Torentco to meet extensive list of 'conditions' to demonstrate capability – TOR

The Management and the Board of Directors of the Tema Oil Refinery (TOR) have said that the Company has an extensive list of ‘conditions precedent’ for the lessee, Torentco, to satisfy to demonstrate their capabilities.

The Management and BOD stated this when they replied to calls from the staff unions of the Company for the halting of ongoing negotiations for a laissez-faire agreement between TOR and Torentco with the claim that the lessee did not have the requisite financial and technical capabilities to deliver.

It noted that: “If at any point they are unable to do so, the transaction will not become effective, and TOR will be left to continue with its ongoing efforts to find a solution.”

They stated that the said transaction was in its final stages of documentation, indicating that the lease agreement that was in circulation in the media was several weeks outdated and emphasising that Torentco would have to meet the ‘conditions precedent’.

According to them, it was important to note that throughout the period of negotiations with Decimal/Torentco, management has been attempting to develop alternative options to test against the proposed Torentco structure.

Noting that no other credible expressions of interest providing a solution for TOR had been presented to the Board, the statement added that despite the imminent completion of the Torentco transaction, TOR has negotiated the option to, at any point, replace Torentco should a more attractive solution emerge.

“The Torentco structure must be viewed as an immediate opportunity to rehabilitate the plant and resuscitate TOR, a very much needed ‘injection of oxygen’ to a distressed and ailing entity,” it stated, adding that “The proposed transaction in fact provides TOR and the government the opportunity to review the longer-term strategic options for TOR in an atmosphere of stability and continuous operation. It does not represent a sale of TOR or some kind of irreversible commitment to anyone.”

Touching on whether it was a good deal, the Management and the BOD stated that the proposed transaction allows TOR to move from being an annual loss-making entity to sustained positive net cash flow during the term of the lease.

Adding that it would also demonstrate that crude oil could be processed at the refinery, achieving industry-accepted yields if managed efficiently, and noting that a major problem engulfing the last two counterparties to have processed crude oil at TOR was the issue of product recoveries below the contractual yields, resulting in cash penalties against TOR that were currently outstanding.

The proposed transaction, they also stated, would stem the tide of the continuous exodus of TOR’s valued engineering staff, who leave every month for more secure opportunities in the Middle East and other parts of the world.

Giving a background to the TOR challenges, it was noted that April 2021 was the last time crude oil was refined at TOR, after which the refinery was utilised for the storage of various refined petroleum products for onward supply to its customers.

“The cessation in refining activity was not caused by an inability of the plant to process crude oil but as a result of a voluntary termination of the existing tolling agreement by the counter party due to product accounting issues. The task at hand is to rehabilitate the ageing infrastructure and return to its core refining activity for the benefit of the domestic economy.”

It added that when the current BOD took over, TOR was saddled with enormous debt that extended beyond US$400 million, there were ongoing reconciliation issues with customers related to product accounting, and the company was unable to meet its ongoing operational expenses from internally generated cash flow.

According to the statement, in addition to this, there was and continues to be a low level of staff morale and job security, causing many of its skilled engineers to reluctantly take up opportunities in refineries in various parts of the world.