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General News Wed, 1 Apr 2015

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Fuel supply challenge: TOR or BDCs, which way out?

While the nation faces another possible fuel shortage due to huge indebtedness to Bulk Oil Distribution Companies (BDCs), state-owned Tema Oil Refinery (TOR) needs $37.7m to produce at full capacity.

The BDCs estimate government’s indebtedness to them has built up to some Ghc2.1 billion again.

Information gathered by The Finder indicates that TOR is currently refining 28,000 barrels of crude oil a day since it bounced back on December 29, 2014 after a long shutdown due to financial problems.

Government in 2010 promised TOR $67 million for plant stabilisation and enhancement projects.

Consequently, TOR had completed the first phase of plant stabilisation and enhancement projects on the crude distillation and residual fluid catalytic cracking units at a cost of $30 million.

TOR is awaiting the remaining $37 million in government funding before it can begin a second phase of stabilisation and enhancement projects designed to ensure the reliability of operations at the refinery.

TOR’s refining operations have been inconsistent amid frequent shutdowns of processing units since 2009, mainly due to a lack of capital to procure crude oil on a continuous basis, which has impacted petroleum product supplies to the Ghanaian market.

Crude processing at TOR restarted on December 29, 2014 after Nigeria’s Access Bank PLC provided TOR financial support to secure about 800,000 barrels of crude oil feedstock from a subsidiary of Nigeria-based Sahara Group.

TOR refines 45,000 barrels of crude oil per day while the national demand is about 65,000 barrels per day.

This leaves a deficit of over 20,000 barrels per day.

As a result, the BDCs were allowed into the system to import refined products to fill the deficit.

However, due to inconsistencies in TOR’s operations, amid frequent shutdowns of processing units since 2009 mainly due to lack of capital to procure crude oil on a continuous basis, BDCs were importing refined products to satisfy the 100% needs of the country.

Last year, the country suffered debilitating fuel shortage because the BDCs said they could not secure letters of credit to import because government owed them Ghc1.8 billion.

The warning by BDCs last week that government owed them Ghc2.1 billion and that their bankers were refusing them letters of credit suggest another possible fuel shortage.

Any fuel shortage will only compel the few companies able to buy diesel to operate in this rolling power cuts to grind to a halt.

Having experienced the challenges of relying on either BDCs or TOR for fuel supply, the best choice for the country can now be determined by policymakers.

In November 2014, then deputy Minister of Energy and Petroleum, John Jinapor, announced that the government was in talks with Petro-Saudi in a joint-venture arrangement to revive the ailing oil refinery.

The agreement, when reached, would see the Arabian Firm plug the inefficiencies that have engulfed TOR.

Per the agreement, a new marketing firm called TOR-PS (TOR Petro-Saudi) would be set up to procure crude oil and sell the finished product.

Petro-Saudi is expected to control 49% of the stakes while Ghana manages the remaining 51%.

Importers and marketers of petroleum products could be allowed to fix their own prices by the end of the year, Government has said.

It is an idea that will form part of a deregulation policy aimed at bringing in more private sector players.

Deputy minister of petroleum, Ben Dagadu, disclosed this at the annual general meeting of the chamber of bulk oil distribution.

However, Chief Executive Officer of the BDCs, Senyo Horsi has indicated that government’s decision to deregulate the petroleum downstream sector will be unsustainable.

Government’s move to deregulate the sector implies that the National Petroleum Authority (NPA) will no longer have firm control over pricing.

He further posited that there are some “key decisions” that will negatively influence the acceleration of the petroleum industry when it is deregulated.

Horsi believes government was compelled to take such a decision because of some circumstances it had no control over.

“Circumstances pushed government to take such a decision. If government does not want to underwrite the responsibility associated with pricing, then it will have to allow the market to price itself.”

Horsi said government’s decision to liberalise the petroleum sector will benefit the economy and Ghanaians.

“I think when you price liberalise it, it is not only the consumer that benefits; the economy also benefits for government to be able to now structure its end in more productive areas like mass transportation.”

He, therefore, suggested that various stakeholders focus on what government can do to replicate the impact of fluctuating petroleum prices at any point in time on the lives of Ghanaians.

Source: The Finder

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