The ongoing lease negotiation between Tema Oil Refinery (TOR) and Torentco Asset Management Limited (TAML) has sparked debate, with allegations of corruption and backroom dealings emerging. However, the Institute for Energy Policies and Research (INSTEPR) aims to shed light on the facts of the process and provide insights into the proposed lease agreement.
The lease negotiation aims to secure the future of TOR and address its financial challenges. INSTEPR has been closely involved with TOR since the days of Mr. Isaac Osei and the Interim Management Committee (IMC). During visits to the refinery, INSTEPR observed the need for upgrading the outdated equipment in the TOR laboratory.
The negotiation process involved several companies. The IMC received proposals from Intercontinental Energy-Dubai and Africafinch-Dubai. After the new Board of Directors (BOD) assumed office, Decimal Capital also submitted a proposal, which ultimately received unanimous approval from the BOD.
The proposal from Decimal Capital, which forms the basis of the current controversy, includes the incorporation of a Special Purpose Vehicle (SPV) called Torentco Asset Management Limited. This practice is common in corporate transactions. Under the proposal, TAML would pay TOR monthly operating expenses, annual insurance fees, one-time payments for refinery improvement and worker benefits, annual ground rent, and assume utility costs.
The proposal aims to transform TOR's financial situation. TOR has been incurring significant losses, accumulating a debt of $540 million. It has not refined any crude oil since March 2021, yet the workers continue to receive their salaries. With TAML's proposal, TOR would experience a positive cash flow of $14.79 million annually, while all financial obligations are met. TOR would retain its current revenue from GPMS dividends, right-of-way revenue, and laboratory services.
The proposed lease agreement would provide TOR with a total cash flow of $88.7 million over the 6-year lease period. TAML, in turn, would be responsible for importing 8 million barrels of crude oil per year for refining and trading the refined products. The government has the option to terminate the agreement if a more favorable long-term investment proposal arises.
INSTEPR supports this proposal as the best short-to-medium-term solution for TOR. It emphasizes that other companies, both local and international, are free to express their interest in the transaction. INSTEPR questions the skepticism faced by Ghanaian companies while foreign companies receive less scrutiny.
Given the government's financial constraints, finding a viable solution for TOR is crucial. The refinery currently operates at a negative cash flow, making any transaction that brings positive cash flow welcome news.
Kwadwo N. Poku, Executive Director of INSTEPR