Ghana: Petrol Politics and the Tema Oil Refinery

 The last time we were told our inability to import crude oil for the refinery was due to difficulties with raising letters of credit (LC’s) as a result of arrears owed Ghana Commercial Bank (GCB) and other financial institutions to the tune of GH¢1.6 billion. Letters of Credit basically guarantee that a buyer’s payment to a seller will be received on time and for the correct amount and that in the event the buyer fails to honour his obligation, the financial institution legally is required to cover it.

During the Meet-The-Press series in September 2012, Dr Oteng-Adjei Minister for Energy said “to date government has made payment on behalf of Tema Oil Refinery to the tune of GH¢1.137 billion. The total outstanding debt is GH¢611million.”

The refinery is configured to process light to medium crude feedstock with an additional Residual Fluid Catalytic Cracker (RFCC) unit that expands its versatility and profitability by allowing heavier fractions to be converted into primary high-end products such as petrol and naptha. The RFCC is the cash cow of any refinery. By virtue of TOR’s configuration to process light crude feedstock, the quality of the heavy fractions (bottoms) that determine the RFCC yields and product properties are high. Therefore, we should get more products per every barrel of crude and or heavy fraction processed.

Is it not better then to import the raw crude blends from regional markets such as Nigeria, Equatorial Guinea and Gabon negotiated through a bilateral agreement or paid at competitive international rates, process locally and add your margins to the finished products for both local and regional exports to countries like Burkina Faso, Mali and Niger?

Currently the majority of the finished products consumed in the country are brought in by the Oil Marketing Companies (OMCs) from North West Europe using mainly Rotterdam spot prices with an element of hedging. On top of this, we eventually pay the transport charges, extra demurrage charges, insurance, etc. These all add to the price build up before the cargo even berths at Tema Harbour. Finally, almighty government then slaps its 35-40% tax charges.

Why hasn’t the refinery processed a single drop of crude oil in the past 6 months if its debt profile has substantially been reduced by government? Is there a ‘cartel’ deliberately preventing the effective running of the refinery? Why would government spend over GH¢1billion annually on petrol subsidies when all TOR needs is $250million (according to Mr Alex Mould on Joy FM’s Super Morning Show of 18/02/2013) to upgrade its facilities into a world-class refiner manned by a competent management team under a minority government owned public private partnership. By the way, how much has accrued to the TOR Recovery Levy since its implementation? Why are TOR’s storage tanks being leased to store the imported products of other OMCs? We might as well convert the refinery into a tank farm and forget about ever processing crude oil locally!

What we have now is a shambles of a deregulatory environment where the policies of the NPA over the past years and for that matter government has distorted the market leading to high prices at the pumps and pseudo monopolies who have no incentive to invest in additional refinery and storage capacity. You either fully deregulate and allow the OMCs to compete on price or you don’t at all. There is no middle ground to deregulation.

About the Author

Theo Acheampong
Theo is an economist and social media enthusiast who provides regular commentary on socioeconomic and political developments in Ghana and Africa at large. Theo is passionate about leadership, entrepreneurship and the role of innovative technologies in solving Africa's developmental challenges.