In Morocco, it was a sad day for the oil and gas industry when the country’s single refinery ceased operations in August 2015 due to financial difficulties. The 200,000 barrels a day Samir refinery in Mohammadiya was shut down and placed under liquidation by a court ruling, which named Mohammad Al Krimi as an independent trustee to oversee the plant operation or its liquidation after debts amounted to $4.4 billion.
The refinery was originally built in 1959 as a joint venture with Eni, the Italian oil company, but the Moroccan government took total ownership in 1973. The original capacity of 2.25 million tons a year (mty) was increased to 10 mty and many process units were renewed over time, especially during the implementation of the conversion and upgrade facilities from 2005.
The refinery is highly complex where fuel oil production was minimised to increase production of gasoline and diesel. Product specifications were also improved and low-sulphur diesel (50 ppm) marketed since 2009. The plant even established its own distribution network to gain value from marketing products.
The refinery was privatised again in 1997 where Corral Holdings Societe Marocaine d’Industrie de Raffinage (Samir), a Saudi Arabian investment group, took 67.27 per cent and the rest remaining with the government. The shares were freely traded on the Casablanca stock exchange.
Morocco has limited oil and gas resources and depends almost completely on imports. Its oil consumption has risen from 6.43 mty in 2002 to almost 16 mty in 2015 and probably higher now. However, crude oil imports in 2013 were only 5.49 mty as the country’s refinery depends on imports of other components for its conversion facilities and for blending to the tune of 2 mty a year.
This situation seems to be the same when the refinery was stopped. The crude throughput of the refinery is about 55 per cent of capacity and this is very low and may have contributed to the refinery’s financial difficulties.
The Moroccan government has allowed private importers of petroleum products to compete with the refinery’s supplies, a point it should have taken note for its negative impact on utilisation and profitability, as its market share of 55 per cent is well below its potential. The refinery exports some of products but this not enough to salvage its operations.
The government may have been influenced by the availability of ports on the Atlantic and Mediterranean Sea to receive imports and to optimise the internal need for transportation to the detriment of the refinery.
The petroleum product consumption slate is very much biased towards middle distillates (jet fuel and diesel) with a share of over 50 per cent of product consumption. Therefore, the government should have rewarded the refinery for its investment in conversion processes to satisfy demand for middle distillates as far as possible.
Yet diesel imports are probably 57 per cent of total oil products demand in Morocco.
Many deadlines for the liquidation were announced and extended and the latest was March 10, which was also extended by a further month in the hope of receiving better offers from investors. The court appointed experts valued the assets at $2.1 billion and Al Krimi said in February that “he had received about 20 offers from foreign investors”.
The government and the court must approve the bidders according to their technical and financial merits. One of the best conditions that were laid out is that any investor must guarantee to operate the refinery rather than just converting it to a product depot to further the advantage of imports and product traders. NewsBase of 29 March said that “maintenance of a domestic refining capability is nonetheless considered a strategic necessity by some in government while the plant is still central to the local area’s economy”.
Some bidders are reported to have been approved by the court for further negotiations and some believe that important oil traders such as Vitol and Glencore might be interested. Especially as they are owed money for previous dealings with Samir. The bids are also reported to be in the range of $2 billion to 3 billion.
It is always difficult to attract investors for refining due to the high capital cost and limited profitability. But the Chinese are all out to acquire assets in Africa, especially after they bought a refinery in South Africa.
Could the Moroccans be waiting for such a move? Let us wait and see and, perhaps, one of the Arab oil producing countries can be tempted also.
The writer is former head of the Energy Studies Department at the Opec Secretariat in Vienna.