BDCs support TOR’s operations to comingle

Information available indicates that Tema Oil Refinery (TOR) after series of maintenance is expected to come onstream with 1500ppm diesel against the 50ppm (Parts Per Million) being imported by the Bulk Distributing Companies (BDCs).

Checks at the NPA reveal that some BDCs are currently supplying low sulphur diesel into the country with others doing 10ppm and 9.5ppm ultra-low-sulphur-diesel as pertains in Europe. TOR’s spec by law falls short of the required 50ppm standards as set by the National Petroleum Authority (NPA) in August 2017, however its decision to enter the market was an agenda strongly backed by the BDCs.

The BDCs are reported to have proposed the adoption of a policy to allow the comingling of local refinery products and imports for sale in the local market. This will mean the 50ppm low sulphur products being supplied by BDCs will be mixed at the pumps with the high Sulphur (1500ppm) products produced by TOR.

They have also advocated that the Oil Marketing companies be banned from using the imported 50ppm standard as a branding tool to make TOR products unattractive.

This move comes to many as a surprise as it was thought that BDCs will prefer having TOR products barred from the general consumer market. The move by the BDCs has been welcomed by many in Government who have been saddled with what to do with TOR products which obviously do not match the low sulphur specifications.

The BDCs also welcome the fact that TOR would compete for the same price on the market even though the sulphur content in the diesel is 30times higher than the current spec. But instead of having the imported products being separated from the local refinery products, the BDCs have consistently argued in support of the plan at its committee meetings that TOR should be allowed to operate on the market with their offspec product for a period of time.

The local refinery in its glory days was supplying the market with 45,000 barrels per day until 2015 when it finally had to shut down due to accumulated debts. However, with several interventions by past and current government, TOR will start producing about 25,000 barrels per day equivalent to about 30% of Ghana’s daily demand.

Price Parity Margin Fund

It is assumed that consumers of diesel will certainly not find it reasonably right to pay the same amount for the same product which has different specifications or quality. The premium paid on 50ppm even though it's environmentally friendly to human health and safety for vehicles, it is also much expensive than 1500ppm because of the extra charges in producing at industry standards.

The argument for many Ghanaians would be the pricing mechanism and also the effect on the industry practice while others will fear this could possibly lead to some reduction in quality products in the comings days.

On the contrary, a Price Parity Margin (PPM) will be introduced. This margin will be the differential between the cost of the old spec products and the new spec products (50 ppm or below). This PPM will be paid by any BDC and TOR when they distribute locally refined off-spec products for local consumption. The PPM will be paid into a fund called the Price Parity Margin Fund (PPMF) which is yet to be launched by the state.

For instance, if the (FOB Price) international price for an off spec product is $500/metric tonne and an onspec product is $550/metric tonne, the price differential is the Price Parity Margin (PPM). Basically, the price differentials of US$50 will be channelled into the Price Parity Margin Fund to be managed by the NPA and other stakeholders for the investment in a de-sulphuriser estimated to cost about US$120million for TOR to enable it produce on-spec products.

The above explanation gives experts, policy think tanks and sector players a window of opportunity to estimate the amount of revenue to be collected into the fund each year for transparency and accountability. This will also encourage Ghanaians to monitor the actuals and the utilization of the monies judging from old experience of how TOR became insolvent.

Procurement of de-sulphuriser

There was a research conducted by Public Eye, a Swiss based organisation on Ghana and seven other African countries on September 15 2016. The report revealed that the sulphur content of diesel products imported into the said countries including Ghana are 150 times, and, in some cases 1,000 times more than the limits allowed in Europe.

Although the quality of the fuel imported into Ghana at that time meets the country’s quality standards, they are said to pose a great risk to the health of consumers and can easily damage the engines of vehicles as well as endanger the environment.

Several protestations by Africa Centre for Energy Policy (ACEP), Chamber of Petroleum Consumers (COPEC) and other Civil Society Organisations (CSOs) saw the review of the high sulphur content in diesel (AGO) from 3000 parts per million (ppm) to 50 ppm to meet the current required standard set by the NPA in August last year.

However, in view of measures taken by the previous government to make TOR operational and to resume its strategic role in petroleum production in Ghana last year, the national debate that ensued pointed out that TOR had no capacity and still do not have the capacity to produce at 50ppm.

In addition, NPA in November 2016 said to attain the 50 ppm mark from the 1500 ppm, the whole refinery would have to be re-configured which might cost between US$200 million and US$300 million. TOR was therefore given a three-year grace period to reconfigure its equipment to attain the 50 ppm mark set in the draft national standard.

That notwithstanding, the refinery, which resumed operations on January 2, 2018, experienced a forced shutdown on January 18, 2018. But Government in view of the challenges including the US$650 million indebtedness has taken further steps to make TOR operationally viable by setting up the Price Parity Margin Fund.

The purpose of the PPMF is to help the state raise funds to acquire a desulphuriser which cost about US$120million. A highly placed source revealed that the NPA and BDCs have reached an arrangement to fund the US$120million investment required by TOR for a desulphuriser through the payment of the PPM. The PPM Fund has been established however government is yet to appoint administrators of the Fund.

Based on the assumption of TOR producing 30% of local demand, TOR’s production given the 2017 national consumption will be 990,000 metric tonnes. At this quantity and at an average Price Parity Margin of US$16/mt, an amount of $15.8 million is estimated to hit the PPM fund annually. After weeks of nerve-wrecking analysis using data from other available means, it means that government’s ability to procure a de-sulphuriser will take 8years since this is the only available option which was agreed upon by NPA and the BDCs.

Desulphuriser is a catalytic chemical process widely used to remove sulfur (S) from natural gas and from refined petroleum products, such as gasoline or petrol, jet fuel, kerosene, diesel fuel, and fuel oils. The purpose of removing the sulfur, and creating products such as ultra-low-sulfur diesel, is to reduce the sulfur dioxide (SO2) emissions that result from using those fuels in automotive vehicles, aircraft, railroad locomotives, ships, gas or oil burning power plants , residential and industrial furnaces, and other forms of fuel combustion that are very poisonous (Wikipedia).

In probity and accountability, government in the interest of the citizenry is expected to increase the capacity of TOR by acquiring the desulphuriser in order to achieve the goal of making Ghana the hub for quality refined petroleum products in the West African Sub-region as envisaged by the Energy Minister Boakye Agyarko at the recently held National Colloquium organized by NPA at Kempinski.