Building New Oil Refineries Not Necessary – Alex Mould

The Minister of Energy, Boakye Agyarko has revealed grandiose plans for four new oil refineries, each with a 150,000b/d capacity recently.

According to him, this is to position Ghana to market itself as a petroleum hub for West Africa.

The first of the four planned additional refineries is expected within the next three to four years. Each of the four proposed refineries is estimated at US$4 billion.

The revelation comes at a time when the already existing refinery, Tema Oil Refinery (TOR) has been left to rot due to lack of finance for maintenance. TOR needs an amount less than US$100 million for its maintenance.

This has made energy experts to raise questions and doubts about the minister’s revelation to build new refineries while the existing one is still not operational.

The Institute of Energy Security (IES) warned of some impact on fuel supply should government fail to resolve the operational challenges at TOR. This was before the minister’s revelation.

Currently, TOR is able to refine crude up to 20,000 barrels of oil per day.

But Boakye Agyarko had mentioned that, this should increase by about seven times to 150,000 barrels of oil with the new refineries.

“We want to make sure that in the next three to four years, we build a brand new TOR of about 150,000 barrels of oil per day throughput, and then gradually ease out the old TOR which becomes a tank farm for the new TOR. Because the new TOR currently is at 20,000 barrels of oil per day which is not satisfactory, even if you ramp it up, the most you could get out of the old engine is 80,000 barrels of oil per day,” he stated.

Meanwhile, some energy experts including the IES’ have raised concerns about the supposed TOR ineffectiveness, which among others had to do with the leadership challenges at the refinery, which they argue has contributed to the inability to sustain operations.

Alexander Mould, former GNPC Boss has also raised concerns on the proposed building new refineries amidst maintaining the old refinery. He asked, “The real question for any shareholder is whether to invest in debottlenecking an old plant, and then upgrading it to increase its capacity, or simply scrap the existing one and fund a new build?”, he said during an interview, “So let’s try and understand the issues before we turn this once again into a ‘spectator’ political quarrel as we do with most things instead of behaving like rationale discerning ‘citizens’

He explained that, the current key performance indicators (KPIs) of TOR suggest it is performing far below par and continues to make losses from its operations. This is because there has been relatively no new investment in maintenance over a number of years, or that the maintenance programs have not been carried out efficiently; this is because TOR cannot raise money from banks and has to rely on its shareholder – Government of Ghana (GoG)) – to fund these. But, GoG does not have the money to do so, mainly because GoG is reluctant to fund projects like this when funding should be raised from the banks.

“TOR cannot raise money from banks first because it has no track record of running a cash flow positive venture and its management over the years lacks the ability to convince financial institutions that there would be no interference from GoG with subsidies (which remain unpaid) and that it would run TOR on sound economic principles.

Secondly, TOR’s indebtedness is humongous and its balance sheet needs cleaning up. So no financial institution will fund TOR to debottleneck or upgrade it in its present form unless there is an explicit guarantee from GoG probably backed by identified oil or cocoa flows.

“TOR has not also been able to convince the banks that the amount needed to debottleneck TOR nor the amount needed for the upgrade from 45,000bbl/day to 75,000 or 100,000bbl/day will result in a positive net present value (NPV) venture, that is, they will be able to pay back the banks on time and without default, and also run a profitable operation.”

So these are the issues, he said.

However, he answered a question he asked himself on why the present state of TOR. “Bad strategy, organization size, terrible management and to be frank, an ineffective Board, and worse of all a hands-off shareholder, that would rather park its debts in TOR (as unpaid subsidies) than show the International Monetary Fund (IMF) and World Bank (WB) its true debt position.

“Like ECG, the only way out is to get the private sector involved one way or the other, not because we don’t have competent people in government to run TOR but because we don’t put persons who have the knowledge and clout that will take on the government as the sole shareholder to stop it interfering in TOR operations and to make good its promises like paying what is owed to TOR in terms of subsidies and not allowing any subsidies ever to be unpaid; You see the private sector (foreign investors especially) will not take this crap from government.

“So, if say government decides to build a new refinery on its own, it will never get the financing for this as a project financing like all investors will, unless we pledge our oil and/or Cocoa.

“The question is, what will change? The answer is, nothing.”

He is of the view that, government cannot raise funds by itself to build new state-owned refineries, until a private investor steps in and will be run and managed as a pure private entity. He therefore cautioned the government to stop claiming it is going to build new refineries.

“So, my conclusion is government will not build a new refinery themselves……only foreign investors will;

“Will GoG rehabilitate TOR and in sometime in the future upgrade TOR? I currently don’t see how in the near future unless the private sector comes in and controls TOR’.

By: Adnan Adams Mohammed