Business News of 2014-08-20

Imminent diesel shortage worries mining companies

Mining companies in the country have started rationing their stock of diesel used to fire plants at the mines in anticipation of a potential shortage of the product.

That follows the inability of the bulk oil distribution companies (BDCs) to raise letters of credit (LCs) to import petroleum products into the country due mainly to mounting arrears owed them by the government.

The Daily Graphic has learnt that available stocks of diesel were around 30 million litres as of August 15, 2014, compared to the national consumption level of 42 million litres per week.

The National Petroleum Authority (NPA), which regulates the downstream petroleum sector, said its stock could last many days and expressed the hope that funds would be released soon for the BDCs to raise LCs for imports.

The BDCs supply fuel to the oil marketing companies (OMCs) for onward distribution and sale to their customers, which includes the mining companies.

The government currently owes the oil distributors US$300 million in arrears and GH¢420 million in subsidies and that has made it difficult for them to raise funds through LCs to cover oil imports.

That is in spite of the fact that cargo ships full of petroleum products were currently at the Takoradi Port awaiting discharge after the necessary documentation and financial back-up.

This has caused national stocks of diesel, which is the main petroleum product used in the mining industry, to drop.

For instance, ZEN Petroleum, which supplies about 50 per cent of diesel used in the mining sector, does not have fuel at the moment and its Managing Director, Mr William Kodwo Tewiah, said the company could not guarantee supplies to clients who had made requests.

"We have started rationing the stocks that we have, and you will see an impact if we don't get inflows soon," Mr Tewiah, whose company supplies more than 10 million litres of diesel to the mining companies on a monthly basis, said.

The Ghana Chamber of Mines, the umbrella body of mining companies and related service providers, confirmed in an interview that some of its members had expressed concern over dwindling diesel stocks, a concern it said had been forwarded to the NPA.

An official of Gold Fields Ghana Limited, the biggest miner of gold in the country, told the Daily Graphic that the company was worried about the development, adding that its stocks could last just a few days.

"We are not panicking, but if nothing happens in the coming days, then it will be a concern to us," Mr David Johnson, the Vice-President and Head of Stakeholder Relations for Gold Fields West Africa, said.

Should the worst case scenario of diesel supply shortage to the industry occur, he said, the company would have to shut down its operations at the Tarkwa and the Darmang mines, both in the Western Region.

The country's diesel consumption level currently stands at 42 million litres per week and the mines, which use diesel and electricity to power their operations, consume about 17 per cent of that quantity, leaving the rest to the public.

The mining companies, unlike the public, get their fuel at premium prices.

A halt in operations by Gold Fields and other companies will add to the challenges the mining industry is already facing, including the drop in gold prices and its impact on company operations.

Already, many of the mining companies are recovering from financial distress which had caused them to lose millions of dollars in revenue and pay redundancy packages to employees.

As of March this year, more than 450 employees in the industry had been laid off as a result of internal reorganisation meant to meet the financial and economic challenges.

A short supply of diesel to the industry will, therefore, mean that the woes of the industry would be deepened, and that will have a roll-over effect on the economy, especially the manufacturing sector, of which mining is a key contributor.

Source: graphic.com.gh
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