The oil Ghana has found

Ghana’s Oil & Gas industry
An overview of Ghana’s petroleum downstream sector, the implications for the upstream oil discovery and recommendations for the structural re-organisation of the oil and gas industry.
FINANCIAL ANALYSIS BY: OHENEBA LOVELACE PREMPEH, CHAIRMAN, FINANCIAL LITERACY FOUNDATION
Since the change of government in January 2009, Ghana’s petroleum downstream sector, especially Tema Oil Refinery (TOR) Ltd., and the quantum of the “TOR Debt,” Ghana National Petroleum Corporation (GNPC), the National Petroleum Authority (NPA) and TOR’s banker, Ghana Commercial Bank Ltd., (GCB), have been in the news for various reasons, including the recent agitations and allegations by TOR’s workers, at the staff durbar held at the Refinery on
Tuesday, 13th April, 2010 regarding the lack of crude oil, the role of GNPC in the supply of crude oil to TOR, the alleged inadequacy of the processing fee payable by GNPC to TOR, the Ministry of Finance’s payment of GH¢445 million on 24th March, 2010 to reduce TOR’s debt at GCB, and resting with the government’s replacement of TOR’s acting Managing Director, Dr. Kwame Ampofo on 5th May, 2010 by the former Managing Director of GHAMOT, Mr. Ato Ampiah, who, in many ways, is not a stranger to TOR.
Given my previous position as the Finance Director of TOR, from May, 1988 to February, 2001 (i.e., for thirteen years), and my present position as a Board member of GCB Ltd., which, like TOR, has featured prominently in the news lately, I would humbly like to contribute to the on-going debate on TOR and the petroleum sector from the unique position of an ‘INSIDER’.
Until the offshore discovery of crude oil in commercial quantities in July 2007,
Ghana’s oil industry featured more prominently in the downstream sector.
However, with the impending commencement of crude oil production in the last quarter of 2010, Ghana’s oil and gas industry can now be categorized into the upstream and downstream sectors.

The upstream sector covers the exploration, development and production of crude oil and natural gas. Currently, this involves the consortium of Kosmos Energy, Tullow Oil Plc, Ghana National Petroleum Corporation (GNPC), Anadarko Petroleum Corporation, Sabre Oil and Gas and E.O. Group which discovered the vast Jubilee oil fields in July, 2007.

According to GNPC, the Jubilee oil fields straddle two deep water blocks, i.e., the Tano Deep-Water Basin, and the West Cape 3 points Deep-water basin, offshore the Western Region of Ghana.

Jubilee is a discovery that is estimated by the Ministry of Energy to hold recoverable reserves of about 800 million barrels of light crude oil, with an upside potential of about 3 billion barrels.

The discovery is said to contain significant quantities of associated natural gas.

The downstream sector covers the refining, storage, internal transportation, marketing and sale of petroleum products.

This is what TOR Ltd., Ghana National Petroleum Corporation (GNPC), Bulk Oil Storage and Transportation Company Ltd., (BOST), Bulk Transporters and the Oil Marketing Companies (OMCs) have been doing over the past fifty years or more.

THE HISTORICAL BACKGROUND

Prior to the commencement of crude oil processing at TOR, Ghana, relied completely on imported refined petroleum products distributed by the local branches of multinational oil companies, i.e., Shell, Texaco, British Petroleum, Mobil and Total.

TOR was established in 1961 with the maiden name Ghanaian Italian Petroleum Company (GHAIP) Ltd., “GHAIP” was how the Refinery was affectionately called, until 1991 when it was renamed “Tema Oil Refinery (TOR), Ltd.,” to reflect the city where the Refinery was geographically situated.

After Ghana’s independence in March, 1957 our first President, Osagyefo Dr. Kwame Nkrumah, as part of his grand vision of industrialization, infrastructural development and oil security, dispatched two of his senior ministers, Messrs Komla Agbeli Gbedemah and Kojo Botsio to Italy, to meet with his friend Signor Enrico Mattei, the President of the Italian Oil conglomerate ENI (Ente Nazionale Idrocarburi) to negotiate for the construction and operation of an Oil Refinery at Tema, the eastern port city of Ghana.

The negotiations ended successfully, culminating in the signing of two Agreements over 50 years ago.

They were Agreement “A” and Agreement “B”. Messrs K.A. Gbedemah and Kojo Botsio signed for the government of Ghana. I am reliably informed that President Nkrumah was personally involved in the preparation of the contents of Agreement “B”, which was the operational Agreement.

With Ghana’s discovery of oil and gas in commercial quantities in July 2007, (over fifty (50) years after the signing of Agreements “A” and “B”, the historical Agreements between the Government of Ghana and ENI, the original owner of GHAIP), one cannot help but admire the genius of President Kwame Nkrumah.

Read Clause 9 (1 & 2) of Agreement “B”

SUPPLY OF CRUDE OIL TO GHAIP Clause 9 (1): “Should any crude oil be produced in Ghana during the lifetime of GHAIP, GHAIP shall be bound to purchase this crude oil for processing in the Refinery, provided that this crude oil is of such quality as can be technically and economically processed in the Refinery, and is suitable for the requirements of the Ghana market, and provided further that, such crude oil can be purchased by GHAIP at a price not exceeding that at which
similar crude oil could be imported by GHAIP into Ghana.”

Clause 9 (2): “To the extent that such crude oil is not available, GHAIP shall purchase crude oil from abroad on the best terms and prices available. Where such terms and prices are equal, GHAIP shall give preference to crude oil offered by the ENI group.”

This was President Nkrumah’s vision more than fifty (50) years ago. Since its establishment in 1961 and the commencement of crude oil processing in August, 1963, TOR, formerly called GHAIP, remains the country’s only crude oil refinery. From 1961 to 1977 it was owned by the Italian Group, ENI.

Since 1977, it has remained 100% wholly owned by the state. TOR has a close working relationship with the Ministries of Finance and Energy, Bank of Ghana, Energy Commission, National Petroleum Authority (NPA), Environmental Protection Agency (EPA), Bulk Oil Storage and Transportation Company (BOST), Ghana National Petroleum Corporation (GNPC), the Oil Marketing Companies and a plethora of banks, local and foreign. Its annual imports Bill which was USD 400 million in 1996 is now circa US$2 billion.

It consumes more than 40% of Ghana’s export earnings, by way of petroleum imports, and generates a significant portion of the government’s fiscal revenues through taxes and levies on petroleum products.

TOR has simply remained Ghana’s central nervous system. It is for these reasons that TOR has always been newsworthy. Historically, TOR started its life as a “Tolling Refinery” processing third party crude oil for a tolling or processing fee. As stated above, under clause 9(2) of agreement B “To the extent that such crude oil is not available, GHAIP shall purchase or import crude oil from abroad on the best terms and prices available, with preference given to crude oil offered from ENI”………………To be continued