Cameroon has renegotiated its refinery debt with trader Vitol, bringing it into line with an agreement reached last year with domestic banks.
Sonara, the state-backed refiner, will pay down its 185 billion CFA francs ($275 million) over 10 yeas, with the interest rate set at 5.5%. The agreement is also expected to model how Sonara will pay its debts to other traders.
Minister of Finance Louis Paul Motaze and Vitol managers signed the agreement on September 22 in Yaounde.
Reuters quoted Motaze as saying Sonara’s insolvency “posed a risk to the country’s supply of petroleum products, as well as a threat of breakdown of the national banking system with regards to the volume of commitments at stake”.
The refinery struck a similar deal with a group of local banks, including UBA Cameroon and Ecobank, in October 2021. Sonara owed the banks around 261bn francs ($388mn).
Sonara’s financial difficulties date back to 2019, when a fire broke out at the plant. As a result, it halted operations and reduced servicing on its debt.
Cameroon’s government has described the exposure of local banks to Sonara debt as a “systemic risk” for the banking system.
Cameroon owns an 80.29% stake in the refinery, while Total Outre Mer holds the remaining 19.71%.
According to the International Monetary Fund (IMF), Sonara’s debt was 114 billion francs ($169mn) in 2016, but by 2021 had risen to 651bn francs ($969mn).
When Sonara was in operation, it could not process local crude, instead it imported oil, primarily from Nigeria. It sold its products to distributors at levels set by the state, which then compensated the refinery for the difference. With the refinery out of action, the company acts simply as an intermediary in buying products.
The IMF has called for Cameroon to phase out fuel subsidies and shift instead to providing measures to protect the most vulnerable.
Cameroon, in its talks with the financial institution, agreed to “continue revising and simplifying the fuel price structure to identify fiscal and other cost-reducing opportunities”.
The IMF has predicted that Sonara will restart its refining operations in 2024 and slowly increase capacity. It did not give a figure for how much reconstruction might cost.
Motaze has talked of the complexity of reconstruction at Sonara – but also the high-level support for such a project. In addition to bringing the plant back online, discussions have raised the possibility of adding a hydrocracking unit, in order to be able to process domestic crude.