Mr Kwamena Essilfie-Adjaye, Member of the Energy Team of the government, said on Thursday that the Tema Oil Refinery (TOR) is "totally bankrupt and insolvent".

Speaking at an energy forum organised by the Ministry of Energy in Takoradi, he said, the situation has arisen because of inadequate cost recovery.

Mr. Essilfie-Adjaye said the TOR has been operating with an implicit subsidy, which is not sustainable. The subsidy, he said, was financed by bank borrowings, which now threaten the liquidity of the banking sector, adding that the total borrowings by TOR now exceeds the capital base of the banking sector.

Mr. Essilfie-Adjaye therefore said recovery is unavoidable and cannot be postponed. He said the full cost recovery policy involves ex-refinery price covering the cost of importing crude oil and cost of refining at TOR with adjustments for exchange rate changes.

Mr. Essilfie-Adjaye said the policy has been continuously violated for political reasons since its inception in 1997, adding that even though the cedi continued to depreciate throughout the period, there were no petrol price adjustments after March 2000.

He said measures would be implemented to reduce the use of petroleum in the public sector. Other measures will also be announced to rationalise the use of petroleum products nation-wide. In an address read for him, Mr Albert Kan-Dapaah, Minister of Energy, said though the strategic stock levy for fuel products increased to ten cedis per litre in 1998, strategic stocks inherited by the NPP government could not last for three weeks.

He said that, to reverse this situation, subsidies on ex-refinery prices will be removed to enable the TOR to recover costs while the product becomes available on the market.

Mr Kan-Dapaah said the overall tax element of petroleum in March last year was 600 billion cedis, yet the country spent twice the amount generated to re-pay for the subsidies.

"Several countries levy about 80 per cent of price paid for petroleum products as taxes and this practice must be adopted to reflect current changes," he added.

Mr Kan-Dapaah added that even though the pricing is supposed to be based on import parity formula, the market forces are not allowed to determine prices to enable the TOR to re-cover its costs.