This article is an excerpt of an African Hidden Champions case study titled How an entrepreneur shifted dynamics in the Ghanaian energy sector. African Hidden Champions is an initiative by Africa Foresight Group and KfW DEG.
Salma Okonkwo was born one of 14 children in the city of Accra in Ghana within the bustling suburb of Kaneshie. Her dad started out as a teacher and became a politician in the period of the First Republic of Ghana under Kwame Nkrumah, who had led the country to independence. He later became a businessman, supplying mainly livestock to corned beef factories and other bulk buyers across the country. Meanwhile, Salma’s mother, who originally trained as a nurse, worked at the state-owned airline (Ghana Airways) as one of their first hires and subsequently went on to take over a real estate and services firm responsible for building clusters of bungalows across the city of Accra.
Unsurprisingly, Salma grew up in a strikingly entrepreneurial home, with a strong female role model to look up to. Through the sponsorship of her parents, she attended school in the United States and graduated from the Loyola Marymount University in 1994 with an international business degree. She thereafter worked for a Californian company but returned to Ghana with her husband and children in 2003, when oil and gas company Sahara Energy and Gas offered her a position in the company. She was 33 then. Granted that the demands of motherhood could be daunting, Salma never stopped working. She was keen on attaining financial independence, citing it as a key to a successful marriage. Upon returning to Ghana, she became the first female senior executive at Sahara Energy and Gas, charged with overseeing the Ghanaian market.
After a few years, Salma spotted an opportunity to expand the company’s interests by setting up filling stations towards the northern parts of the country, where infrastructure is usually scarce. Her employers however, were risk averse and decided not to pursue the idea. They raised issues about the wallet size of rural consumers, adding that the cost of operation would not be ideal for them. After all, margins in the oil trading business itself were extremely high and diluting the same with lower-margin business initiatives seemed too unattractive.
Thus at 36 years old, no longer wanting to be a part of the ‘briefcase businessmen’ world, Salma decided she had heard the word ‘no’ one time too many and resigned from her job to strike out on her own, marking what would be the beginning of her upward trajectory towards establishing herself as Ghana’s energy heroine.
In Salma’s words, ‘briefcase businessmen’ is a term she coined to describe businesses that are all about selling and taking what they can but leaving nothing behind. In many ways, the encounter with too many “briefcase businessmen” was one of the key drivers that made her start out her entrepreneurial career.
At the core, Salma’s belief when she started was that such entrepreneurs did not leave behind infrastructure nor the betterment of the lives of communities they had engaged with. Salma wanted to do the opposite by building one of the biggest infrastructure companies in the oil and gas sector till date. Running the gamut at Sahara had taught Salma the ropes and had unearthed a lot of opportunities that she spotted; she just had to get started.
Striking out and failing
Recognising that people in northern Ghana relied mainly on firewood and charcoal for energy, Salma forayed into attempting to supply liquefied petroleum gas (LPG) directly to the north in order to improve access. The idea had value from an efficiency and environmental standpoint. In terms of efficiency, LPG is extremely productive at generating heat and has a higher calorific value per unit than other fuels, such as coal and firewood, meaning the flame burns hotter. Meanwhile, it is also good for the environment because LPG does not produce harmful pollutants (e.g. sulphur and nitrogen oxides) as traditional fuels do.
What Salma did not foresee were the prohibitive costs and cumbersome logistics that accompanied such a venture. With most LPG coming from Europe at the time she started her business, she required specialised vessels to transport the LPG, alongside the right port infrastructure to extract the LPG from such vessels in specialised pipes. Both of these requirements implied that the idea of supplying affordable LPG to northern Ghana suddenly became extremely investment-heavy and harder to realise as a first line of services. After many months of research and business partner negotiations, she had to admit to herself that this initial idea was not going to work. Nonetheless, her goal of equalising access to energy sources remained unchanged. It was time to start exploring other avenues that could yield a similar outcome to achieve her goal.
Salma decided to stay closer to her core expertise and hence started focusing on other downstream oil distribution. She set herself the goal of identifying poorly penetrated locations where access to fuel was difficult for Ghanaian citizens without accepting long commutes to the next biggest location. In 2008, Salma managed to identify an existing structure in Kasoa, in the Central region of Ghana, and started repurposing it to open her first filling station: this was the birth of UBI Petroleum.
The first fuel station Salma opened was financed from internally generated funds and support from her husband. Getting funding for her first venture into the filling station business was no easy task and it became clear quickly that banks would not fund anything before she had gained considerable traction. The fist support she got was from GT Bank after revenue had grown significantly. The financing was for procuring petroleum products and came in the form of a letter of credit with a 150% landed asset collateral (i.e. the collateral had to be 150% of the credit value). She ended up using assets she and her family owned as collateral. Hence, the early beginning of UBI Group mainly became a reality due to Salma’s closely-knit family who were ready to support her entrepreneurial ambitions and saw the business value in her undertakings early on before banks started showing interest. Meanwhile, she did not fully bid adieu to the LPG idea, but would revisit it much later with better planning. At its peak, the group reached a valuation of $500 million, which started allowing to build more successful bank relationships, even though access to finance remained the biggest challenge for the business.
Filling station after filling station
Salma’s strong heritage and intrinsic understanding of Ghana created the necessary buy-in to open filling stations across the breadth of the country at a significant rate, specifically in environments outside the capital city of Accra, where Ghanaians had a strong appetite for more convenient access to fuel.
By acquiring existing or incomplete structures and branding them as UBI petrol stations, Salma managed to organically grow from station to station rapidly enough to eventually attract the attention of Singapore-based energy company Puma in 2012. By that time, UBI was valued at more than $300 million and had a strong contract pipeline, including Dallas-based Kosmos Energy and Hess Corporation. UBI Petroleum now owned eight stations and managed 20 others through partnerships. Puma offered to purchase a 49% stake in this and one other UBI Group business in 2013 for approximately $150 million. Fifty-one percent of the shareholding was retained by Ghanaians. Salma agreed to the deal knowing that the cash injection would help create more employment and allow the business to take a stronger position in the national market.
However, it was not just the opening of filling stations that got Salma there.
Creating opportunities instead of waiting
Whilst expanding her filling station network, Salma was always on the lookout for other opportunities to expand the portfolio of the business. When leasing third-party trucks for fuel delivery became too much of a challenge, she and her board decided to take the plunge and purchased their own, which were now used to supply her filling stations and to distribute fuel as a standalone business.
But running a major downstream oil distribution operation also meant staying ahead of the curve by winning large corporate contracts. Being more in control of the supply chain meant that, when large scale customers such as MTN faced supply challenges, she could confidently step up and offer her services. UBI at this stage supplied MTN with 80% of their diesel needs to run their generators at their signal masts across the country. This was a big win for a local player like UBI, given that all other distribution companies at the time where foreign multinationals backed with large capital.
Salma increasingly started looking at the mining sector, which, at the time, was equally notorious for being almost impenetrable to small, indigenous companies. Mining companies require excessive levels of power to run their operations, with up to 15% of all electricity produced going to the sector. Notable companies in the industry include Goldfields and AngloGold Ashanti, both of which are subsidiaries of South African holding companies. According to Salma, “Unless you were Shell, Total, British Petroleum or Mobil, the chances of securing any contracts from these players were practically nil.”
Salma carefully planned her approach to commence negotiations with the subcontractors of these mining giants instead of directly proposing her services to the principal mining companies. After many months, she managed to win a major contract to supply fuel to the earth-moving subcontractors. This win opened up another opportunity to supply fuel to an Australian-based mining enterprise called GeoDrill.
At this point, Salma started to explore a change in her corporate portfolio and chose to look upstream. She quickly found that, by pursuing the upstream chain aggressively, she could supply to more companies. The tactic enabled UBI to land contracts with Anadarko, Kosmos, Afren and ENI.
Exploring upstream supply management was a major learning curve for Salma. Supplying fuel to offshore drilling companies is a very time sensitive endeavour and requires incredibly precise planning and time management skills.
With drilling companies spending roughly about $1 million per day to drill, any delays on the energy supply side meant that machines could not run. At this point, she and her team were the only indigenous company trusted enough to be engaged with as a subcontractor, with a turnover of approximately $3 million per month from such contracts alone. Salma attributes her success in scoring large contracts worth millions to her persistence and inability to quit, which eventually allowed her to become Tullow Oil’s exclusive supplier.
In her words “I knock and keep knocking, I make my proposals better and keep knocking until I get in”. She maintains that it is not always about being engaged in a price war. Reliable, efficient and timely service earned her this seat at the table.
Securing UBI Petroleum’s position in the sector
Wild success does not come free and untethered from the complications of politics and influence, as Salma soon learnt. Being a small company and relatively unknown was not enough to protect her from being aggressively competed against by multinational companies with massive political influence and deep pockets. She found her company being scrutinised, from audits to competitors being able to get access to her turnover information at the banks. This led to her losing business to other companies that started copying her “local player” value proposition while being backed by foreign multinationals. She recalls incidents where contracts she won in public tenders would later be split with other international competitors for no apparent reason. Upon further investigation, she realised the chain of betrayal and backstabbing led deep into the public and private networks of the industry. Even though her tender was won fairly, political cronyism played its part. In Salma’s case, political interference coupled with foreign investors with deep pockets playing behind the scenes are often at the root of all corruption in capital-heavy industries such as the energy sector.
It became clear to Salma that all contracts she won over the years to supplement her retail revenue from filling stations could be lost in a day due to politics of this nature. She had to move a step further in securing the long-term position of UBI Petroleum in the Ghanaian energy industry. Salma recalls a meeting with government officials, where attendees vividly discussed that the First Lady of Ghana had gotten stuck at the airport due to a fuel shortage for planes. She recalls that this dire situation at the airport was a frequent one at the time: airlines not having enough fuel at an airport which lacked sufficient storage facilities. Fortuitously, she happened to be around while the government officials were discussing solutions to this issue. Salma went on to carry out research and feasibility studies on her own regarding fuel storage at airports and presented a solution to the Ghana Civil Aviation Company. She had found out that the initial layout of the airport, when it was built, had actually included fuel storage facilities. Land had been earmarked within the airport for years to build tanks. However, the storage facilities had never been built due to lack of funding.
Salma managed to secure a long-term lease for the land earmarked for the fuel tanks at the airport. She had won, despite the behemoths in the jet fuel industry such as Shell, Total and SVP. Her proposal had, at its very heart, proactively considered the need for proper infrastructure and won her a milestone contract for UBI Group, namely Blue Ocean Investments. Salma recalls the hard work it took to secure this deal quickly because she knew it was a race against time before bigger players would sense that there is an opportunity.
Fuel supply before Salma’s installation of the airport tanks had been provided solely by the Joint User Hydrant Installation (JUHI), which had been operating at the airport for decades and was solely in the hands of foreign multinationals such as Total. However, JUHI had never upgraded the actual tank infrastructure for more than 50 years and was utilising day tanks that had limited capacity, hence could not handle the increase in traffic at the airport. Salma recalls the long, multi-year process her company had to go through in order to be accepted into JUHI, which was a pre-condition for selling fuel directly to the airlines. Until then, the only business generated from the new tanks she had built was from selling storage to JUHI – which cost her margin. Today, she looks back at this challenge as another example of indigenous players not being let into the field easily due to the strong control large players from abroad continue to hold in Ghana’s oil sector.
Her risky gamble paid off, even though it did lead to capital shortages when banks tried to break her back by not extending credit lines as anticipated. Not only had this brassy move given UBI Group the monopoly of the aviation supply, it also brought valuable network connections and, along with it, successful partnerships. When the time came to look for investors, she did not need to; the partners came looking for her since she had the infrastructure and the market access.
That said, the airport fuel tanks were clearly a tradeoff. Blue Ocean was building two tanks at the same time and had already sunk a lot of money to build the one in Takoradi, which had been launched ahead of the airport one. When the airport tank opportunity came up, Salma had managed to secure the contract well in advance and decided to focus on that instead since it had more income opportunity. That slowed down the tank build in Takoradi significantly and eventually made her lose a big contract to a competitor (Cirrus Oil), who was just better capitalised and hence well placed to build faster.
She realised more and more that funding was key to enable her to implement her innovations and business ideas while remaining competitive. This was why Salma eventually viewed the deal with Puma Energy to be attractive since it ensured that the business was well capitalised, in the absence of attractive local funding options (interest rates in Ghana for debt capital continue to range from 30- 40%). The deal, however, did not allow her to maintain the original structure of UBI Group and generally meant that an era of entrepreneurship had come to an end in its original form.
Salma always knew that she wanted to maintain her company as a local player in the industry as that would maximise value for rural Ghanaians and negotiated through a long, tedious process with Puma Energy to agree to a deal that 51% of ownership to remain in Ghanaian hands and awarded her board chairmanship in 2013. This $150 million deal became a landmark transaction in the West African energy industry and established Salma as a key business leader in the sector. After the acquisition in 2013 by Puma was complete, Salma responded to the increasingly urgent calls globally to move towards renewable energy solutions and started developing her solar energy company Blue Power Energy.
Building the next age of Ghana’s power sector
Despite the abundance of sunshine in Africa, solar power is not the first choice for most energy providers around the continent. Most existing solar farms are concentrated within South Africa and Kenya.
Salma started research and development of a solar business in 2015. By 2018 she had secured most of the regulatory requirements and signed an agreement with the Ghanaian Government’s renewable arm BUI Power Authority to develop a portion of their solar portfolio as a build–operate–transfer (BOT) and also take over an earmarked site near Salma’s paternal ancestral home to build a 100MW solar farm.
Blue Power Energy, recognising the need and essence for partnership, has a structure of a 60% equity–40% debt where equity is available for partners to ensure the vision becomes successful.
The energy output from this farm is enough to power 50,000 homes in Ghana. The biggest driver behind her insistence on building this farm in the north is the employment and upliftment possibilities that lay within the success of this monumental project. With a projected 650 additional jobs in the near future from this project alone, the company’s focus is mainly on empowering and uplifting the women of this deprived, disadvantage area.
Blue Power Energy is a personal project for Salma. Half of the solar farm will be situated in her father’s ancestral village and the other half, distributed around the disadvantaged north. According to UNICEF, the north has seen the least amount of progress in poverty elimination in Ghana since independence in 1957.
The ultimate goal of Blue Power Energy is to deliver inexpensive power to northern Ghana. She believes that this will incentivise corporations and businesses to create opportunities for themselves and thereby create opportunities for the people that live there. While access to finance was a key contributing factor for deciding to sell of a considerable stake in UBI Group to a foreign player, Salma hopes that Blue Power Energy will follow a different trajectory by tapping more directly into international capital markets from the start.