–By Gideon Osaka
The recent statement by the Group Managing Director, Nigerian National Petroleum Corporation (NNPC), Maikanti Baru, that the country’s refineries had not undergone turn around maintenance(TAM) for an aggregate of 42 years, may have shocked many Nigerians, who in the past had been regaled with how NNPC had carried out TAM.
In his New Year message, issued through the NNPC spokesman, Ndu Ughamadu, Baru stated that in spite of challenges, major rehabilitation works were carried out in all the three refineries. He said that the Warri Refinery and Petrochemical Company had its Distribution Control System successfully upgraded while the Port Harcourt Refining Company had major interventions in Fluid Catalytic Cracking Unit, and Power Plant Unit fixed. He added that Kaduna Refinery and Petrochemical Company was undergoing major repairs of its, Catalytic Reforming Unit and Crude Distillation Unit 2. According to him, efforts were afoot to get the original builders of the refineries to carry out TAM on them after securing favourable private funding for the exercise.
Baru’s message contradicts the statement made by NNPC in May 2018, when it claimed to have spent $396.33m on turn around maintenance (TAM) of the nation’s four refineries between 1998 and 2008. NNPC Documents made available to the Mohammed Datti-led House of Representatives Ad-hoc Committee investigating the status of the nations four refineries, the Turn Around Maintenance (TAM) to date and regular modular licensed refineries provided details of money spent on each of the nation’s refineries.
Documents presented by the Chief Operating Officer (COO) for Refineries, Anibor Kragha indicated that from $182.730m proposed for old and new Port Harcourt refineries, the sum of $157.641m was spent. Of $91.5m proposed for Kaduna refinery, $87.517m was spent, while $151.170m proposed for Warri refinery was spent. Kragha, who represented NNPC, stated that Federal Government is responsible for subsidy payment and not the Corporation. The committee was not satisfied with the scanty details provided by Kragha and directed NNPC to submit certificate of completion of various contracts awarded, five-year audited account of the four refineries with the view to ascertain compliance with the Public Procurement Act, 2007.
The Committee wondered where the Corporation sourced the money for payment of subsidy to the tune of billions of naira, while the nation’s refineries could not produce to capacity due to fund paucity. As a result, Committee chairman Datti gave the Corporation one week ultimatum to comply and get back to the Committee. It will be recalled that on January 13, 2015, NNPC refuted a report credited to some civil society organisations, alleging that the Corporation had committed N152 billion to execute the Turn Around Maintenance (TAM) of four refineries between 2011 to 2013. According to the NNPC, a decision was taken in 2011 to rehabilitate all refineries, using the Original Refinery Builder (ORB) of each of the refineries. The then spokesman, Ohi Alegbe said the NNPC, however, made recourse to a new strategy after the ORBs declined participation and nominated some partners in their stead who came up with outrageously unfavourable terms.
“The nominated partners, as sole bidders, came up with humongous price offers after two years of thorough and exhaustive scope of work definition and price negotiations. “The proxies were also unwilling to provide post rehabilitation performance guarantees,’’ he said.
He also explained that the new arrangement, which kicked off in October 2014, entailed phased and simultaneous rehabilitation of all refineries, using in-house and locally available resources. The strategy also embraced the direct use of Original Equipment Manufacturer representatives to effect major equipment overhaul and rehabilitation.
It was projected that the new strategy would reduce the cost of the operation by 70 per cent. This money, he said, would help in mitigating the financing challenges of NNPC visa-a-vis refinery rehabilitation.
“The phased rehabilitation programme started in October 2014 after the required funding stream was established and will last for 18 months,’’ he said.
He said that over 60 per cent of materials needed for the TAM at Port Harcourt refinery had been delivered, adding that their installation was in progress, and that that material orders and deliveries to Kaduna and Warri refineries remained substantial. Yet, the refineries have never performed above 15 percent since the beginning of TAM.
And, now, it seems that the modular refineries that the country is banking on to help solve its refined petroleum needs are also running into hitches.
Refiners said sovereign guarantee loan is needed to ensure timely completion of their refineries. Chairman of Eko Refinery and Petrochemical Company Captain Emmanuel Iheanacho, said this against the backdrop of local refiners’ inability to secure loans to complete their ongoing modular refineries.
Sovereign guarantee is a promise by the government to discharge the liability of a third person in case of his default which are contingent liabilities of the central and state governments that come into play on the occurrence of an event covered by the guarantee.
Iheanacho said government did not necessarily need to provide its own funding, but give guarantee to any of the local promoter of refining companies that demonstrated that the refinery’s design and programme were viable and “that is the only way to help to secure loan.”
“It simply means government is going to give a sovereign guarantee for any money that is loaned; there is money all over that place, but they are awaiting government to make the move to agree to give sovereign guarantee.
“There is no reason why our government will not be able to assist indigenous refiners with that,’’ he said.
Iheanacho, who is also the Chairman of Integrated Oil and Gas Limited, said that it seemed that government failed to fully appreciate the importance of private sector involvement in modular refineries in Nigeria.
He said that the country was going to save a lot of money that were being lost to shipping crude oil overseas for refining and bringing it back as refine products if we had private sector involvement and people had developed refinery capacity .
“What that means is that we pay lots more from the fuel that we consumed, but if we refine it locally we will see a significant reduction on the transportation cost both on transporting the raw product to refining in abroad and bring it back for consumption in our economy.
“What government ought to have done is to encourage people who bring in viable ideas, like setting up the modular refineries.
“I know that government always talks about licenses where about 42 refineries were given licenses and non has come up to me; it’s not the licenses that are stopping the people, but there are so many issues in getting a licenses and establishing a refinery.
“You have to understand the business of refining, you have to understand the market context you must have been able to articulate the field, from engineering design, detail design and find financing, this is where government should come in,’’ Iheanacho said.
The refiner said that the essence of the sovereign guarantee was to enable local refiners seek loans with foreign investors or banks, adding that there was need for government to stand as guarantors for local refiners.
He said that government should really appreciate fully the extra ordinary impact which the development of the indigenous local refiners will have on local economy.
Iheanacho said that the company has gotten an approval from the Department of Petroleum Resources to commence construction of its proposed 20,000 Barrel Per Day (BPD) production capacity modular refinery.
He said that the refinery which was located at Tomaro Island Port, Amuwo Odofin Local Government Area, Lagos worth 250-million dollar (N90 billion).
“We (Eko Refinery and Petrochemical Company Ltd) have gotten the authority to commence construction from DPR which is the final approval, the first is license to establish and the license to construct.
“We are at the fund raising stage and we are going to raise funds wherever we can get it from – within and outside the country.
“One cannot commence construction until the company goes through fund raising stage which is the stage we are now,’’ he added.
Iheanacho also appealed to the government to come up with a policy that would compel financial institutions to make funds available to indigenous players who might intend to build modular refineries.
He said that when his 20,000 barrels per day refinery would reduce importation of refined petroleum products into the country.
“Financial support is one major area we need government’s help, that there is need to have many of the small scale refineries to turn around the economy.
“We can now start exporting more refined products than we are currently importing.
“Government should make provision for financing because it is key requirement to do 20,000 barrels per day.
“It requires an investment of millions of dollars. We need government to assist modular refinery operators.
“We are not asking to be given grants and handout, but to be assisted in the process of being able to secure financing in major finance institutions,” he said.
Iheanacho further disclosed that if government could assist the
operators to secure finance, it would go a long way to assist them realise some
of the benefits that would drive the country’s economic growth.
