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Uganda needs a refinery, despite our problems, say Ghanaians

Visiting Ghana, a historic seed-bed of pan-Africanism, Oil in Uganda staff writer, Chris Musiime, found strong support for President Yoweri Museveni’s determination to establish a Ugandan oil refinery, in an effort to break the raw material export mould that has characterised—many would say, trapped—African economies since independence.

Ghana’s Tema Oil Refinery: expensive and inefficient, critics say, but the Government of Ghana appears committed to keeping it going.

Some key figures in Ghana are urging Uganda to set up its own oil refinery, so as to reap maximum benefits from the country’s oil resources—even though Ghana’s own refinery experience has proved costly and contentious.

Hon. Kwabena Appiah-Pinkrah, the Member of Parliament from Akrofuomi in the gold-rich Ashanti Region, points out that for the entire Ugandan population to benefit, there must be value-addition to the crude oil from within Uganda.

“Even here in Ghana, for example, all our oil is offshore, but there must be a way for all the people on the mainland to benefit. The only way that my constituents can benefit is by obtaining the qualifications to get employment in the oil industry or oil-related industries, and also the benefit from the range of by-products from the refinery,” he says.

His colleague, Kwame Amporfo Twumasi, who represents Nkoranza South Constituency and once served as Deputy Minister for Energy, dismisses fears that establishing a refinery in an ecologically sensitive area, as will be the case in Uganda, will necessarily destabilise the environment. He points out that this issue can be addressed by carrying out a cost-benefit analysis of the refinery versus the environment.

“If one bought a piece of cloth, he may fear to take it to a tailor to sew. If you get a bad tailor, you will lose a lot of cloth and get a bad suit, but a good tailor will get you a good suit, despite having destroyed the cloth,” he jokes.

“Development entails destroying one thing and leaving something else in its place. Otherwise we would not even build roads because in doing so, we destroy the environment. You have to ensure that what you have put in place is more precious than what you have destroyed,” he observes.

He adds that “With the refinery, you are putting up structures that will enable you to convert the crude oil into finished products. So many benefits will come, including employment. Therefore if you destroy farms but give the farmers jobs in the refinery where they will get more income, then it’s okay.”

He acknowledges, however, the need to tread carefully in order to protect the environment. “It is good that some of these guys [environmental activists] alert us so that we minimise environmental degradation.”

Some Ugandan parliamentarians—notably John Ken Lukyamuzi, representing Lubaga South Constituency in the Central Region—have opposed the refinery project, arguing that the proposed site in Kabaale, Hoima District, is in the midst of a protected area and the project would greatly destabilise the ecosystem there.

Tema Oil Refinery (TOR)

Ghana’s only refinery is located in Tema, the most industrialised city in Ghana, about 25 kilometres from Accra. It started operations in 1960, initially as a private, Italian company, but was taken over by the government of Ghana in 1977. It is authorised to operate both as a refiner of crude oil and seller of petroleum products.

The TOR product range includes Liquefied Petroleum Gas (LPG), petrol, kerosene, jet A1 fuel, diesel, premix (a blend of lubricants and gasoline suitable for two-stroke engines normally used on fishing boats) and ‘cracked fuels’ (a blend of light cycle oil, heavy cycle oil and clarified oil which produces fuel for low and medium speed diesel engines).

The plant sources crude oil from Nigeria, Equatorial Guinea, Cameroon, Gabon and Angola, and processes about 45,000 barrels of crude each day.

There has been debate as to whether TOR has the capacity to refine the crude oil coming from Ghana’s own Jubilee oil fields. Some industry sources and senior government officials say that TOR was built to process lower grade crudes, and cannot refine oil from the new, local fields unless significant investment is made. To retrofit the refinery to cope with the higher grade oil from the Jubilee field would reportedly cost around US$1 billion, which is probably too much for the government at the moment.

“There are economic undertones why our refinery is not refining at full capacity. We need an investor to do the retrofitting, or invest in a new refinery altogether,” says Ras Liberty Amewode, the Energy Ministry’s Communications Officer.

However, others have refuted such claims. TOR’s Public Affairs Manager has been quoted in the Ghanaian press a saying “The Jubilee Oil falls within the kinds of crude that TOR can refine. It is the best stock of raw material that the refinery can use for its refining processes, so it is not accurate to say that TOR does not have the technical capabilities. If we bought the crude today, we could refine it today.”

Other senior figures in Ghana’s oil and gas industry have agreed with this same position.

A troubled history

TOR has long battled with the Ghanaian public in an attempt to clear its image, amidst accusations of poor management and financial impropriety. The plant has been faced with frequent closures this year, the most recent being in August, due to “a breakdown of critical equipment.”

“The refinery has been sunk in massive debts, it is not properly run,” says Hon. Kwabena.

The Government of Ghana has been forced to bail out the refinery which has racked up massive debts with the Ghana Commercial Bank—a total of 1.7 billion cedis (about US$ 850 million) by the end of 2009, which accrued over time through government subsidies on petroleum products.

Speaking to the press in Accra on September 6, Ghana’s Energy Minister, Dr Joe Oteng-Adjei, revealed that the TOR debt now stands at 610 million cedis.

Meanwhile, some critics within Ghana have continued to accuse the refinery of inefficiency, and even call for its closure. They claim it is so inefficient that the yield per consignment is too low and the refinery margin too high to return the desired benefit to Ghanaians.

TOR’s refinery margin—the difference between the price at which TOR buys crude and the price at which it sells the finished products such as petrol, diesel, kerosene etc—is ten percent. Critics say this is too high and non-competitive, compared to any international refinery.

A snapshot of Africa’s refining capacity

The Government of Ghana’s resolve to keep the refinery going may not make business sense at the moment, but appears to reflect a determination not to further reduce Africa’s very low capacity to refine crude oil.

Reports indicate that the entire continent had only forty one refineries at the end of 2011, with a total refining capacity of 3.3 million barrels per day but actual output of only 2.3 million barrels per day, one million barrels less than the continental demand.

With more discoveries being made across the African continent, many more countries will be looking to boost their revenues from oil by setting up refineries. However, the associated cost is too high for most African governments.

A recent trend has been to enter into partnerships with the Chinese to fund such projects. The China National Petroleum Corporation (CNPC), a Chinese state-owned oil company, has built refineries in Sudan, Algeria, Niger and Chad.

Report by CM