The Tema Oil Refinery (TOR) reaped a windfall of about ?96.5 billion over a 12-month period as a result of the favourable price of crude oil on the international market. It is estimated that but for the cumulative windfall gained from March last year to March this year, TOR would have gone bankrupt because of its indebtedness, which now stands at ?3.4 trillion.
The Chairman of the Board of TOR, Mr E. Adu-Gyamfi, said the windfall was gained largely because of the favourable price of crude oil on the world marked and the introduction of the strict impart parity prices by the present government in March last year. he said from March to December last year, TOR had a windfall of ?66,378,709,625.65, while between January and 31 March this year, an additional windfall of ?30.177 billion was realised.
Mr Adu-Gyamfi said the Minister of Finance has directed that the windfall for last year should be applied to defray part of the interest charges on the converted portion of the TOR debt. He explained that TOR is, however, awaiting instructions from the minister with regard to the gains made in the first quarter of this year.
Throwing more light on the TOR debt, he said some time ago, it was reported that the refinery had incurred a debt of ?2.3 trillion arising from unfounded subsidies up to the time of the introduction of the petroleum formula which was put in place from February last year. He said this debt was in the form of overdraft at various local banks as well as loan facilities taken from some overseas banks to establish letters of credit.
According to him, this debt was so heavy that TOR’s bankers could no longer raise funds to pay for crude oil, adding that “the situation was so precarious that when President Kufuor assumed office last year, he had to negotiate with Nigeria to supply crude oil to Ghana on a 90-day credit arrangement.”
Mr Adu-Gyamfi stated that in September last year, ?970 billion of the debt of ?2.3 trillion was converted into long term petroleum bonds while interest on the converted portion came up to ?87.2 billion as at 31 December 2001. He said the remaining debt which was not converted into bonds was ?1.33 trillion, which has attracted an interest of ?329.8 billion.
Mr Adu-Gyamfi also said that total interest on the entire debt of ?2.3 trillion stood at ?417 billion as at 1 January 2001. He said the debt of ?2.3 trillion did not take into account an additional ?1.1 trillion of non-matured letters of credit in respect of which the products had been consumed by 31 December 2000. He board chairman noted that the letters of credit were established at a time TOR was not in a position to establish and fund the credit on its own because the long period of unfounded subsidies.
He added that since crude oil is vital to the economy, the Ministry of Finance persuaded the Bank of Ghana to set up cash margin accounts at the Ghana Commercial Bank in fulfilment of a condition demanded by GCB. Mr Adu-Gyamfi said it was the understanding of TOR that upon maturity, the cash margin accounts would be used to pay for the letters of credit but “unfortunately the Bank of Ghana has refused to do that and the full liability of ?1.1 trillion as at 31 December 2000 has now been debited to the accounts of TOR.”
He explained that the effect of this is that the oil-related debt of TOR now stands at ?3.4 trillion and attracting interest of ?55 billion every month. He was of the view that if the previous government had taken realistic measures, the problem of TOR would not have compounded to this level where it is paying ?35 billion to the banks to service its debt every month.
Mr Adu-Gyamfi said the windfall so far cannot even service the two months interest of ?55 billion a month on the debt. He revealed that TOR’s main bankers have warned that soon they will not be able to honour the refinery’s request for the establishment of letters of credit.
“If the total primary capital of all commercial banks in Ghana works out to only ?2 trillion, then TOR’s indebtedness of over ?3.4 trillion is crippling as well as damaging for the refinery and its bankers,” he said, and called for drastic steps to address the oil-related debt without further delay.
Mr Adu-Gyamfi suggested to government to do something about the debt of TOR by turning it into equity because the state is the sole shareholder. He said refineries normally do not make losses because they lucrative businesses. The board chairman said the government has two options: Either to absorb more of the debt into protection bonds or take care of all the debt. He said the government conservatively spends $600 million per annum to import crude oil to run the refinery.