No comprehensive report has thus far been issued on the recent and present condition of the Tema Oil Refinery (TOR) that we are aware of, not by the Ministry of Energy and not by TOR itself. One hopes that this dearth of information will soon be addressed. More to the point, one hopes that whatever account is produced will depart from the usual partial assessments restricted to certain politically defined epochs, but will instead encompass all the relevant phases of the evolving TOR situation since the establishment of the facility in 1963. In the interim, however, in view of the public interest and comment, we have decided to try and piece together, from the fragments of news reports, government statements, and corporate reports, a brief evaluation of the refinery’s debt position and financial prospects. It goes without saying, given the limitations of this approach, that some of our calculations could be affected by third-party reporting inaccuracies. This is a constraint that cannot however be assumed to limit the substance of the analysis itself except where the logic is driven by the numbers. Which is another way of saying that the numbers are primarily illustrative. We will proceed on the back of that foregoing disclaimer. Between the time of its establishment in 1963 and 1997, TOR underwent no significant expansion of its 25,000 barrel capacity. Now this is not as outrageous as it may seem; gasoline-thirsty USA hasn’t built a refinery in thee decades. What is certainly unsettling is that the plant also did not undergo, unlike is the case with installations in many other places, any significant retrofit to enhance the efficiency of its core operations and keep it abreast with global best practice. In 1996, after many false starts, a definite program of reform was unveiled to revamp the moribund enterprise, and TOR was sized up for significant upgrading. The perennial inability of the refinery to recover the costs of its operations because of government interference in the marketplace was identified in addition to its inefficiency problems as deserving of policymakers’ attention. The legal framework defining the context of TOR’s operations (the Petroleum Law of 1984, Acts 544, 593 & 577, amongst others) also received some review. EFFICIENCY In 1997, a South Korean consortium led by the energy subsidiary of the Samsung Conglomerate and the infrastructure services company SunKyong were contracted to expand the output of the refinery from 25,000 barrels to 45,000 barrels in order to take full advantage of improved economies of scale (for perspective though, note that Ghana’s total ANNUAL consumption of crude is less than twice Russia’s DAILY output). Plans for the development of an allied catalytic cracker (RFCC) were also drawn around this time. By 2002, the construction of the catalytic converter was complete, and TOR entered a phase of partial modernisation. It will aid an understanding of the context to elaborate a bit more on the above developments. Concerns about refinery efficiency are anchored to what is usually referred to as downstream capacity utilisation rate. The simple explanation is that the better a refinery is at converting crude oil (‘heavy’ petroleum) into finished consumables (‘lighter’ products), the more efficient it is. That is to say: given a barrel of crude oil (roughly 42 gallons, depending on the specific gravity of the grade of oil), how many gallons of end product can a refinery turn out? Secondly: of this end product how much of it is made up of light products such as gasoline (‘petrol’)? Great advances in petroleum chemistry and in the use of computer-controlled processes have enabled some refineries in the United States, for example, to convert nearly everything in a barrel of crude oil into gasoline, the most desirable product in several markets within the union. The use of certain types of aluminium silica gels and reprocessing flow mechanisms can, amongst other specific technical interventions, rather than general managerial competence, account for the overwhelming bulk of these improvements. In the absence of a catalytic cracker, as was the situation at TOR for several years, the oil refinery process must rely largely on the physical processes of distillation, which merely take advantage of the fact that certain desirable components of the crude oil, like gasoline, have different evaporation rates and can therefore be ‘boiled off’ the less valuable residue. Of course this is wasteful, especially in a country like Ghana with relative high emphases on gasoline and diesel. The best practice nowadays is for refineries to adopt the most sophisticated chemical processes, involving the application of additives and the liberal use of computer-controlled production programming in order to incrementally reconvert ‘residue’ to useful product. The foregoing provide a background to the efficiency issues TOR was grappling with and, to a reduced but still significant extent, still grapples with. COST RECOVERY Prior to this era of reform, TOR was a sprawling operation involving the financing and importation of crude, its processing, and the distribution of its derivatives to retail outlets. The process of rationalisation involved an attempt to define a core competence for TOR and to progressively hive off peripheral operations to the private sector rather than to parastatals like BOST. By 1998, consensus at the policymaking level had virtually consolidated in favour of full cost-recovery and enhanced deregulation (the progressive privatisation of peripheral – non-refining – operations). Then, before significant progress could be made, events took a dramatic turn for the worse. Between 1999 and 2000, fuel prices skyrocketed ($11 to $30 in one particular movement). At this point, unfortunately for all concerned, full cost recovery through a principle of ‘import parity’ (more on this later) had yet to move from lip service to definite policy. STOCKPILING THE DEBT Government, on the strength of social considerations, instructed TOR not to sell into the distribution chain at the prevailing market rate but to assume a level of government subvention. The result of this decision was that by early 2001, unfunded subsidies had piled up GHC220 million of debts on TOR books mainly in the form of overdraft facilities offered by their principal bankers, Ghana Commercial Bank. Because TOR was also at this point the sole importer of refined petroleum products, which was necessary in order to meet the perennial shortfall in Ghana’s annual demand of 60,000 barrels (TOR’s capacity, you may recall, is 45,000 barrels), it had opened letters of credit with local and international banks for GHC110 million that were yet to mature. Furthermore, the GHC210 million spent on the expansion and modernisation of TOR had, despite the protests of some stakeholders, been kept on the books of TOR rather than treated as an infusion of cash by the shareholders of the concern, the tax payers of Ghana. It would thus seem that at this point, the total debt position of TOR was of the order of about GHC540 million. But as the debts piled so also did the accumulated interest. With overdraft and other loan rates close to 30% for some of the facilities, the debt position could double in less than 3 years unless both the principal and interests were serviced aggressively. Not even the downturn of prices after 2001 could yield sufficient returns to tackle the mounting debt crisis. Government of Ghana’s approach to tackling the situation between 2001 and 2002 consisted of short-term respites and a strategic component. The viability of the latter is course the subject of the present controversy.