Torentco deal: Due process was followed – TOR board insists

The board and management of Tema Oil Refinery (TOR) have emphasised that due process was followed in the selection of a rehabilitation proposal for the refinery.

In a statement on the subject, TOR clarified the circumstances leading to the proposed transaction with Torentco, and underscored an urgent need to address the refinery’s dire financial situation in light of concerns raised by civil society organisations (CSOs).

One of the primary concerns raised by critics is a perceived lack of transparency in the selection process. The statement counters this notion by explaining that TOR’s management presented proposals from three interested parties for the rehabilitation project. After careful review and physical presentations, the board decided to pursue Decimal Capital’s proposal.

This proposal, the statement noted, was the only one that included a long-term crude oil supply partner from a top global oil and gas trading company.

“Management was able to present three interested parties with proposals for rehabilitation of the refinery. Following the submission of proposals and then physical presentations from the various parties, the consensus decision of the board was to pursue the proposal made by Decimal Capital – a financial advisory firm established by Ghanaian professionals which set up a new special purpose vehicle (SPV) for the specific purpose of entering into the lease to allow its funding/crude oil supply partners to interact with TOR,” the statement read in part.

“Of the three proposals, Decimal’s was the only one with a long-term crude oil supply partner in the form of one of the world’s leading oil & gas trading companies. The Decimal proposal was also the only structure that did not result in TOR taking on any more debt on its balance sheet – it is fair to state that TOR did not have and continues not having any capacity to raise debt without the support of government guarantees,” it continued.

The move was necessitated by TOR’s debt, which stood in excess of US$400million when the current board was instituted during March 2022. The refinery also faced problems with reconciling customer accounts and could not cover its operational costs with its own funds. This resulted in low staff morale and job insecurity – leading skilled engineers to reluctantly seek employment in refineries around the world, even in challenging locations.

Regarding the question of sole-sourcing, TOR noted that the arrest of one Decimal Capital partner – former TOR boss, Asante K. Berko – led to a decision that he should be withdrawn from the transaction to maintain compliance.

“To ensure continuity, a new entity called Torentco with no history of the individual’s involvement was established. The mechanism for this replacement required an application for sole-sourcing approval.

In November 2022, one of the Decimal partners was arrested on his way back from London in relation to an alleged offence that dated back to 2016.

“This civil case had been settled, but unbeknown to him a criminal case was unsealed during his visit to London. Such an occurrence caused the board of TOR to take a step back and evaluate how best to proceed with a proposal that in substance was deemed to be the most solid and sustainable solution for TOR. After consultation with our stakeholders, and with a keen eye on compliance, it was determined that if we were to continue with the proposed solution, the Decimal principal in question would have to be withdrawn from any further involvement in the transaction, either as a director or a shareholder.

“The collective wisdom was that rather than withdraw the individual from Decimal, a new entity be established with no history of the individual’s involvement. Torentco was the result of this decision, and it was advised that the mechanism for replacing Decimal with Torentco would have to be an application for sole-sourcing approval,” the board explained.

The statement said that alternative options were actively sought throughout the negotiation process with Decimal/Torentco. However, no other credible expressions of interest were presented to the Board.

TOR retains the option to replace Torentco at any point if a more attractive solution arises, it added.

The deal is projected to sustain positive net cash flow, efficient crude oil processing, and the retention of valuable engineering staff.

While dealing directly with a major multinational company was preferable, no such engagement materialised. The Torentco proposal, in a structured consortium approach, brings together the necessary elements to address the refinery’s challenges, the Tema refinery said.

TOR noted that the transaction is in its final stages of documentation, subject to extensive “conditions precedent” that Torentco must fulfil. Failure to meet these conditions will render the transaction ineffective, prompting TOR to continue its search for a solution.

TOR has faced persistent financial and operational challenges, with successive governments failing to effectively address the problems. In 2003, new taxes were introduced to help the refinery repay debts and expand. Despite collecting US$500million in TOR-focused taxes by 2008, the issues persisted.

By 2015, additional payments reduced the debt to under US$750million. However, efforts for positive outcomes through partnerships and financing deals were unsuccessful. Later that year, domestic funding was raised to tackle TOR’s debt and capacity challenges. The Energy Sector Levies Act (ESLA) was passed, and an SPV was established in 2017 to convert taxes into effective financing. TOR’s debt was around US$750million at that time.

Within three years, the ESLA vehicle raised US$1.6billion – leading to a significant portion of TOR’s debt being cleared and reducing it to US$460million.