Direct & Action-Oriented: How a Tolling Deal, not a Sale can revive Ghana’s Tema Oil Refinery
The Center for Environmental Management and Sustainable Energy (CEMSE) who have been following with keen interest the strategic decisions and performances of Tema Oil Refinery in the last decade have these observations and recommendations.
For years, the Tema Oil Refinery (TOR) has been a symbol of unrealized potential — a national asset languishing under the weight of debt and political controversy. Recent headlines celebrating a purported $21 million in revenue from terminal operations are monumental and help redefine TOR’s role in Ghana’s economic future. This performance firmly corrects the long-standing misconception that the sustainability or continuity of strategic government decisions constitutes poor corporate governance.
The recent performance is a direct outcome of strategic initiatives set in motion by the previous board and sustained by the current board. These measures were designed to unlock value from the refinery’s underutilized assets during a period when its core refining operations were dormant. Such key initiatives include engaging with management of Ghana Petroleum Mooring System (GPMS) to restructure dividends on quarterly bases which engendered quarterly cash flows since TOR is a shareholder of GPMS. Furthermore, the board secured a crucial “take-or pay” agreement with the Sentuo Oil Refinery for the usage of TOR’s crude oil tanks, guaranteeing income regardless of fluctuating demand. The contract with Sentuo is estimated to yield about $2 million on monthly income. Additional revenue streams were activated through loading rack fees from third-party petroleum distributors and right-of-way fees for pipelines traversing TOR’s premises. These moves were part of a broader strategy to reposition TOR as a diversified petroleum logistics hub, a vision emphasized during the tenure of the former Board. By focusing on its vast storage and terminal infrastructure, the previous board created a financial buffer. Therefore, the continuity in strategic direction by the current board and management has proven essential, demonstrating that even without active crude refining, TOR’s assets can generate substantial revenue to support its operational viability.
Beyond the terminal activities, the company must begin its core functional activity of refining in order to provide permanent cash flow, reduce redundancy and support the growth of the economy. The model for refining must be scientific and based on the ability to raise enough capital to procure crude oil. However, as noted in a 2023 report by the Africa Centre for Energy Policy (ACEP), “TOR’s legacy debts and lack of corporate viability have crippled its ability to access the trade finance required to compete in the global crude market.” Furthermore, buying crude on its own books exposes TOR to volatile global oil prices. A sudden dip in the market between purchase and the sale of refined products can turn a projected profit into a devastating loss, a risk the state-owned refinery is ill-equipped to bear. In this regard, the current board must take cure from the previous board in getting private companies to engage in tolling.
It is against this bleak backdrop that the transaction with Netoil Energy Ltd must be understood by the current board as a lifeline, and not sale as being speculated in the media. As envisaged, the tolling model fundamentally de-risks TOR’s operations, and for that matter the previous board selected Netoil Energy Limited out of 16 bids. Under this arrangement, a private company, like the recently selected strategic partner, Netoil Energy Ltd, sources its own crude, finances the cargo, and bears the full market risk. TOR’s role shifts from a high-risk trader to a stable service provider. It simply charges a fixed fee, for example, the reported $1.5 per barrel, for every barrel of crude it processes using the client’s crude. This transforms TOR’s revenue stream from unpredictable and speculative into a guaranteed, predictable flow of income. This model is not theoretical; it is the backbone of many successful refining operations globally. A report on the global refining sector by McKinsey & Company highlights that “tolling arrangements can provide a stable, low-risk revenue base for refinery owners, insulating them from market volatility and allowing them to focus on operational excellence.” This is a classic Tolling Agreement, a model used globally to revitalize distressed assets. The state retains 100% ownership of TOR while Netoil commits a $214.4 million CAPEX investment, including an immediate $20 million injection. In return, TOR earns a guaranteed tolling fee of $1.5 per barrel for a minimum of 12 million barrels of crude processed annually, generating an estimated $18 million in annual revenue and providing a crucial window to freeze its debilitating debt accumulation.
Further argument for private sector partnership lies in the nature of the proposals previously considered. Throughout 2021 and 2022, the then-government was publicly engaged with multiple entities, including Tema Energy & Chemical Plant Ltd and a consortium led by Afro-Arab Group. The discussions, as documented in parliamentary briefings and energy committee reports, consistently centered on Operate-and-Maintain (O&M) agreements, Build, Operate, and Transfer (BOT) models, or long-term leases. These are fundamentally different from an outright sale, which would involve the transfer of ownership title, private sector partnership brings in private sector capital and expertise to resuscitate the refinery while the state maintained strategic ownership.
The anticipated benefits of partnership are transformative because the Government of Ghana (GoG) is shielded from risk, with zero fiscal exposure or sovereign guarantees required. The state stands to earn billions in petroleum taxes, margins, and levies annually from the sale of refined products. Furthermore, the economy will see an estimated forex savings of over $2 billion during the transaction term, a critical boost for the Ghanaian cedi and most importantly, it ends TOR’s status as a perennial drain on the public purse and provides enhanced fuel security.
In conclusion, the new board must learn from the previous boards in getting partnership deals similar but improved deals like the Netoil and Tema Energy Limited that is found in strategic foresight that secured its revitalization deal. The management of TOR must move beyond the era of political point-scoring and into a new age of pragmatic problem-solving. Like the previous boards, the solution to the company has never been about outright sales nor state sponsorship but a smart and, de-risked partnership that safeguards national interests while leveraging global expertise and for that matter must be emulated by the current board so as to monetize its existing assets without bearing the crushing financial burdens.
Authored by
Benjamin Nsiah
Executive Director
