Chad's New Refinery Suspends Production Following Price Dispute
October 03, 2011

Chad's first oil refinery has suspended production because of a price dispute between the China National Petroleum Company (CNPC) and the Chadian government, which are both own and operate the refinery as a joint venture. According to a statement from the Societe de Raffinage de N'Djamena (SRN) published in local media, the refinery will not operate from 25 September for a period of 40 days. The refinery agreed a retail price of 200 Central African CFA francs (XFA) (USD0.41) per litre of refined petroleum with the government, but refined products are sold at a retail price of around XFA600 (USD1.31) per litre in Chad, according to the World Bank. This discrepancy caused the refinery to operate at a loss of USD4.7 million by end-August. The refinery is co-owned by the CNPC (60%) and Chadian NOC Societe des Hydrocarbures du Tchad (SHT) (40%).

Significance:The 20,000-b/d refinery was launched in June with plans to increase the capacity to 60,000 b/d, which could make Chad less dependent on fuel imports (seeChad: 1 July 2011: Chad). The loss of operations at the refinery will inevitably result in fuel shortages in Chad, which will require costly imports. CNPC has become a vital investor in the country and is developing the Mimosa and Ronier oilfields as well as investing heavily in developing Chad's downstream sector, in particular, its pipeline infrastructure. Therefore, Chad can ill-afford a breakdown in its relationship with this important investor, and CNPC is likely to try to use its clout to push up the price of refined petroleum in order to stabilise the refinery's balance sheet.

Source: Global Insight

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