TEMA OIL REFINERY: The road to recovery

MANY industry players believe that the inability of the nation’s only refinery, the Tema Oil Refinery (TOR), to run as a commercial entity is a result of unnecessary bureaucracy laced with enormous political interference.

They believe that successive government’s lack of political will to prosecute the refinery’s profitability agenda had continually contributed to the grounding of operations at the facilities which were built from huge investments.

Although, a vital component in the growth of the Ghanaian economy, TOR has consistently witnessed diverse setbacks in its operations.

Ranging from crude oil purchases, intermittent shut down and start ups of the two major plants that serve as a life bone to its existence.

The frequent start-ups and shut-downs, apart from the huge financial losses to the institution, also placed enormous stress on the plant, equipment and machinery and incurs input costs which are often never recovered at the end of the day. 

The Losses

For instance, normal start- up of the Residual Fluid Catalytic Cracking (RFCC) plant after each shutdown could take about four days using about 200 tonnes of Liquefied Petroleum Gas (LPG) valued at $200,000, 820 tonnes of Gas oil and Crack Fuel costing $200,630, 185 tonnes of fuel oil at $150,300, bringing the total cost of the the entire start up to about $550,930.

Similarly, the shut down cost using the same process and product use stands at about $275,465.

The above figures are, on the other hand devoid of the average downtime daily loss of $350,000 in the event of the RFCC plant inability to run, resulting from a shut down or the unavailability of crude oil for production.

The upgrading of the facility by the government with an initial $60 million in 1996 as part of revamping processes was aimed at making the refinery commercial but this was, however, misdirected for donor partners to profit heavily from the grant sponsorship.

The oil sector being a strategic area to the Ghanaian economy necessitated the construction of the RFCC plant with financing from the Samsung Conglomerate of Korea at a cost of about $220 million in 1998.

The plant was meant to convert the atmospheric residual fuel oil into very useful petroleum products like LPG, Gasoline and Light Cycle Oil which was as well meant to be used as diesel.

That, however, deprived the country of a vital national asset as Vitol SA became the commercial lifter of fuel oil and heavy naphtha leading to the closure of the Premium Reforming Plant (PRF).

This is because TOR defaulted in repaying the credit facility provided by Samsung and Vitol SA had to do so its behalf.

Because of this arrangement the refinery lost the opportunity to convert the cheap heavy naphtha into rich high octane gasoline that could boost income although the former Managing Director, Dr Kofi Kodua Sarpong had nicknamed the plant “the Cash Cow” when the profitability of the RFCC plant was so huge and impressive at that time.

Today however, the RFCC cannot live up to the expectation that earned it that accolade in the past. 

Workers Union and Ministry Officials

Some of the accusations particularly against the Energy Minister, Mr Joe Oteng Adjei, and his then deputy, Dr Kwabena Donkor, were allegations that they engaged in some underhand dealings that aided Bulk Distribution Companies (BDCs) to import finished petroleum products, that eventually earned them between GH¢20,000 to GH¢50,000 in kick backs.

To the workers, the survival of TOR was never on top of the agenda to these officials, hence they were simply not interested in whether the refinery had crude oil in stock for production or not.

Another pertinent issue that had equally seen the refinery workers on a collusion course with officials was the government’s inability to ensure that TOR had access to crude oil from the Jubilee fields for production.

They had at various foras demanded the resignation of the minister and one of his deputy, Mr Kofi Armah Buah, as well as energy advisors surrounding the presidency.

According to them, not only were these people not just interested in TOR’s growth, but they allegedly continued to peddle untruths about state of TOR to the president. 

The Dismisals

Officials defiance to their demands saw a series of protestations that received massive coverage from the media, Dr Kwabena Donkor was shown a red card, in what seemed like a wrong back tackle in managing the widespread crises that rocked the refinery, which perhaps might at the time have given the opposition and trade unionists a field day to be critical of the government’s handling of TOR.

His red card, however, deflated the entire management, which plunged the refinery into further misery, resulting in its then acting Managing Director, Dr Kwame Ampofo, being booted out of camp by the presidency in a dramatic style and subsequently replaced by former Ghamot Company Chief Executive Officer (CEO), Mr Ato Ampiah.

Inspite of these changes however, inherent problems continue to tag along like a witch refusing to let go of its victim after undergoing a series of deliverance prayer sessions.

For TOR to run competently devoid of inefficiencies in crude oil procurement, the company ought to be well resourced to be able to procure enough supply on quarterly schedules as had been the case in the past. 

Retooling and Recapitalisation

Perhaps, the government’s announcement to release some $50 million as funding for retooling as well as possible recapitalisation, although a little belated in my opinion, could be described as welcome news to an institution that had not only suffered serious operational hiccups, but had equally lost majority of its experienced hands to the Gulf Stream countries such as Omar, Qatar and Abu Dhabi, all in the Middle East.

The $50 million, in my opinion , although a paltry sum that could just cater for the cost of one consignment of crude oil of about 600,000 barrels, I believe, was the government’s initial commitment to meeting the needs of the refinery after several backlash accusations over the last two or so years by the workers union who blamed officials for not promoting the sustainability of TOR.

The government’s resolve to ensure that Cabinet and the Finance Ministry raised additional $200 million as an operational fund to enable it to co-ordinate its activities of crude oil purchases is equally laudable for an institution that had engaged in significant proxy borrowing that nearly crippled its entire operations.

The comments on the recapitalisation and the figures mentioned by government, I believe, would not only turn out to be appetisers meant to keep the refinery managers and the nation in suspense but translate into an action plan that would immediately rescue TOR from its unconscious state.

This remedy would also ensure that most of the well experienced, skilled and trained staff would not be lost to the Gulf States which are so much impressed with the performance of personnel recruited from TOR.

It is also imperative that the Bank of Ghana (BoG) reconsiders its decision on the Single Obligor Limit (SOL) regulation that restricts one commercial bank from granting loans of more than GH¢16 million to TOR and ensure that permanent Letters of Credit (LCs) were issued to enable banks raise LCs for TOR without any much hindrance.

Most of the discussions in the media as to why the recapitalisation of TOR has not been done for so long point to the fact that the history of debt incurrence by TOR poses a lot of risk to the banks as in the case of the Ghana Commercial Bank (GCB).

However, critical analysis of the figures that make up the TOR debt also reflects the chunk of the debt originated from the fuel subsidies that the government gave to the consuming public.

Also, accumulated subsidies should have been redeemed to save TOR's image and while debts owed by the Oil Marketing Companies (OMCs) were redeemable the regulatory agency, the National Petroleum Authority (NPA) could enforce all OMCs to honor debts they owe TOR without any failure. 

The Jubilee Crude Oil, Tullow and Dr Oteng-Adjei

Whereas many are of the opinion that part of the crude oil generated from the fields should be released to TOR as part of efforts to sustain consistent crude oil supply, a Petroleum Engineer with Tullow Ghana, Mr Kwarteng Amaning Jnr on May 9, 2011 was alleged to have told Journalists in Tamale that TOR lacked the capacity to refine crude from the fields, a claim that was widely rejected by the the Managing Director, Mr Ato Ampiah, who insisted that TOR had the capacity to process crude from any part of the world.

"In fact, Jubilee crude will be one of the easiest to be refined by TOR, it is not different from Bonny or Brent and TOR has been processing Bonny and Brent for years so the issue is not that TOR cannot refine the crude.

TOR can refine the Jubilee crude even with closed eyes", Mr Ampiah was quoted to have stated.

The comments prompted Tullow to issue a statement to dissociate itself from the comments made by Mr Kwarteng Jnr, thus once again evoking anger from the workers union who accused the energy minister of cancelling the delivery of 450,000 barrels of crude from the fields after TOR had successfully raised letters of credit (LCs) to enable Vitol/Woodfields, who had been mandated to assist the Ghana National Petroleum Corporation (GNPC) to market and trade Ghana’s entitlement of Jubilee crude oil to stop the delivery allegedly on the orders of Dr Oteng-Adjei.

The minister in a recent interview granted this writer on August 8, 2011 denied the allegations which he described as mere speculations.

According to him, for TOR to procure crude from the jubilee fields, it needed to satisfy a commercial requirement, thus the ministry would not allow itself to be drawn into such arguments.

"If TOR or any other entity has the ability to procure, they should engage the Ghana National Petroleum Corporation", he said.

What, however, I find a bit intriguing in that interview was his response that the selling of the crude oil on the international market was based on economic values in the petroleum agreement, meant to ensure Ghana maximised enough benefit from the production.

"Unless there is a world shortage of crude oil and there is no where TOR can get crude, then as a country we can make a decision that it makes no sense to sell the jubilee crude", Dr Oteng-Adjei stated.

These comments do not only buttress allegations of his alleged cancellation of the deal but puts a smack on the country’s integrity as far as its ability to manage its own resources.

Waste and Over-Staffing
Much as the blame had been laid at the door-steps of the government on its non-commitment to the survival of TOR, we also ought to point out the fact that there was a lot of wastage in the refinery’s set up. 

The refinery’s work which focuses mainly on engineering and technical abilities has its administrative staff outnumbering those at the technical departments.

For example, out of the about 800 employees on the refinery’s payroll, about 67 per cent were made up of administrative staff leaving a huge chunk of employees with no job specifications, but receive huge salaries at the end of the month. 

Such workers according to information available engaged in newspaper readings as hobbies and in heated exchanges on topical issues discussed on radio stations. 

The Way forward
The government’s directive to the refinery’s management to submit its audited financial report to the government as the sole shareholder, was a laudable initiative.

Whereas Mr Ampiah had at various platforms downplayed fears of TOR’s production facilities being completely shut down, resulting from the challenges, a more proactive action could be put in place to address them.

Therefore, the financial audit statement, account management, audit of management systems, including the human factor ordered for by the government would inform the government’s recapitalisation decision.

In my opinion, TOR is still a very profitably viable entity, but would remain a mirage and a failure if the impediments remain.

SOURCE: Della Russel Ocloo, Daily Graphic, Sept 23, 2011