Ghana: CEMSE Proposes Three Steps To Revamp TOR

The Centre for Environmental Management and Sustainable Energy (CEMSE) has proposed three immediate measures to revamp the state-owned ailing Tema Oil Refinery (TOR).

CEMSE wants the government to consider TOR to file for bankruptcy to facilitate the reorganisation of the company under court supervision.

The other option is for the government to restructure TOR and inject liquidity to address TOR’s liabilities and exploring Concession Agreements with the private sector.

According to the CSO, any of this options would help the debt-ridden refinery to return to its former glory.

The Executive Director, Benjamin Nsiah, made these proposals in a statement copied to this portal.

Below Is The Full Statement

CURRENT STATE OF TEMA OIL REFINERY: INSTITUTIONAL SOLUTIONS FOR
A SUSTAINABLE FUTURE

The Tema Oil Refinery (TOR), formally GHAIP began operations as a tolling refinery,
processing crude oil from multinational oil companies. Through years of reforms and
restructuring, it has added importation of petroleum products, storage and distribution across the country to its operations. With the introduction of Bulk Distribution Companies, the business model reformed to tolling and terminal business as well as laboratory services.

Current state of the company

The Total Equity of TOR has been on a decline since 2019 signifying financial distress. In
2019, TOR recorded negative equity of Ghc2,444.16 million, which deteriorated to
Ghc5,737.38 million in 2023, representing worsened percentage change of about 135%.

Total Equity declined annually by about Ghc823.31 million, representing about 25.76% drop per year, with the average Total Equity standing at Ghc-3,581.67 million. This situation indicates that over Ghc6 billion would be required to improve the liquidity position and restore financial stability. However, given the current liquidity constraints of government, securing Ghc6 billion to turn it around and make it viable for business will be a challenge.

The situation of TOR is furthermore, worsened by its financial performance. It has been recording net losses since 2019 with the highest net loss of Ghc1.6 billion recorded in 2022, while 2023 recorded a net loss of Ghc1.3 billion. Furthermore, between 2019 and 2013, TOR made an average net loss of Ghc793.42 annually and has been recording negative Return to
Assets reflecting poor and inefficient management.

Surprisingly, a company that is making huge losses year on year with negative equities still
keeps over 500 employees. TOR is currently overstaffed with over 500 employees, leading to redundancy. Meanwhile, at its current capacity, only 150 employees is needed to efficiently
handle the operation of TOR.

The company’s current state of near-collapse, compounded by a large number of redundant
employees, requires urgent reassessment. Below are our recommendations to revitalize TOR:

Recommendations

1. Filing for Bankrupcy:

The government could consider filing for bankruptcy to facilitate the reorganizing of the
company under court supervision. This process will allow TOR to restructure its debts and operations while temporarily halting activities. Additionally, it will enable the government to
rationalize payroll costs by retrenching redundant employees and streamline operations for efficiency.

2. Restructuring and Liquidity Injection

The government could also restructure TOR by committing to injecting liquidity to address the
liabilities of the company. Given the issue of liquidity constraints of government, it could
negotiate extensions of existing debts or explore debt-for-equity swaps, allowing creditors to
partially own and operate the company. This approach will likely attract private sector interest to improve assets management and enhance ensure technical and managerial efficiency.

3. Exploring Concession Agreements

Government could also consider concession model where the government grants private entities the right to invest and operate TOR’s infrastructure for a specified period. This
approach leverages private sector investment and expertise while allowing the government to retain ownership of public assets.

However, to ensure concession is successful, the contract
must be careful designed and monitored to balance public and private interests effectively and
sustainably.

Source: https://energynewsafrica.com