How Oil and Gas Transactions Work in West Africa: Payment Terms and Banking Instruments

The fundamental tension in the market

West Africa is a net importer of refined petroleum products. Benin and Burkina Faso have no domestic refining capacity and depend entirely on external supply for gasoil, super, jet fuel, and LPG, shipped in mainly from refineries in Europe, the Middle East, and Asia through the ports of Cotonou, Lomé, and Abidjan.

Refineries and their trading arms run on tight financial cycles: prices are set daily against international benchmarks such as Platts, Argus, and ICIS, and payment is expected promptly, either at sight against the bill of lading or within a short window after delivery. A new buyer, unknown to the refinery, will typically face a demand for advance payment or a confirmed, irrevocable letter of credit payable at sight.

The West African buyer faces the opposite constraint. A national oil company, a state trading entity, or a licensed importer responding to a public tender does not have the balance sheet flexibility of an international trading house. Payment is tied to budget cycles, import licence procedures, central bank foreign exchange approval, and, for subsidised products, the government's subvention reimbursement mechanism. Depending on the procurement framework and reimbursement cycle, payment periods may range from approximately 60 days to well beyond 180 days.

Banking instruments as the common language

The instrument that lets these two financial logics coexist is the letter of credit, specifically the documentary LC issued under UCP 600, the rules published by the International Chamber of Commerce and used worldwide for this instrument (source: International Chamber of Commerce, UCP 600). It turns the supplier's counterparty risk into a bank risk, and lets the buyer trigger payment at a defined future date rather than upfront.

One of the dominant instruments in West African petroleum transactions is the deferred payment LC (also called a usance LC, or crédit documentaire à terme). It is irrevocable and confirmed by a bank in the supplier's jurisdiction, but payment matures a set number of days after the bill of lading date or after delivery. Tenors of 30 to 90 days are common; for government-related transactions, 90 to 120 days is not unusual, and some arrangements extend further to match budget disbursement schedules. It is not the only structure at work: standby LCs, bank guarantees, documentary collections, advance payment, and structured trade or receivables financing all show up in this market, especially once a supplier and buyer have built enough of a track record that the full weight of a confirmed LC is no longer necessary.

For the supplier, a confirmed deferred LC can be discounted at their own bank, converting the deferred obligation into immediate liquidity for the cost of a discounting fee. For the buyer, it aligns payment with their internal budget and foreign exchange approval cycle.

The practical challenge is that banks in Benin or Burkina Faso cannot always issue an LC that international suppliers will accept without reservation. Country risk means many European confirming banks price a premium, or decline to confirm at all. This is what pushes transactions toward a licensed company with stronger banking relationships standing between the local buyer and the international supplier.

Delivery terms sit alongside payment terms

The payment instrument decides when the supplier gets paid. The Incoterm decides who owns the cargo and bears its risk in the meantime, and the two are negotiated together. Buyers in this market do not take products FOB; contracts are priced CIF or CFR, with the supplier chartering the vessel and, under CIF, insuring the cargo through to the discharge port. DAP appears on inland deliveries, where the supplier's obligation runs past the port. Under both CFR and CIF, risk transfers to the buyer once the cargo is loaded; the difference is that under CIF, the supplier's insurance policy covers the cargo for the rest of the voyage. Getting the Incoterm wrong in a contract creates exactly the kind of dispute the importer's logistics role exists to prevent.

The subvention mechanism and its commercial consequences

In both Benin and Burkina Faso, the retail price of certain products, mainly gasoil, super, and LPG, is set by the state at a level that does not always reflect international procurement costs. The gap is absorbed through a subvention: the government reimburses licensed importers for the difference between the regulated pump price and the actual cost of supply.

In Benin, pump prices are set through an official pricing mechanism published by the Ministry of Economy and Finance, linking prices to the annual government tender's reference cost (source: Ministère de l'Économie et des Finances du Bénin, Arrêté sur les prix des produits pétroliers). In Burkina Faso, the equivalent body is the Comité interministériel de détermination des prix des hydrocarbures (CIDPH), which brings together the Prime Minister's office, the ministries of commerce, energy, and finance, and the state importer SONABHY, and adjusts prices against a formula tracking the Brent price and the dollar exchange rate (source: SONABHY, Tarifs des hydrocarbures).

In practice, an importer who wins a government tender in Benin commits to supply at a regulated price. If procurement costs rise between award and delivery, which is common given the 60 to 90 day cycle from contract to discharge, the importer absorbs the difference first and only recovers it once the state processes the reimbursement, a process that can take weeks to months after delivery. This floating exposure between procurement and reimbursement is exactly what a financing intermediary with real capacity is built to carry: it finances the gap, and its margin is built into the spread between the international supply price and the price at which it delivers locally.

A second exposure sits on top of this one: the commodity price itself can move between contract date and discharge. An importer pricing diesel at $760 per tonne today may find the market at $700 or $820 weeks later, while the regulated pump price has not yet caught up either way. Some buyers price the deal off a formula linked to Platts quotations rather than a fixed number; others hedge separately through swaps or futures. This price risk sits alongside the financing gap as a second reason the margin an accredited operator earns is not simply a fee for paperwork.

Why buyers prefer suppliers with regional track records

West African petroleum buyers, whether state entities, national companies, or licensed private importers, strongly favour suppliers who have already delivered into the market. This is operational, not sentimental. A supplier who has discharged into Cotonou knows the port agent relationships, the customs procedure for petroleum products, the SGS or Bureau Veritas inspection protocol, and the documentation sequence that avoids costly demurrage. A first-time supplier creates delays that translate directly into cost.

There is also a trust dimension. Payment under a deferred LC depends on document compliance: the confirming bank checks the commercial invoice, bill of lading, certificate of origin, certificates of quantity and quality, the insurance certificate under CIF, and the independent inspection certificate against the LC terms, line by line, before releasing payment. A supplier who has previously submitted compliant documents to a Beninese or Burkinabè bank gives the buyer a reference point. An unfamiliar supplier is a discrepancy risk: non-compliant documents delay payment, disrupt the buyer's budget cycle, and can trigger penalties.

Some buyers, particularly those with strong financial standing, will accept the supplier's preferred terms rather than insist on their own LC structure, if that secures a proven supplier at a better price. A private importer with a solid banking relationship may take a shorter tenor, or a higher advance, in exchange for a reliable counterpart who delivers on time and documents correctly.

The role of the licensed importer in the value chain

The company that operates effectively in this market is not simply a broker. It is a licensed operator with the financial capacity to do what neither the international refinery nor the West African end-buyer can do alone. This can be a national oil and gas company, a private company holding a valid import agrément with solid banking relationships, or a hydrocarbons company that is not primarily a trading house at all. What defines the category is capability, not label: it holds the commercial relationship with the refinery or its trading counterpart, it can issue or back the banking instrument the supplier will accept, and it absorbs the timing gap between what the supplier demands and what the buyer can pay.

"Supplier," "refinery," and "trading arm" get used loosely, but they are different actors with different obligations:

The refinery produces the product; its trading arm, or an independent major trading company, holds the international commercial relationship and the price risk. The regional importer, the licensed operator this section is about, carries the financing gap, the banking instrument, and the local logistics. Collapsing these into a single "supplier" makes it harder to see where a delay or a price move actually originates.

In practice, most regional importers work the same way: they bring the product in internationally, then resell it locally to the entity in charge of national oil and gas distribution, whether that's a state company, a public procurement body, or a comparable authority. They are not middlemen between two private parties; they are the financing and logistics layer that makes the state's own supply chain function.

Some national oil and gas companies in Benin can offer suitable banking instruments directly. A Beninese entity with state backing, or one operating under a public procurement framework, may present a letter of credit whose issuing bank has enough standing to be accepted without a costly European confirmation. Where that direct channel exists, the need for an outside operator narrows, and the transaction can be structured bilaterally, with the regional importer's role limited to logistics and quality management rather than financing.

Where that direct banking channel is not available, or the buyer's timeline exceeds what the supplier will accept even under a confirmed LC, the regional supply operator absorbs the financing gap. It also runs the logistics chain: vessel chartering, port agent coordination, inspection appointment, documentation flow. Its margin is earned across all of these functions at once.

That margin, the spread between the international supply price and the local delivery price, is not pure profit. It covers financing costs, any LC confirmation or discounting fee, the logistics premium for the corridor, and the working capital risk of the subvention reimbursement cycle. A buyer who tries to cut this company out to capture that spread usually finds that a direct refinery relationship needs credit facilities it cannot easily build alone, and that the logistics side needs infrastructure it does not have. In most cases, this margin pays for real services rendered.