Mismanaged Conduit: Will Nigeria’s Refineries Work Again?… $19bn Repair Revelation Unsettles Industry
By Benjamin Ike
The deep-rooted issues plaguing Nigeria’s refineries and the reasons for the failure of the government under former President Muhammadu Buhari to fix the refineries despite repeated assurances, came to the limelight recently following the revelations by the Governor of Nasarawa state Alh. Abdullahi Sule.
The Governor while featuring on Channels TV’s Sunrise Daily programme in early June, revealed that the Buhari administration spent more than $19 billion repairing the country’s four ailing refineries in eight years without commensurate results, noting that the amount, was equivalent to what Dangote used to build Africa’s largest refinery and the world’s largest single-train refining facility in Nigeria.
Sule, who was a former Managing Director of African Petroleum (AP), about two decades ago, stated that the process of fixing the country’s refineries was largely mismanaged. The governor’s revelation came days after the House of Representatives revealed that over N11 trillion was expended on the moribund refineries.
Governor Sule, who was also a former managerial staff of the Dangote Group, while admitting the poor handling of the situation by the government, said: “From the government side, I think we didn’t do a good job. When the (former) President (Buhari) came in, in 2015 prices of crude oil dropped by less than 30 dollars. At that time there was zero subsidy.
“Our three refineries in Nigeria today have a total of 450,000 barrels per day, Dangote is 650,000. He spent $19 billion on building it. We spent, not building a new one, but in maintaining these refineries more than $19 billion in eight years, yet they have not been maintained.”
Among the several unmet targets and unfulfilled promises in the downstream energy sector the Bola Tinubu administration inherited and must fix is the four idle refineries which are all currently under lock and key for one reason or the other.
Worst-maintained refineries in Africa
Valuechain dug deeper to expatiate some of the governor’s claims and found that despite having one of Africa’s biggest refineries in terms of refining capacity, Nigeria’s refineries have suffered the worst maintenance failures in the last decade.
Findings showed that aside the Dangote’s refinery which when fully operational will be Africa and the world’s largest single-train refinery with a production capacity of about 650,000 barrels per day (bpd), Algeria’s Skikda refinery built in 1983 is among Africa’s largest refinery with daily production of 355,000 bpd. Next in ranking among Africa’s largest refineries are Libya’s Ras Lanoufrefinery built in 1984 with a production capacity of 220,000 bpd (although been offline since 2013 due to unresolved dispute) and Port Harcourt refinery built in 1965 and expanded in 1989 to 210,000 bpd. South Africa’s Sapref Durban refinery built 52 years ago with a production capacity of up to 180,000 bpd and Egypt’s Cairo Mostorod Refinery with 142,000 bpd, were ranked fourth and fifth based on their refining capacity.
While these refineries which were built about the same time as Port Harcourt refinery have been functioning optimally including undergoing scheduled maintenance and upgrades in the last decade, Nigeria’s Port Harcourt refinery, just like its counterpart in Kaduna and Warri have witnessed the worst maintenance record in the last decade despite billions of dollars being purportedly sunk in their repairs.
Within the last decade, Algeria’s 355,000 bpd Skikda refinery has undergone full-scale scheduled maintenance. The refinery usually undergoes at least one full-scale scheduled turnaround maintenance on a 10-yearly basis as required by Algerian law, information sourced from state media showed. Sapref Durban, South Africa’s largest oil refinery jointly operated by Shell and BP which started operation in 1960 about the time as Nigeria’s old Port Harcourt refinery was built, completed its refinery maintenance program in mid-2013 and completed another circle of turnaround maintenance activities in May 2020 before restarting operations, according to information sourced from its website.
South Africa has the second-largest crude oil refining capacity in Africa and has about six refineries, surpassed only by Egypt, according to Oil & Gas Journal’s estimates. Egypt as part of an ongoing government plan to address petroleum product supply gaps has started an ambitious plan to increase the oil-processing capacity of some of the country’s refineries, with more being constructed adjacent to existing ones.
While these refineries continue to weather Africa’s difficult refining landscape, those in Nigeria, continue to struggle leaving the country’s refining system condemned to petrol imports.
Nigeria’s four refineries: two in Port Harcourt with the new 150,000 bpd capacity refinery built in 1985 at a total cost of $850 million; the125, 000 bpd Warri refinery built in 1978 at $478m and 110,000 bpd Kaduna refinery built in 1976 at the cost of $525 million, produced at grossly beneath capacity levels. The only publicly known turnaround maintenance carried on particularly the Port Harcourt refinery was a routine maintenance on the facility in year 2000.
Past Ministers for petroleum have admitted that conclusive turn around maintenance on the refineries have not been done over the last 15 years as this has left the plants “far dilapidated.”
In terms of performance, Valuechain’s findings from a comparative analysis of maintenance of top refineries in Africa corroborate findings by the National Refineries Special Task Force (NRSTF) set up in 2012 by the Nigerian government.
The NRSTF found that Nigerian refineries have the worst performance record among 42 African refineries, with an average capacity utilisation of only 18 percent, compared to 81 percent and 85 percent respectively for Egypt and South Africa in 2006-2009.
The Task Force found that all the refineries had failed to meet the normal international benchmarking standards.
“Since they were built, new technology has been introduced that has made much of their operating systems near obsolete,” the NRSTF informed.
According to Wikipedia, Turnarounds are scheduled events wherein an entire process unit of an industrial plant is taken off stream for an extended period for revamp and/or renewal.
Every refinery is designed to run continuously, without interruption except in emergency, for a minimum period of time, usually 24 months, before it is systematically shut down for a period, to carry out full maintenance.
This periodic maintenance called Turn Around Maintenance (TAM) usually lasts for 30-40 days, after which the next cycle of continuous operation resumes for at least another 24 months.
Any fuel refinery that does not operate this cycle of continuous production and TAM is considered deficient. Nigeria’s refineries fall short of these standards.
How MoUs failed to revive refineries
Plans by the government of former president Buhari to fix the refineries failed to materialize despite the signing of several publicized Memoranda of Understanding (MoUs) to fix them. Under the immediate past administration, Nigeria signed MoUswith China, India, Saudi Arabia and Russia for complete overhaul of the refineries but the MoUs had little or no impact on the refineries.
The poor state of the refineries prompted former President Buhari to direct the NNPCL to open negotiations with investors interested in funding the repair of the plants. The negotiations, which lasted for one and half years, broke down in controversial circumstances in 2018 forcing the government to take the option of looking inwards for funds to revamp the refineries.
While the government tried sourcing for private funds to revamp the plants, the signing of MoUs continued.
The Daewoo Group, a South Korean conglomerate, became the latest in the league of partner and countries Nigeria signed MoUfor the rehabilitation of refinery. In October last year, the NNPC Ltd signed an MoU with the Korean conglomerate, for the rehabilitation of the Kaduna refinery. According to a statement by special adviser to the president on media and publicity at the time, Femi Adesina, the agreement was signed on the sidelines of the 2022 World Bio Summit in Seoul, South Korea and it was witnessed by an excited President Buhari, as the deal came against the backdrop of ongoing rehabilitation work at Warri refinery.
Russia in 2019 signed an MoU with Nigeria to revamp the refineries. However, the MoU became problematic after implementation of a similar one in 2009 between Gazprom, a Russian energy giant, and NNPCL (NiGaz Energy Joint Venture Company) failed to fully take off. On October 24, 2019, the NNPC signed an MoU with Russian oil company, Lukoil, for cooperation in upstream operations and for revamping Nigeria’s refineries. The signing ceremony took place on the sidelines of the Russia-Africa Summit, where at an earlier meeting with Russian President, Vladimir Putin, former President Buhari gave assurance that his administration would “ensure this initiative is implemented within the shortest possible time.”
On October 31, 2019, NNPCL and Saudi Aramco agreed to among others collaborate in revamping the refineries in Nigeria which culminated in the establishment of the Nigeria-Saudi Council. The decision to set up the council was the highpoint of a bilateral meeting between President Buhari and Saudi Crown Prince, Mohammed bin Salman, at the Future Investment Initiative conference in Riyadh.
After the signing, Buhari had directed officials of the petroleum ministry and NNPCL to work with Saudi Arabia to “expedite the modalities for investments and collaborations.” A similar parley with Saudi authorities took place earlier in April, 2019, when Saudi’s Minister of Energy, Industry and Mineral Resources, Khalid bin Abdulaziz Al-Falih, expressed readiness of his country to sign an MoU with Nigeria. In a statement shortly after, NNPCL said that the “Areas of interest will cover the existing refinery revamp, building of a brand-new refinery, LNG investments and product supply trading in crude and refined products.” But to date, no known action has taken place.
In June, 2016, NNPCL and the Ministry of Petroleum Resources in separate statements said a first of its kind road show took place in China where MoUs worth over $80bn were signed with Chinese companies to among other things fix the country’s ailing refineries. The MOU, was presented to then President and the highest decision-making body in the country, the Federal Executive Council (FEC), and the go-ahead to actualize the memorandum was given. While terms for the deals were still being worked out, the projects were expected to start in 2017, but they did not see the light of day.
Earlier in 2016, Nigeria agreed in an MoU to facilitate Indian investment among other things, in Nigerian refineries. There is no public record if the MoU was actually carried through.
Refineries comatose after guzzling billions in repairs
Since the return of democracy in 1999 billions of dollars have been spent on the Turn around Maintenance (TAM) of the refineries but the plants have failed to deliver commensurably.
Whenever the refineries manage to resume production after a lengthy repair work, they hardly work for up to 90 days before they are shut down and the purported maintenance cycle continues.
Although figures on the actual amount Nigeria has expended on TAM of the refineries have been a subject of controversies, the nation may have spent about $25bn on the refineries in 25 years, according to legislative hearings on the matter.
Energy analysts say these refineries continue to gulp more money in endless maintenance while the plants remain comatose.
After shifting deadlines for the fixing of the refineries, the NNPCL had last year said the first phase of rehabilitation of the Port Harcourt refinery was nearing completion and set for restart in 2023. The refinery has been shut since late 2020 for a major overhaul aimed at restoring the facility to optimum performance after past repair efforts yielded little improvements. Repair work, being handled by Italian engineers Tecnimont, began in April 2021. Other refineries, which include Kaduna and Warri, have been shut for repairs since early 2019. According to NNPCL, the Port Harcourt refinery will be ready before the end of the year 2023 while those in Warri and Kaduna would start production in 2024.
Expectations are high for the resumption of operations of the nation’s refineries, and Nigerians remain optimistic about the positive impact functional refineries will have on cost of fuel amid the excruciating pain caused by subsidy removal by President Bola Ahmed Tinubu.
