Sentuo Oil Refinery has called on the Ghanaian government to change the pricing model for local crude oil, urging them to price it in cedis. This appeal comes as the company faces significant losses due to exchange rate differentials between the cedi and the dollar. The current pricing model requires local refineries to purchase crude oil, including sweet crude from the Jubilee Field, in US dollars.
The company's exposure to severe exchange-rate losses stems from a structural and legal requirement. Although Sentuo pays for the domestic product in cedis, the original price is normally pegged in dollars. This forces the company to convert cedis into dollars at usually high rates to pay for the product. As a result, Sentuo is incurring substantial losses on every tonne of crude refined.
Executive Chairman of Sentuo Group, Xu Ningquan, made this known during a meeting with the Energy Committee of Parliament on September 23. He emphasized the need for the government to intervene and impress upon the Ghana National Petroleum Corporation (GNPC) to sell local crude to local refineries. This, according to Mr. Ningquan, will help alleviate the financial burden on Sentuo and other local refineries.
Sentuo Oil Refinery is currently producing 40,000 barrels of oil and plans to increase its capacity to 100,000 barrels by adding another 60,000 barrels. The company believes that pricing local crude oil in cedis will help them reduce losses and operate more efficiently. This, in turn, will enable them to contribute more to Ghana's economy and energy sector.
The pricing model has significant implications for the operations of local refineries. When the cedi depreciates, the cost of purchasing crude oil in dollars increases, leading to higher production costs for Sentuo. This makes it challenging for the company to compete with international refineries that purchase crude oil in their local currency.
The government has not yet responded to Sentuo's appeal. However, the company's concerns have been raised at the parliamentary level, with the Energy Committee set to engage with stakeholders to find a solution. It remains to be seen whether the government will consider Sentuo's proposal and implement a new pricing model for local crude oil.
The outcome of this appeal will have significant implications for Ghana's energy sector. If the government agrees to price local crude oil in cedis, it could lead to increased efficiency and reduced costs for local refineries. This, in turn, could lead to lower fuel prices for consumers and increased economic growth.
Key points
- Sentuo Oil Refinery faces significant losses due to cedi-dollar exchange rate differentials.
- The company urges the government to price local crude oil in cedis to alleviate financial burden.
- Sentuo plans to increase its production capacity to 100,000 barrels.
