Monday, September 30, 2013

Positioning TOR @ 50. Can it still be the catalyst?

 Saturday, September 28, 2013 (Page 12)

Ghana’s first and only crude oil refinery was commissioned 50 years ago today, September 28, 2013, and remains one of the country’s most valuable national assets; though it has not actualised Ghana's first President's vision of becoming the base for the petrochemical industry.
Ghana became one of the countries with a crude oil refinery and the sixth largest in Africa in the 60’s. Crude oil, according to Dr Kwame Nkrumah, ‘is the life blood of industry,” and that informed his initiative to set up Ghana's only oil refinery to propel his dream of championing national development through industrialisation.
The refinery was known as the Ghanaian-Italian Petroleum Limited (GHAIP) and was solely owned and managed by the Italian group ENI, until 1977 when the Government of Ghana bought all the shares and became the sole shareholder of GHAIP. The refinery was a simple hydro skimming plant with a capacity of 1.25 million metric tonnes. The refinery was a tolling refinery, refining crude oil on behalf of the major Oil Marketing Companies including TOTAL and BP for a fee.
 Dr Nkrumah during the commissioning of the £8.5 million refinery on September 28, 1963 said it was the government’s intention that “the refinery becomes the vital foundation for the establishment of other industries in Ghana”.
The refinery has gone through different phases since its commissioning; with GHAIP being re-named Tema Oil Refinery (TOR) Limited in 1990. Though, a Limited Liability Company, owned by the State, TOR has never been allowed to operate and function as such. True to Nkrumah’s word’s “Government had the final say in determining the prices of the oil products refined”.
This concept has prevailed to date.  As a result of underpricing (subsidies) which was not paid on time, over the years, sales revenues were not sufficient to pay for Letters of Credit established for crude oil imports and the shortfall had to be funded by the Ghana Commercial Bank through overdraft facilities. The overdraft attracted penal interest charges which accumulated into what is now referred to as the TOR DEBT.
 Just like numerous industries set up by Dr Nkrumah, most of which are defunct, TOR faces operational and technical challenges. These have impacted on the availability, reliability, efficiency and profitability of the company.
The country’s only refinery which produces Liquefied Petroleum Gas (LPG), gasoline, diesel, kerosene, aviation turbine kerosene, naphtha, fuel oil and cracked fuel oil was and is still faced with debts. As a result, many financial institutions saw TOR as a high risk entity.

 TOR’s challenges

TOR’s challenges broadly include the unavailability of working capital to procure crude oil consistently, plant and operational inefficiencies and the nature of the old business model. Therefore, the once vibrant refinery has been in the news for the wrong reasons: “TOR on the verge of collapse,” “TOR in tatters,” “Help Save TOR,” “TOR workers leave for Oman, “TOR Shuts Down”, “Aging Plants at TOR”, “TOR lacks working Capital” “Crude Oil on Financial Hold” and TOR on road to recovery” among a host of others.
The frequent shutdown of the Crude Distillation Unit (CDU) and the Residual Fluid Catalytic Cracker (RFCC) unit no longer comes as a surprise to many Ghanaians. There have been instances where workers have agitated due to the non-functioning of the processing plants or unavailability of crude oil for weeks and sometimes months.
These unplanned shutdowns are attributed to unreliable and unstable utilities among other factors. The shutdowns damage the process equipment designed for continuous operations, safety of personnel and operational efficiency. As a result, plant efficiency is compromised due to depletion of funds for plant maintenance and loss of revenue. The situation has been very frustrating for stakeholders including TOR's management, workers and Ghanaians.
 The fluctuating crude oil prices on the world market put pressure on the profit margin of refineries worldwide, including TOR. Due to the lack of working capital, TOR is unable to plan its procurement of crude oil, and as a result tend to rely on the Spot market with its attendant risks and challenges to profitability.
The problems arising out of debt on the books of TOR in addition to the high interest rates charged by financial institutions, cannot be over-emphasised.
What seems to have added to the woes of TOR is the poaching of its skilled personnel by refineries in the Middle East especially in Qatar and Oman, which have become fertile grounds for TOR staff who are being offered lucrative remuneration packages. Despite these challenges, there appears to be some light at the end of the tunnel for TOR.

TOR today

As a result of the many challenges aforementioned, the management of TOR initiated a Plant Stabilisation and Profitability Enhancement Programme (PSPEP) to turn around the fortunes of the refinery. TOR required $67.7 million for this programme based on recommendations from various consultants to fix the processing plants to ensure continuous processing, availability, reliability and profitability. The government released $30 million out of the $67.7 million in December 2012 for the initiatives. The procurement of items is at various stages, while the refinery awaits the balance of $37.7 million to complete the identified projects to ensure the refinery’s operations are efficient and reliable.
Under the PSPEP, operational losses, which is one of the bane of the refinery, are being addressed with the installation of Automatic Tank Gauging System (ATGS) and Flow Meters on out and inward bound pipelines to reduce human intervention and ensure accountability of products.
The refinery’s three operational boilers which depended mainly on fuel oil which is so expensive and adds to operational cost have been commissioned to use flue gas which otherwise would have been flared. Another initiative geared towards making the refinery more profitable is, the off-gas compressor has also been fixed and awaiting commissioning.  This facility will compress off gases generated from the processing units and channel them to be used as fuel for the boilers and furnaces.
Aside these laudable actions, the company is also focusing on its human resource retention by training and re-training staff.
As part of measures to reduce the risk of non-settlement of credit, TOR has changed its old business model of selling on credit to the Oil Marketing Companies (OMCs). Currently, TOR sells its finished petroleum products to the Bulk Distribution Companies (BDC’s) who post unconfirmed Letters of Credit to reduce the risk of non-payment.

Quality Petroleum Products

With a workforce of more than 700, TOR is noted for its quality specifications in Aviation Turbine Kerosene (ATK) which meets international specifications. The airlines would have had to refuel from their countries of origin adding to high cost of operation.  ATK from the refinery has been used to refuel presidential jets including AIRFORCE ONE on three occasions when Presidents Clinton, Bush Jnr and Barack Obama visited Ghana. The refinery has, therefore, replicated this stringent process on other product lines including petrol and gas oil.
 
What TOR can be

Fortunately, the country joined the league of oil producing countries in June 2007 when oil was discovered in commercial quantities and it will be befitting to fulfil Dr Nkrumah’s charge to GHAIP in 1963 when he directed the company to "purchase and refine the crude oil" in the event Ghana strikes crude oil.
In the past, present and successive presidents have had to move from one country to the other virtually on "their knees pleading for crude oil" to be supplied to TOR. Ghana does not have an excuse to go begging for crude oil when crude oil is being shipped from Ghana to buyers abroad.
The refinery brings “value addition” to the crude oil found in Ghana in addition to the many wells which are yet to be explored and discovered. The benefits to the economy, industries and employment generation is obvious. Ghana cannot reach the threshold of development if it continues to spend billions of dollars to import finished oil products, rice, cooking oil, chicken, toothpick, tomato puree and many others at the detriment of local industries. TOR must, accordingly, position itself to be able to purchase Ghana's crude to feed its plants.
The refinery could be the foundation for any petrochemical venture Ghana intends to embark on. Dr Nkrumah once stated, ‘The refinery should become a vital part for the establishment of other industries to contribute to national development’.
While TOR positions itself to expand and improve its infrastructure to ensure reliability of petroleum products on the Ghanaian market and beyond, it should also consider entering into strategic partnership with investors. It would also not be a bad idea for it to float shares on the Ghana Stock Exchange (GSE).
TOR is a viable company that should be supported to play its strategic role to enhance the country’s development. The government must assist TOR to be independent. Subsidising petroleum products is not the solution to the country’s oil industry and other areas begging for assistance.
The several millions of cedis used in subsidising fuel products, which from experience hardly reach the intended vulnerable group, can be channelled into the provision of quality health care, education and other social amenities for the benefit of millions of Ghanaians whose needs are increasing daily.
Writer's email: mabel.baneseh@graphic.com.gh.

1 comment:

Aaron Baneseh said...

If they roll out these proposed reforms I'm sure TOR will quickly become a major contributor to the economy as was originally planned.