TOR running at a huge loss despite GHC3.5bn capital injection
Tema Oil Refinery (TOR) is operating at a huge loss to the disadvantage of taxpayers despite close to GHC3.5 billion of taxpayer money being capital injected into it since 2010.
TOR, which has been in financial suffocation for several years coupled with management inefficiency and lack of regular supply of crude for refining (its core business), had received GHC1.85 billion government capital injection by end of 2016.
This amount increased to GHC3.488 billion as at 2018 financial period, according TOR financial report.
TOR’s variance report for the 4-month period ended April 30th, 2019, revealed that, the nation’s only refinery operated at a net loss of GHC186.35 million, almost double the budgeted amount of GHC71.70 million for the first four months of 2019.
This justifies a recent claim made by former Ghana National Petroleum Corporation (GNPC) boss Alex Mould, that TOR was not “fit for purpose” to be supplied with Ghana’s crude oil.
This is because of the high risk level of possible payment defaulting, which would put GNPC in default with the Petroleum Management Reporting Act.
“The management of Tema Oil Refinery (TOR) is to address its operational inefficiency and loss-making condition before it starts to make a claim for GNPC to allow it to refine Ghana’s crude without additional financial support from the central government”, Mr Alex Mould said.
Adding that, the problem of frequent operational disruptions to its processing units – a result of mechanical and operational failure of TOR’s processing units – manifests itself in the poor profitability; TOR record losses of approximately GHS400 million in each of the last 3 years. Cumulative losses on TOR’s book as at end of 2018 amount to GHS5.2 billion. This has been a constant drain on the Government; which then used tax payer funds over the years to support TOR’s balance sheet due to years of continuous loss-making.
As at April 30th, 2019, total debt stock (that is, total liabilities to Suppliers and Banks) of TOR currently stands at GHC2.5 billion.
Despite the fact that funds raised from taxpayers contributions to ESLA had so far cleared about GHC1.135 million of the Legacy Debt – the amount owed by GoG for unpaid subsidies over the years, as well as debt incurred by TOR due to loss-making over the years.
It is projected that TOR will not meet its 2019 budget Turnover (sales) figure because it has not been able to meet its scheduled capital expenditure. As, installation of needed equipment such as furnaces, boilers and power plants have been delayed by more than 6 months.
Also, TOR has not been able to raise the necessary financial instruments – letters of credit – to procure the crude oil for processing.
If TOR proceeds to procure crude oil without the necessary equipment upgrade mentioned above, then it is forecasted that TOR should expect to make a loss of over GHC400m, given that in the first 4 months of 2019, TOR had already registered a loss of GHC186m.
The situation is made worse with TOR’s shareholders’ funds showing a negative figure minus GHC678.89 to be precise .
This shows that there’s a leadership vacuum at TOR and in its supervising Ministry (Ministry of Energy); and if the organization continues to operate in this manner, then it will continue to be a drain to tax payers.
This begs the question, is Ghana better off divesting shares of the refinery to private investors – local or foreign – so as to save tax payers money; which could be channeled into other pressing productive national needs such as schools, hospitals, roads and agricultural improvement among others?
Experts are advising government to do what is prudent to the state, and to put tax payers money to better use.