A lack of letters of credit (L/Cs) may yet force the closure of one of sub-Saharan Africa's handful of oil refineries that recently survived a potentially catastrophic fire. A blaze at Ghana's Tema Oil Refinery (TOR) came within centimetres of igniting vast stores of petroleum at the facility.

Safety staff averted a disaster when they extinguished flames close to a manhole covering flammable material that, if it had ignited, could have caused the refinery to blow up. Destruction of the facility would almost certainly have resulted in fatalities, and it would have struck a heavy blow to Ghana's economy.

Jeopardy

The staff who saved Ghana's only oil refinery may only have won a short reprise for the heavily debt-burdened facility. Even before the blaze, local media had been suggesting that TOR's bankers were becoming increasingly concerned about issuing L/Cs for the refinery's crude oil and finished product imports.

Ghana Commercial Bank's support by providing L/Cs for the refinery is crucial to its financing. The problem is that TOR is progressively digging deeper into its overdraft, a process that Ghanaians have blamed on the government's petroleum pricing policies. As in many African countries, the government subsidises petroleum prices and arrangements between the authorities and TOR are such that the facility is not recovering its costs from sales and the public money that should fund the subsidies.

Bank threat

Continuing to provide L/Cs under the current circumstances could even precipitate the collapse of the Ghana Commercial Bank according to local media. They are calling on the government to recapitalise TOR and say that Ghanaians must accept paying market rates for petroleum products.

The World Bank and oil industry experts have suggested that sub-Sarahan Africa's smaller refineries operate in very difficult market conditions and many should be closed or transformed into storage facilities. Several refining nations in the region however feel that refineries are an essential component of economic independence. A new US$200 million unit at TOR should be onstream within the next few months. Its aim is to increase productivity at the refinery.

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC-PRO.