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02.02.2009 Business & Finance

Oil companies in Ghana feel impact of global crisis

By Financial Intelligence
Oil companies in Ghana feel impact of global crisis

The global crisis that saw oil prices jump to a record $147 per barrel in July 2008 did have serious impacts on Ghana's Oil Marketing Companies (OMCs) operating in the downstream sector of the petroleum industry, reflecting in unimpressive financial performances for the past year.

Financial reports for 2008 released by two of the major OMCs, TOTAL Petroleum Ghana Limited and Ghana Oil Company Limited (GOIL), all listed on the Ghana Stock Exchange (GSE), indicates that the past year had been very challenging for the industry.

TOTAL, that had in 2007 posted an impressive 113% increase in profit after tax from GH¢ 3,833,000 in 2006 to GH¢ 8,167,000, saw a 30% fall in its profit position to GH¢ 5,689,000 in 2008.

Even though the profit after tax position for 2007 had been boosted by gains of GH¢ 1.56 million from sale of surplus assets after the TOTAL – Mobil merger, eliminating that item would still give the corresponding changes in profits to 98% and -14% for 2007 and 2008 respectively.

Turnover increased 41% to GH¢ 571,499,000 over the 2007 figure, but cost of sales soared even higher to GH¢ 538,778,000, reflecting a 44% rise in operating costs in 2008.

Ghana Oil Company Limited (GOIL) also clearly experienced its share of the difficulties, with its bottom line appreciating just by 3%. Profit after tax increased slightly from GH¢ 4,044,515 in 2007to GH¢ 4,156,348 in 2008. The performance appears unsatisfactory against the backdrop that the company had recorded over 16% jump in profit levels for the previous year.

GOIL's gross profit increased by 19% for 2008, but a 45% jump in sales cost dwarfed these gains. Administrative expenses went up 23% for the year in question.

Even though the performance of the two companies in 2007 had been impressive, they were achieved at a time when the nation went through nine months of power rationing and fluctuating crude prices.

The National Petroleum Authority (NPA) had adjusted retail pump prices once a month and latter twice monthly and in line with increasing world crude prices throughout 2007. Price adjustments continued for most parts of 2008 until oil reached $147 in July, when the process was halted to forestall excessive increases in the prices of basic commodities, including food.

The oil marketing companies had as a result of the frequent pump price changes and the increasing cost of operation asked for an increase in the fuel margins, but these demands were not met by the petroleum authority.

After oil prices eased in the last quarter of 2008, Mr John Attafuah, the Chief Executive Officer of the NPA announced his outfit's intention to support OMCs along the petroleum production and distribution chain to recoup their losses during those difficult early periods. Many had argued that those at the retail section were better off, but the financial positions of two of the largest OMCs who control a combined market share of about 50% indicate that their cries were genuine.

Mobile companies struggle for technological superiority Tigo to follow MTN and Zain on 3.5G

By the touch of a button, Ghanaian mobile phone users can now see their loved ones they communicate with via their handsets, provided they are abreast with the changing technologies.

During their launch onto the Ghanaian market last December, Zain Communications promised Ghanaian mobile phone users exciting times as they were launching on 3.5G, the latest technology on the cell phone market.

At that time, only Zain possessed the technology in Ghana and Sub-Saharan Africa, and so with the promises that accompanied the launch, many were those who started acquiring Zain lines.

In an ambitious drive to compete closely with the existing companies for a fair share of the Ghanaian market, Zain started investing in physical infrastructure in the capital, Accra, opening ultra-modern customer service centres and magnificence offices across the city, erecting masts, and recruiting thousands of vendors to market their brand.

One of the marketing strategies has been to get people use their existing mobile phone numbers from other operators with the 026 pre-fix of Zain or let people create their own numbers using dates of birth in a pre-registration drive.

However, just as the newest entrants had completed their first ever video call via Ghana Television last week, MTN, who are noted for their quick response to new challenges also busted onto the 3.5 G space.

This promises to make the competition on the Ghanaian market even keener, as Zain would like to catch up with MTN who have a 6.4 million subscriber base in the country already, thanks to the ground-work done by their predecessors- Spacefone and Areeba.

At the time of their launch, since the new technology was exclusive to them, they attracted many subscribers, some of who were getting frustrated by the relatively unreliable services provided by some of the existing companies.

Many were those who expected to benefit from the advanced technology, which is in vogue in Europe, Asia and other advanced markets, offering speeds of up to 14.4 Mb/s, making the Zain network the fastest in Ghana – and West Africa.

Currently, subscribers would be able to access much faster download speeds and a more impressive range of services with an overall better experience. For example, an MP3 of 1Mb will take 20 seconds to download on a 3G network, which at the time was not even in Ghana, but about 5 seconds on a 3.5G network.

The network also promised Ghanaians a new lifestyle option. The ability to make and receive video calls with high quality visuals will usher in a new age in communication. Not only can customers hear their loved ones, but they can see them with amazing clarity allowing for a better emotional connection.

Media practitioners could also capture and report stories in real time with a live stream back to their networks, or send pictures back to the newsroom along with their report. The possibilities of video calling are limitless, from a mother working late video calling their children to say goodnight to receiving a video call from a long lost schoolmate.

MTN in particular promises, in addition to existing services, content services such as Mobile TV and Video on demand, “enabling you to view The English Premier League, News, Music, Video and many more.

In addition to the launch of the new technology, MTN also a fortnight ago launched a second network code-054 which has started attracting many more subscribers onto the Yellow -branded company.

This technology, which nearly made MTN loose a chunk of its clients to Zain now puts the two in a higher category above the likes of Tigo, OneTouch the two other GSM users and Kassapa which uses CDMA respectively.

It also leaves the Promotions-Happy GLO, which promised in 2008 to launch on 3G a lot of work to do in order top launch on an even keel if they must make headway in the Ghanaian market which promises to see more stringent regulations under the young Communications minister designate, Haruna Iddrissu, the Tamale South Law Maker.

It also looks a tall order for the Nigerians because, according to insider sources, Tigo operated by Ghana's premier mobile phone operators, Milicom Ghana Ltd are also set to launch the 3.5 G any moment soon.

The soon-to-be reviewed Vodafone/GT contract notwithstanding, it is expected the Britons would also soon introduce some technological advancement into the operations of OneTouch owned partially by the state.

At the end of the day while the service operators will rake in more profit, government is also encouraging these expansions since it stands to gain from the corporate tax paid by the companies and the Talk-Time Tax paid indirectly by subscribers.

Industry watchers' only worry is the regulatory role of the National Communications Authority (NCA) which has hitherto not proven to be up to the task in the ever expanding market.

Source: Financial Intelligence