Nigeria’s local refineries maintenance: Endless drain pipe with little hope for fuel self-sufficiency

Una raffineria in California. REUTERS/Mike Blake

Adewale Sanyolu

The Nigerian National Petroleum Corporation (NNPC) may be on a collision course with Nigerians over its planned rehabilitation of the country’s ailing refineries even after similar efforts in the past had failed to yield the expected result.

The bone of contention at the moment is the failure of the NNPC to tell Nigerians, stakeholders and members of Civil Society Organisations (CSOs), what the current rehabilitation works would cost the country

This has arguably left stakeholders querying the rationale behind the decision of the state oil corporation to commence first phase of rehabilitation works on 210,000 barrels per day (bpd) Port Harcourt Refinery which would be followed by Warri and Kaduna refineries in line with government’s effort to attain local sufficiency in refined petroleum products.

The exercise, flagged–off by the Group Managing Director of the Nigerian National Petroleum Corporation (NNPC), Dr. Maikanti Baru, at a formal meeting in the premises of the refinery in Port Harcourt, came 19 years after the last Turn Around Maintenance (TAM) exercise of the nation’s premier refining plant was executed.

The project is being executed by Milan-based Maire Tecnimont S.p.A, in collaboration with its Nigerian affiliate, Tecnimont Nigeria.

Maire Tecnimont S.P.A is listed on Milan Stock Exchange with interest in international engineering and construction, technology and licensing, and energy business development, but has operations in 40 different countries, in addition to about 50 operative companies and with a workforce of about 5,500 employees.

The GMD explained that once the phase 1 of the project is wrapped up, the facility should be able to reach 60 per cent capacity utilisation.

He added that the NNPC was engaging Eni/NAOC as Technical Advisor to support the rehabilitation of PHRC, adding that NNPC/PHRC would leverage Eni’s extensive refinery supply chain network and warehouses to procure critical materials for the project.

Baru noted that the first phase of the rehabilitation contract which would run for six months will involve detailed integrity check and equipment inspection of the Port Harcourt Refinery complex beginning from end of March, 2019.

The integrity test comes as a precursor to the second phase of the rehabilitation project which entails a comprehensive revamp of the complex aimed at restoring the refinery to a minimum of 90 per cent capacity utilisation.

Subject to the successful completion of the integrity checks, Phase 2 of the project would be executed on an Engineering Procurement Construction basis by Tecnimont in collaboration with the original builders of the plant, JGC of Japan.

Meanwhile Nigerians who are against the present exercise have argued that $396.33 million already spent by NNPC on turn around maintenance (TAM) of the nation’s four refineries between 1998 and 2008 without getting the benefit of the investment are now seeking assurances from the regulators that another wild goose chase was not about to begin.

The figures were contained in the NNPC Documents made available to the Mohammed Datti-led Ad-hoc Committee investigating the status of the nations four refineries, the Turn Around Maintenance (TAM) to date and regular modular licensed refineries in 2018, which provided details of money spent on each of the nation’s refineries.

However, document presented by the Chief Operating Officer (COO) for Refineries, Anibo Kraga, indictated that from $182.730 million 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.

Regrettably the NNPC in its latest monthly operations (December) report indicated that combined value of output by the three refineries (at import parity price) for the month of December 2018 amounted to N10.86billion while the associated Crude plus freight costs and operational expenses were N8.89billion and N19.29billion respectively. This, it said resulted to an operating deficit of N17.32billion by the refineries.

Also in December 2018 the three refineries processed total crude of 67,139 MT which is 54,941 metric tonnes(MT) addition relative to November, 2018. This translates to combined yield efficiency of 48.20 per cent thus reversing -82.20 per cent recorded in November, and this positive outlook is credited to WRPC performance as the two refineries, KRPC and PHRC, processed no crude oil over the two months.

In February 2018, a House of Representatives ad hoc committee asked the NNPC to withhold its bid to spend $1.8 billion on the nation’s refineries.

earlier in 2017, the NNPC had proposed a fresh bid to spend the money on the turn-around maintenance (TAM) of the three functional refineries in the country.

The house had subsequently set up the adhoc committee to carry out a comprehensive investigation of the state of the refineries and their maintenance.

Addressing journalists, Garba Muhammad, chairman of the committee, said the lawmakers have asked the NNPC to withhold the planned spending for the time being.

“The committee has communicated to Ibe Kachikwu, minister of state for petroleum resources, and Maikanti Baru, group managing director of NNPC, requesting them to stay action pending the outcome of the committee’s investigation,” he said.

“We also want to seek full cooperation of the stakeholders and the general public in the course of the full exercise.

The decision of the NNPC to go ahead with the rehabilitation of the refineries may not be unconnected with its inability to secure financiers for the national asset after one and a half years

In January this year, NNPC had admitted that it could not agree with the investors on the commercial terms of the contract.

Speaking on the state of the refineries in seperate interviews with Daily Sun, Chairman, Human Environmental Development Agenda (HEDA), Lanre Suraj, and Programme Officer, BudgIT, Adejoke Akinbode, said it remained worrisome that in this 21st century, the operations of the NNPC are still opaque and operated in secrecy.

Suraju contended that, beyond Nigerians, the media and civil society groups agitating for transparency in the management of the refineries, the Governors, of the 36 States and the 774 Local Government Chairmen should be concerned in the management of the resources because the monies spent on the refineries were from the federation account which they have a say in.

He maintained that the refineries are a drain pipe on the economy, saying the state of the refineries were not entirely different from what is obtainable in the country’s civil service where wastage and transparency is a challenge.

He said there was nothing wrong in handing over the management of the refineries to private operators, but cautioned against the outright sale of same, warning that such move was capable of leaving Nigerians to the whims and caprices of the investors, which he said may not augur well for the country.

According to him, such decision may be counter-productive as Nigerians may not reap from the gains of such decision because it is the owners that will now dictate what to sell, at what quantity and at what amount.

On cost, he said NNPC should without further delay; make available its budget for the rehabilitation of the refineries, saying a situation where Nigerians are not availed of such is tantamount to taking them for granted.

For her part, Akinbode, said the performance of the refineries have been abysmal, especially between 2017 and 2018.

She called on Government to either privatise or concession the national asset to better return on investment.

She said the monthly report of the NNPC lays credence to the poor state of the refineries which, she said, were not operational for the better part of 2018.

She said there is opacity around the operations of the refineries because the monies budgeted for TAM in the past had failed to give the desired result.

On the inability to provide a cost for the planned TAM, Akinbode said NNPC does more works in the books that in practice.

She said a situation where contracts are awarded without Nigerians knowing what it would cost is not the best and not in tune with international best practices.

When confronted with questions on what the management of the Corporation was doing about the abysmal performance of the facilities, during a session at the Nigeria International Petroleum Summit in Abuja this year, the Chief Operating Officer, Refineries, NNPC, Anibor Kragha, said a lot of issues were affecting the refineries.

This came as the Infrastructure Concession Regulatory Commission (ICRC) charged the Federal Government and the NNPC to concession the refineries in order to make them functional and profitable.

Kragha further stated that negotiations between the NNPC and financiers could not work due to the recent disagreement between the corporation and the investors as regards the commercial terms of the transaction.

On the need to concession the refineries, the Director-General, ICRC, Chidi Izuwah, who was also a panellist alongside Kragha at the session, urged the NNPC and the Federal Ministry of Petroleum Resources to appreciate the gains derivable from such concession.

Izuwah said, “For me, I’m looking into the future. Let’s look at our telecoms sector 16 years ago, imagine that we had Nitel up until now, what would it be like? Our lines will still be tossed, the incentives structure will promote corruption. The government must play a role to break the back of government dominance in the downstream sector and bring in the private sector. That’s the only way to go.

“When you bring in the private sector, you will change the incentive structure. People will be incentivised and make the right level of investments. And what do I mean? Very simple; we should concession the NNPC refineries to the private sector.

“The investments will come and, on a BOT (Build, Operate and Transfer) basis you concession them, they (investors) rehabilitate and upgrade them and recoup their money. There’s a huge opportunity in refining. It’s a profitable business. So, the role of government is to attract investments to change that sector.”

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