IES in the statement had demanded an investigation into the circumstances that led to the loss of about $24 million to the state at TOR.

The loss, according to IES, was occasioned by a bad sale and purchase agreement between the management of TOR and British Petroleum (BP).

It said TOR, on October 19, 2018, took delivery of some 950,000 barrels of crude oil for processing after several months of inactivity and IES alleged the refined product is now stranded in tanks due to the failure of TOR to find off-takers for the product.

IES in the statement said TOR has already lost about $24.13 million as a result of the failure to adopt the appropriate hedging method coupled with the decline in the price of oil on the world market.

But in a rejoinder to the IES statement on Monday December 3, 2018, the management of TOR refuted the allegations made by IES.

"We take this opportunity to advise IES not to jeopardize the longterm business model between TOR and our strategic partners with stories that cannot be substantiated.

Below is a copy of the TOR response

CLUELESS IES ONLY SEEKS THE COLLAPSE OE TOR

The attention of the Management of Tema Oil Refinery has been drawn to a December 2, 2018 article published in some sections of the media by the Institute for Energy Security IES, under the heading - "TOR PLUNGED FURTHER INTO TROUBLED WATERS," and responds to the article as follows:

1. The assertion that the company has incurred a $24 million loss as a result of the drastic reduction in the prices of crude oil on the international market is false. It is based on flawed assumption that there is a direct correlation between the drop in global prices and the price of TOR products on the local market. For the avoidance of doubt, a fall in the international crude oil price does not necessarily correspond to an equal degree of fall in the prices of petroleum products. The projection by IES thereby does not hold.

2. IES's additional claim that TOR did not employ suitable techniques in managing the risk of a fall in price is untrue. Whereas the volatile nature of crude oil prices lies beyond the control of Tema Oil Refinery, any potential price risk arising from such volatility is however mitigated in a special arrangement with our suppliers.

3. The additional claim that there is no sight of the next parcel of crude for TOR is equally false. IES operates outside TOR and cannot therefore be privy to all of TOR's cargo dealing. Expected receipts of TOR’s cargo are in accordance with our program and should lead to a receipt of the next parcel of crude oil this month.

4. Contrary to the claims by IE, we wish to state that the interest of local off-takers in our products is paramount. TOR has sold some of the already refined products to both local and foreign entities. Additionally pipeline efforts for the export of TOR products remain unchanged.

Management of Tema Oil Refinery refutes the various allegations which were contained in the said IES article. We take this opportunity to advise IES not to jeopardize the long term business model between TOR and our strategic partners with stories that cannot be substantiated.

By Dr. Kingsley Antwi-Boasiako
Public Affairs Manager
Tema Oil Refinery

Below is a copy of the IES statement

TOR PLUNGED FURTHER INTO TROUBLED WATERS

1. The euphoria and excitement that greeted the arrival of the 950,000 net US Barrels of Bonny Light supplied by British Petroleum (BP), and aboard the vessel “British Heritage” on 19th October 2018; have been erased. Hopes that the Tema Oil Refinery (TOR) will run uninterrupted and make money have proven short-lived.

2. A loss of $24 million plus after processing just 950,000 barrels of crude is enough to plunge TOR into further debt, and cause a forced shutdown of the Crude Distillation Unit (CDU) on the morning of Friday 30th November 2018, as there was no sight of the next parcel of crude.

3. It is sad to note that the managers of the refinery failed to adequately find off-takers for the refined products before sourcing for the crude, thus rendering the products “stranded” in tanks. This bizarre business module means the refinery will make further losses as prices keep falling on the global commodity market.

4. Lack of understanding of global volatile oil market, failure to consult, laxity, poor planning, and carelessness; are but a few of reasons underpinning the huge financial loss to the state. In brief, bad trading decisions on the part of management have caused the current loss.

5. To mitigate the risk of backwardation when signing the sales and purchase agreement (SPA), management of TOR should have employed the most suitable hedging technique capable of managing the risk of a fall in price. Leaving the quotation of the price at the “Sellers Option”, either 5 trading days before or 5 trading days after Bill of Lading (BL), and fall in the price of crude; are the reasons that have increased Tema Oil Refining crude price exposure. Meanwhile, a document sighted by IES suggest that crude sale price was determined based on a 90-day average, and not around BL; for the same supplier in the past.

6. Price quotation 5 trading days before BL (16th October 2018) and 5 trading days after BL stood at $81.912 per barrel and $79.078 per barrel respectively. At $81.912 per barrel plus a “Suppliers Premium” of $3.0 per barrel, the probable quoted price by the Seller for a barrel of the Bonny Light crude is $84.912.

7. The fall in quoted crude price since then to $59.510 per barrel (recorded at close 29:11:18), leaves a corresponding price loss of $25.402 per barrel; which translates into $24.13 million for the 950,000 barrels. The loss excludes the structural cost in handling the crude before processing, cost of TOR arranging to create an escrow account, cost of appointing a Collateral Manager to monitor stock levels, cost of processing the crude etc.

8. The Institute for Energy Security (IES) wish to call on Government and the Ministry of Energy (MoE) to investigate the circumstances leading to this huge financial loss to the state and the Ghanaian taxpayer and bring punitive action against the perpetrators whose action only adds on to the country’s energy debt.

9. The intervention of government is necessary in order to forestall the recurrence of this unfortunate and avoidable mess. And that the management of TOR should not be allowed to authorize or sign such key agreement on behalf of the state, as its action smacks of mismanagement and incompetence.

Signed:

Paa Kwasi Anamua Sakyi

(Executive Director, IES)