Ghana’s Petroleum Hub Project: Restructure, Recaptalize, And Revamp TOR To Play A Central Role

Its weaknesses are well documented, ranging from distress financial position, low refining and utilization capacity, weak governance structure, poor maintenance culture, to production and storage losses. 

But little attention has been given to its strengths and opportunities. It takes only those who have ever ventured closer, to see the brighter side of the 45,000 barrels per stream day (bpsd) state-owned facility which is situated 24 kilometers East of Accra. 

Fortunate, am I to come close to the Technicians and Engineers of this facility who would always make it count when they are most needed. The capability and sense of ownership of the ordinary worker of the facility is not comparable; making them the employee of choice for the refineries in the Gulf and Asia. 

Beyond the human asset, the Tema Oil Refinery (TOR) can boost of huge storage capacity of approximately 1 million metric tonnes for both crude oil and finished petroleum products, and well inter-connected multi-product pipelines of varied sizes. The refinery also owns a Jetty, a Single Point Mooring (SPM) facility, and a Conventional Buoy Mooring (CBM) system for both crude and finished petroleum products vessels. And aside its large capacity of land, the facility is very much close to markets (local and domestic).

However, the under-utilization of these assets have become a major setback for the entity. For instance, the stock tank turn is less than 1 percent; 20 percent minimum measure of fair utilization. Both the Crude Distillation Unit (CDU) and the Residual Fluid Catalytic Cracker (RFCC) rarely run continuously, with the CDU unable to run at optimum capacity on most occasion. 

In spite of the challenges, industry players and analysts have described TOR as a necessary center of the success of Ghana’s proposed petroleum hub, as a result of its base assets that can easily be developed into a viable refinery. They argue that if the country could optimize the use of TOR’s existing assets, investors would appreciate the value proposition from Ghana as a petroleum hub.

Having identified capital, good governance and management structure as some of the necessary factors needed to make the state-managed facility viable, industry players are asking government to take all useful assets of the refinery as an equity contribution to enter into a strategic relationship with private technical and financial institutions to recapitalize and revamp the facility, if it has to play the central role in the creation of the petroleum hub. 

Restructure

At the just ended 2019 Ghana Energy Summit organized by the Business and Financial Times (B&FT), panelists who led the discussion on the topic “Ghana’s Petroleum Hub Project: The Dream, Opportunities, How to Get There”, concluded that the private sector must play a key role in the idea’s formulation, implementation, and the management of the hub, appealing to politicians to stay out and focus on setting policy and regulatory guidelines. And in contributing to the discussion as a panel, Mr. Isaac Osei, the boss of TOR, conceded that the business of government is to create the enabling environment needed for the private sector to thrive, instead of seeking to manage enterprises.

The assertion of the panelists was largely influenced by the huge capital and technological requirement for the success of the project which involves refineries, power plants, petro-chemical plants, light industry, storage and transmission utilities, waste and water treatment facilities, and business and residential centers et cetera.

In repositioning the Tema Oil Refinery to not only be part, but to play a central role in the petroleum hub dream, it has become imperative for the government being the sole shareholder, to open its doors to private international and local investors to change the ownership structure of the facility.

Government must be willing to forego its shares or take a minority stake in the business, and allow a strategic investor to introduce the kind of economics and technologies the business require. Restructuring TOR would provide the broad framework for the remedy to the numerous challenges facing the facility.

Today, if the policy on TOR is reviewed and is privatized, the composition of the Board of Directors and management will reflect this new structure and will be incentivized to act in the best interest of the organization with little or no government interference. It would be able to not only attract funding, but also the competent hands required to run the facility as a business concern.

Recapitalize

Aside requiring competent leadership to make it viable, the business of oil refining require huge capital outlay to improve efficiency, meet higher quality fuel standards and environmental legislation. Successive governments have clearly shown the lack of financial, technical, and management capacity in this regard. 

TOR has been plagued with funding challenges, in spite of debt recovery levy Acts instituted in the past and the current cash collected through the Energy Sector Levy Act (ESLA) to offset its indebtedness. And just like the many other state-owned enterprises (SOEs) in Ghana’s energy sector, TOR has been made bankrupt from subsidies (and non-payment of these subsidies) and political interference; a problem that is practically government manufactured. 

It still remain unclear how much debt sits in the books of TOR and what the debt is made up of. A complete audit of TOR’s financial position is necessary to ascertain its indebtedness, and to commence the processes of recapitalization.

Recapitalization remains the prime motive for proposing a change in the management and control of the refinery. To provide the free cash flow from the private sector to service the debts and provide working capital to relieve it from its financial distress which is frustrating smooth operations.

For instance, the process of installing the brand new 120 tonne per hour steam boiler that TOR took delivery of in October 2018 to replace the old and obsolete one which has proven to be unreliable has stalled, for reason of inadequate funds. Also, the refinery have not been able to restore the furnace that exploded in January 2017 as a result of illiquidity, forcing the refinery’s production capacity to drop from 45,000 bpsd to a paltry 28,000 bpsd. Again, the company’s plan to build a Greenfield facility to refine 100,000 bpsd, as against its current capacity of 45,000 barrels, remains on the drawing board since it was first announced in October 2017, while it struggles to source for funds to upgrade the existing facility from 45,000 bpsd to 60,000 barrels. But the topmost of its financial challenges is the inability to raise letters of credit (LoC) to procure crude to ensure uninterrupted running of the facility. 

In view of these, capital injection from the private sector into the operation, expansion, and rehabilitation of the existing infrastructure is critical if the new TOR would have to play a central role in the petroleum hub.

Revamp

The world over, profitable refineries rely on operational efficiency to gain competitive edge since they have little or no control over the price of their input or their output. Therefore constant innovation, upgrading and optimization of plants remains a priority if they have to produce more outputs from fewer inputs.

Revamping/rehabilitation and expanding the existing Tema Oil Refinery is therefore a non-negotiable call if it has to proceed on the path of sustainability. The country must rely on its petroleum hub agenda to revamp the existing TOR facility to make it more efficient whilst it makes plans to construct new refineries to meet local demand, as well as targeting the countries without refineries in the sub-region.

There must therefore be a change in the technology or processes used in the existing facility to allow low-cost slate to be processed, increase the current throughput, achieve economies of scale and increase overall profitability. 

For instance, TOR have had the intention to automate the loading gantry at its premises to reduce the human intervention as a way of reducing, if not to eliminate the losses at the gantry. The idea of rehabilitating/revamping the storage and product transmission facilities to create more storage room, move product efficiently and safely, and reduce product losses, remain part of TOR’s plan. And the restoration of the exploded furnace and/or an installation of an additional furnace is also imperative to increase the number of barrels to produce per day.

Even now with the Sulphur standards of 50 parts per million (ppm) that have been implemented to reduce Sulphur emissions by Diesel vehicles, TOR cannot refine to that standard and therefore they need to retool the plant to make it compliant with the new regulations and laws. In brief, the revamping idea is necessary today to revitalize TOR’s operational capacity through the upgrade and modernization of various parts of the refinery. It is therefore the most appropriate time for government to review its policy on TOR and cede the management and control of the facility to private and competent hands which has capacity to provide the right economics and technology for the business, if it has to be profitable and sustainable.

Written by Paa Kwasi Anamua Sakyi, Institute for Energy Security (IES) © 2019 
The writer has over 22 years of experience in the technical and management areas of Oil and Gas Management, Banking and Finance, and Mechanical Engineering; working in both the Gold Mining and Oil sector. He is currently working as an Oil Trader, Consultant, and Policy Analyst in the global energy sector. He serves as a resource to many global energy research firms, including Argus Media.