to make strategic efforts to transform the country into the most preferred destination for foreign investment. Even though the international environment has been characterized by an adverse economic slowdown, the Sierra Leonean economy seeks to maintain a stable growth and a positive outlook in the years ahead.
The downstream petroleum sector is one of the major contributors to domestic revenue. The Petroleum Regulatory Agency (PRA) Sierra Leone, which has Mr. Birma M. Baluwa Koroma as its Executive Chairman and Chief Executive Officer has keyed into strategic leadership and vision of His Excellency the President Julius Maada Bio to reposition the petroleum sector in the country. The sector is going through transformation with changing regulatory landscape which has presented opportunities and positive outcome for investors, consumers and the economy.
Under Mr. Koroma’s inspirational leadership, the PRA is working round the clock to achieve a successful downstream industry through a clear and stable long-term policy based on the best industry practice and sound market based principles.
In 2018, the government had clearly set three specific policy objectives for the downstream petroleum sector in Sierra Leone:
Firstly, to take leadership in opening up the market space, restore fairness in the industry for all operators that will increase sector efficiency and transparency.
Secondly, to focus on initiatives that will develop the petroleum industry infrastructure particularly storage, additional terminals and maintaining government strategic stock.
Thirdly, to ensure compliance with the petroleum laws and tax commitments in all regulated activities for the greater benefit of all Sierra Leoneans.
In response to the efforts of the regulatory agency, petroleum revenue jumped by almost 128% from Le473bn in 2018 to a whooping Le1.2 trillion in 2023. This strong financial performance is projected to continue to increase in the next five years as the sector keeps expanding.
Petroleum importation grew by 52.00% from 345,000 metric tons in 2018 to 525,000 metric tons in 2023. Annual sales and distribution recorded 524 million litres in the same year with a jump of 28% from 409million litres in 2018. This is projected to further increase by 22% in 2027.
Today, there are three operational petroleum jetties in Sierra Leone, with one of a multi-purpose port; and the average draft is 14 meters. The Agency also prides itself with 14 District Monitoring Officers nationwide and four regional offices across the country.
The national petroleum storage target is 500,000 metric tons and today the sector has approximately 230,000 metric tons capacity, which is a 50% growth in five years. The monthly petroleum storage is 40,000 metric tons on aggregate.
Introduction of new fuel pricing regime:
Like most other African countries, Sierra Leone uses a pre-defined price structure template to determine the fuel prices presented to the consumers every month. That price structure has not been substantively reviewed or revised by an independent third party for several years.
Given that the constituent parts of any price structure — FOB supply zones, ocean-going losses, revenue streams, treatment of debts owed importers when accrued, war risk, volumes sold per marketer to dealers by district, local freights within Sierra Leone, uniform price by fuel type, to name but a few—continually change, there was a risk factor that Sierra Leone’s previous price structure did not accurately or fairly reflect at the pump.
Recently, the World Bank in partnership with the Ministry of Finance, Ministry of Trade & Industry and the PRA concluded the review and the restructuring of the outdated petroleum pricing structure in Sierra Leone. Consequently, the previous pricing structure was viewed by the Agency as non-reflective of the existing market realities as it has not been significantly reviewed by an independent body for over 30 years.
The new pricing regime was accepted by all stakeholders as it was widely viewed as progressive and transparent. This new pricing structure has been implemented in phases since July 2024. It introduces a set of benchmarks and proper smoothening mechanism that will further boost government revenue and be beneficial to consumers.
There is breakdown and analyses of each of the elements in Sierra Leone’s ‘Import Parity’ and ‘downstream’ price structures, with a view to identifying deviations from best practice and recommending appropriate improvements. The key objective is to avoid the risk of frozen prices and to attain a culture of regular pricing update based on the existing formula.
The Agency intends to continually implement a full pass through price that is fair and transparent. The objective is to set out the supply chain challenges in the downstream petroleum sector and practical steps that will impact the effective and efficient service delivery. The idea is to develop a strong and competitive downstream industry operating safely, efficiently, and economically in line with the government’s objectives.
Features of the new fuel pricing regime in Sierra Leone:
Platts: Sierra Leone has been switched to platts West Africa from FOB Med benchmarks for petrol, diesel and kerosene. This is to reflect the market reality of Sierra Leone.
Ocean loss: This component has been introduced by allowing for some ocean loss for gasoline, diesel and kerosene. This has been set at 0.3% similar to South Africa. Since Ocean loss allowance is not relevant for fuel oil, it has been set at zero for fuel oil.
Price correction Levy: Since it is impracticable to determine the exact costs of importing fuel products, which depend on the exchange rate and international oil prices, a special levy has been introduced to correct discrepancies. This element could be zero in some months if the discrepancies were insignificant.
Debt Recovery Fund (DRF): This fund has replaced the stabilization fund. This element will be used in the immediate future to pay back Oil Marketing Companies’ debt arrears. This is to avoid being in deficit requiring large fiscal transfers to subsidies. DRF will correct past arrears to the oil importers.
Due to the attractive investment climate and improved communication strategy by the Agency, there are currently more opportunities that exist for supply chain activities ranging from petroleum importation, haulage, storage and distribution. It is noteworthy that most assets (storage, terminals, jetties, and retail outlets) are owned by the government though with lease to the private sector.
Sierra Leone is a low cost operating environment; the role of government therefore is to allow competitive open market and create a level playing field for interested investors. Petrol and diesel are the principal products consumed in Sierra Leone accounting for over 95% of the product basket while Fuel Oil and JetA1 constitute the remaining 5%. Diesel consumption has increased by around 20% since 2019 due largely to growth in mining industry activities. Sierra Leone presently exports LPG to neighboring Guinea and Liberia which signals an opportunity for a petroleum hub in the Mano River Union basin.
Investment Opportunities in the downstream sector:
Petroleum Tank Farms (Storage): There is a growth potential to develop regional tank farm within the coast lines across this natural resource endowed nation. Potential areas for the construction of tank farms are: Shenge, Nitti 1 & 2 Harbor, Kono. National storage target is 500,000mt. There is room for BOT or PPP Business Model. This is to reduce the journey of hydrocarbon to the consumers in those regions.
Petroleum Refinery: There is a need for a refinery and Sierra Leone is strategically located to leverage the ECOWAS market of about 397 million people.
Strategic Petroleum Stock
The Strategic Petroleum Stock (SPS) is an emergency stock that could be maintained by Government in preparation for global or national oil supply disruptions and other natural exigencies. Sierra Leone currently consumes in excess of 500 million litres annually and this figure is projected to double by 2027.
Retail: There is limited geographical footprint of oil marketing companies in the regions. There is need for more retail outlets so as to penetrate these regions. Fuel access to remote areas in the country is considered a priority for enhanced product accessibility to end users.
Petroleum Jetty: With a population of about seven million, there are three operational jetties in the western area. The construction of tank farms across the region requires jetty for importation around Pepel, Sulima and Nitti.
Implementation of 2024 Regulatory Act: As a result of the strategic and astute leadership of Baluwa Koroma, PRA’s Executive Chairman and Chief Executive Officer, the cabinet recently approved the establishment of National Petroleum Regulatory Authority. This is to reposition the petroleum downstream sector for a sustainable national development aspiration through the introduction of progressive and commercial best practices in the industry.
The following are objectives of the National Petroleum Regulatory Authority:
- Clear enforcement mandate to protect the public interest;
- Ensure the continuous supply of petroleum products;
- Operationalise government strategic stock management;
- Achieve efficiency and cost reduction through mandatory minimum stock balances by licensed petroleum operators;
- Eliminate barriers for new entrants into the Sierra Leone market.
- Discourage the emergence of a local cartel, monopolies and unfair competition.
The Sierra Leone petroleum industry will remain fully committed to ensuring fairness and the ongoing transformation for a reliable, affordable and supply of high quality petroleum products to the market through continued investment and strategic decisions to improve productivity and ensure economic stability. The PRA has pledged to continue providing support to the operators to ensure that they carry out their operations in conformity with standards of prudency and regulatory compliance.
Clearly, Sierra Leone is ready for business, and will continue to be a low cost operating environment with government playing the key role of creating a level playing field for all players whilst ensuring that the domestic market is competitively viable while innovation would foster. No industry compares with the petroleum industry in terms of volatility, uncertainty, complexity and ambiguity. No industry faces the same combination of risks. But again, no industry offers to do such great things and for so many people as the petroleum industry. The PRA has promised to remain in strong partnership with reputable organisations such as the World Petroleum Council (WPC), African Refinery Association (ARA), S& P Global Platt International among others. The Agency’s ultimate goal is to transform Sierra Leone into a petroleum products hub for the Mano River Basin and further reach out to the ECOWAS market.