TOR not fit to be supplied with Ghana crude for refinery – former GNPC Boss
Adnan Adams Mohammed
Former Ghana National Petroleum Corporation (GNPC) has
called on the management of Tema Oil Refinery (TOR) to address its operational
inefficiency and loss making condition before it start to make a claim for GNPC
to allow it to refine Ghana’s crude and additional state investment from the
central government.
Mr Alex Mould, while commenting on an article written by Paa
Kwasi Anamua Sakyi, research fellow at Institute for Energy Security, last
week, reiterated an earlier comment he made emphasizing that, “The problem of
frequent operational disruptions to its processing which is a result of
mechanical and operational failure of TOR’s processing units and which
manifests itself in the poor profitability record which has constantly been a
drain on the tax payer over the years to support its balance sheet due to years
of loss making.”
Business of crude refining has been found many oil and gas
experts as a catalyst for accelerating growth in the downstream petroleum
sector providing jobs, creating economic value, building and grow a strong
petrochemical industry which comes with a varied economic impact on various
sectors of the economy (agriculture, manufacturing, trade and commerce), reducing
capital flight. However, in Ghana’s case, the Tema Oil Refinery has become more
of a drainpipe, a source of alleged massive corruption and direct government
interference, Mr Sakyi has alluded in his article titled, “At what cost must
TOR be allowed to refine a portion of local crude?”
Given what Ghanaians know of TOR today “as poorly managed”,
one fundamental question that begs for answer is “at what cost must the entity
be allowed to refine a portion of Ghana’s share of the local crude”, the energy
analyst quizzed.
The Managing Director of the Tema Oil Refinery (TOR) Mr.
Isaac Osei at this year’s Offshore Technology Conference (OTC) in Houston
Texas, made a call for TOR to be allowed to refine portions of Ghana’s crude
oil for the local market, instead of selling all on the international market.
He bemoaned the situation where Ghana National Petroleum
Corporation (GNPC) sells all of the country’s oil entitlement on the
international market while TOR shops around for crude oil to refine into
finished products for local consumption. And in his view, the situation did not
give Ghanaians the confidence and excitement they were supposed to have
following Ghana’s discovery of oil in commercial quantities.
His call was geared towards the creation of a healthy
synergy between the upstream and downstream sectors of the Ghanaian petroleum
industry, and also to ensure value creation.
Of course, this call resonates with many that have been made
in the past by well-meaning Ghanaians, especially of the need to refine
indigenous crude to increase State revenue through value addition; and to
provide fuel security, reduce the growing fuel imports, and possibly to reduce
domestic fuel prices.
However, given what Ghanaians know of TOR today as poorly
managed, one fundamental question that begs for answer is at what cost must the
entity be allowed to refine a portion of Ghana’s share of the local crude?
But, responding to a question on if government should invest
more tax payers money in the state enterprise which has been a liability over
the years to the state, Mr Mould said in an interview that, for government to
decide or take a bold step to investing in TOR to revamp it, the following will
be required: a complete process audit by a recognized international engineering
firm; a time bound program to implement the findings of this process audit; and
injection of funds to achieve the goals of the audit.
“Basically TOR needs a performance improvement plan (PIP) after which it needs to demonstrate efficiency”, he noted.
Legally, TOR will need to give a financial guarantee to GNPC (like all traders who purchase crude from GNPC) to ensure that payment is made promptly so that GNPC does not violate the PRMA which requires full payments for crude lifted be made within 60 days.
“Basically TOR needs a performance improvement plan (PIP) after which it needs to demonstrate efficiency”, he noted.
Legally, TOR will need to give a financial guarantee to GNPC (like all traders who purchase crude from GNPC) to ensure that payment is made promptly so that GNPC does not violate the PRMA which requires full payments for crude lifted be made within 60 days.
Mr Sakyi in his article echoed that, the assertion that a
state would be richer and derive all the benefits stated above if it could
simply add value to its crude by refining locally is flawed on most occasions,
especially in sub-Saharan Africa (SSA) where it is rare to find a domestic
refinery reporting profits and sustainability; compared to their peers in more
liberalized markets due to varied reasons that makes the refineries
unattractive for Government and private investor support.
“That is why it was imperative for the Managing Director of TOR representing the entity; to have made a much stronger case to support the call. He must demonstrate to Government and the investor community beyond any economic doubts, that the refinery is economic and operationally viable in this regard. But to simply ask Government to allow the somnolent entity to refine the country’s crude without an assurance of “value for money”, is simply flawed.
“He was equally unable to state that crude suppliers, be it international companies or the State; are convinced that they would either obtain in full with acceptable operational losses the quantity and quality of products from the crude oil it supplies to TOR for refining, or for the payment of the crude.
“Indeed, Mr. Osei failed to argue that in his dealings with distributors and marketers of refined petroleum products, they have come to accept TOR as internationally competitive in the supply of refined products for the Ghanaian market. Failing to convince Ghanaians to the effect that TOR’s refined products could be sold cheaper than or at par with the products that are currently being imported into the country; given the advantage of zero or minimal freight cost, and import duty”, he juxtaposed.
He intimated that, anything short of above relevant arguments makes the Managing Director’s call for a portion of Ghana’s crude to be refined by TOR quite an emotional and unnecessary one, as the statement lacks economic basis, and is inconsistent with what Ghanaians think of today’s TOR.
“That is why it was imperative for the Managing Director of TOR representing the entity; to have made a much stronger case to support the call. He must demonstrate to Government and the investor community beyond any economic doubts, that the refinery is economic and operationally viable in this regard. But to simply ask Government to allow the somnolent entity to refine the country’s crude without an assurance of “value for money”, is simply flawed.
“He was equally unable to state that crude suppliers, be it international companies or the State; are convinced that they would either obtain in full with acceptable operational losses the quantity and quality of products from the crude oil it supplies to TOR for refining, or for the payment of the crude.
“Indeed, Mr. Osei failed to argue that in his dealings with distributors and marketers of refined petroleum products, they have come to accept TOR as internationally competitive in the supply of refined products for the Ghanaian market. Failing to convince Ghanaians to the effect that TOR’s refined products could be sold cheaper than or at par with the products that are currently being imported into the country; given the advantage of zero or minimal freight cost, and import duty”, he juxtaposed.
He intimated that, anything short of above relevant arguments makes the Managing Director’s call for a portion of Ghana’s crude to be refined by TOR quite an emotional and unnecessary one, as the statement lacks economic basis, and is inconsistent with what Ghanaians think of today’s TOR.
The Managing Director of TOR made the unwarranted call at a
special panel put together by the Ministry of Energy (MoE) to discuss issues
affecting Ghana’s energy sector at the OTC. But
The matter of TOR refining local crude as requested by the
refinery MD is not in any way a problem that affects the country’s energy
sector, giving that the Tema Oil Refinery has ever refined a local crude.
In December 2016, TOR took delivery of the first local crude oil produced from the Tweneboah, Enyera, and Ntomme (TEN) fields in the Western Region. The cargo of approximately 1 million barrel was delivered aboard the vessel MT. Bordeira, and supplied by AOT Energy on an Open-Account basis (120-days credit).
Today, if TOR wishes to refine crude from any of
Ghana’s production fields, then all that is required of Management is putting
in place the right trade frame-work and product accounting system that
guarantees payment of the crude. With a proven ability to pay, it wouldn’t
matter who supplies TOR the crude, and whether from a local source or
elsewhere; period.In December 2016, TOR took delivery of the first local crude oil produced from the Tweneboah, Enyera, and Ntomme (TEN) fields in the Western Region. The cargo of approximately 1 million barrel was delivered aboard the vessel MT. Bordeira, and supplied by AOT Energy on an Open-Account basis (120-days credit).
If a refinery can demonstrate the ability to pay for a crude parcel, suppliers will be more than willing to offer the commodity based on international pricing benchmarks.
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