-By Gideon Osaka
What would become of the refineries, in terms of operation, ownership and maintenance, after the completion of the ongoing rehabilitation has become a major concern, and raised issues in the public burner?
Valuechain can report that shortly after assuming office as the Group Managing Director (GMD) of the Nigerian National Petroleum Corporation (NNPC) in 2019, Mallam Mele Kyari announced that the corporation has adopted a phased repair of all the refineries.
He disclosed that an agreement reached with their original builders (ORB) would restore the refineries to, at least, 90 per cent efficiency level by 2022.
According to a statement from NNPC, a $50 million contract to undertake a full integrity check and equipment inspection of the Port Harcourt Refinery was reached with Tecnimont SPA and Tecnimont Nigeria Ltd (TNL). The planned revamp would begin with Port Harcourt, and the scope of this deal included a six-month onsite assessment of the refinery, as well as engineering and planning activities which would lead to the second phase of the refinery revamp to a minimum of 90 per cent capacity utilisation.
To deliver on the presidential mandate to fix the refineries, NNPC in April, signed a rehabilitation contract with Milan-based Maire Tecnimont SpA, for the Port Harcourt Refinery. The signing came a few weeks after the Federal Executive Council (FEC) approved the sum of $1.5 billion for the project. At the time the FEC approved the deal in March, the Minister of State for Petroleum, Timipre Sylva, said the project will be completed in three phases – the first 18 months would take the refinery to 90 per cent production capacity, with the second and final phases carried out within 24 months and 44 months, respectively.
Next stop for the NNPC, according to its GMD, was to continue this process to also deliver on both the Warri and Kaduna refineries.
Nigeria has four refineries with a combined capacity of 445,000 barrels per day (bpd): one in Kaduna, and three in the oil-rich Niger Delta region at Warri and Port Harcourt. The Port Harcourt complex consists of two plants with a combined capacity of 210,000 bpd. Since April 2020, the refineries have been shut, pending rehabilitation, losing some N167 billion a year earlier due to inactivity.
Decade-long maintenance problem
Following the successful execution of the EPC contract for the Port Harcourt refinery with the others to come soon, questions have been asked about the fate of the refineries after the completion of the revamp.
NNPC has been accused of contributing to the current state of the refineries due to decades of mismanagement of the plants.
Turnaround Maintenance (TAM) on the plants has long been neglected leaving them in a poor state. Even the rehabilitation the Corporation managed to carry out on the plants have been perceived to be fraudulent as the refineries failed to work. Simply put, the spare repairs of the nation’s refineries were replete with unpleasant tales of corruption. Past GMDs and petroleum ministers set out a number of plans for the refineries, none of which came to fruition.
Public records revealed that NNPC had in the past 25 years spent billions of dollars in turnaround maintenance of the refineries, the latest being over $396 million spent between 2013 and 2015 with nothing to show for it, according to a Senate Committee finding last year.
NNPC Group Managing Director, while engaging journalists on March 22, 2021 in Abuja on issues emanating from the proposed rehabilitation of the Port Harcourt refinery admitted that the country did not do well in maintaining the refineries in the past 25 years as the last turnaround maintenance of the Port Harcourt refinery happened 21 years ago.
He noted that the huge cost of rehabilitation of the refinery witnessed in this present time was as a result of poor maintenance of the plant over a period of time.
“What we are seeing today is the cumulative effect of our lack of doing proper maintenance over a period of time,” he said.
Valuechain findings show that the consequence of this is that petroleum products are imported from abroad, subsidised with funds the country can hardly afford while jobs that could have come from functional refineries are unavailable. The refineries have operated sporadically due to years of neglect, forcing Africa’s largest crude producer to rely heavily on imports to meets its domestic fuel needs.
With the poor record of maintenance over the years, questions continue to arise over who and how the refineries will be routinely maintained after the rehabilitation.
Ownership post rehab
Will NNPC still continue to run the plants after the completion of the rehabilitations? Not too many Nigerians would want the status quo to continue; but a clear and decisive operation and ownership structure for the refineries are yet to be made public.
The government was reported to have started holding talks to give up majority stakes in all the four refineries.
Last year, Kyari told Channels TV that discussions were taking place on an operating model.
Speaking recently during an interview on Arise TV, Kyari said, “The end result will look more like the NLNG model, with clear involvement from the private sector.”
NNPC or the government would be a minority shareholder in the assets.
“It means there will be more scrutiny of shareholders, and also becoming more efficient to operate. That conversation is on the table,” Kyari said, without specifying how the government planned to transfer ownership, or to whom.
The refineries have operated sporadically due to years of neglect, recording perennial losses, and forcing Africa’s largest crude producer to rely heavily on imports to meet domestic fuel needs.
Unending debate
While the debate over maintenance, ownership and operations of the refineries rages on, a few other posers continue to dominate discussions on the rehabilitation.
Some pundits wonder why the government plans to spend money that it does not have to repair a refinery that it does not need.
The views shared by the Founder of Stanbic IBTC and Anap Foundation, Atedo Peterside, other prominent Nigerians and groups have prevented discussions on the issue from fading away .
“In 2019, PH Refinery contributed zero revenue, but incurred costs of N47 billion; almost N4 billion a month! Instead of ending this nightmare through a BPE (Bureau of Public Enterprises) core investor sale, NNPC wants to enmesh Nigeria into a deeper financial mess by throwing $1.5 billion (including debt) at a problem it created?” he said.
“Even with the paucity of funds, we continue to ramp up government involvement in sectors that ought to be left to the private sector; with the latest being the ill-advised $1.5 billion so-called rehabilitation of the Port Harcourt Refinery that has failed to turn a profit for years,” former Vice President, Alhaji Atiku Abubakar, said.
Atiku’s views resonate with those of many Nigerians
ThisDay, in its editorial of March 30, 2021 said its position on the state of the nation’s refineries had not changed.
“We fear that history could repeat itself. It has happened several times before. If we may ask, why is the Federal Government adamant on throwing money to repair the Port Harcourt Refinery when it can sell it, and save itself lots of troubles? How much could it possibly profit from selling the refinery after spending $1.5 billion for its repair? Wouldn’t it be economically realistic to allow private funds to revamp the refineries since the NNPC has failed woefully to keep them running profitably?
“We have always argued that the refineries have become huge cost centres to the government and country and should be handed to credible private entities to restore their full productive capacities. Private businesses are better commercial managers than governments. A quick visit to the Port Harcourt refinery and its neighbour, Indorama Eleme Petrochemical Industry which was taken from the NNPC and privatised in 2006 reinforces this. If Eleme can be restored to efficiency with private funds and still pays out dividends to the government, privatising Port Harcourt should not be a problem.
“We believe that borrowing $1.5 billion to repair the Port Harcourt Refinery is not smart economics. This government should do well to resist the lure for borrowing and heaping debts on the country on such patently wasteful ventures,” the paper wrote.
Banking on Dangote
As the rehabilitation of the country’s refineries goes on, Nigeria’s only hope of ramping domestic crude refining in the short term is the startup of the privately-owned Dangote Refinery, which would help it end its reliance on fuel imports. The 650,000 b/d Dangote plant in Lagos – set to be Africa’s largest refinery – is expected to come on stream early 2022, according to industry sources.
For now, it is realistically impossible for the country not to import petrol. The OPEC member imports around 1 million to 1.25 million mt/month of petrol to meet national demand estimated at around 50 million to 60 million liters/day.