NNPC’s Vacillating Stance on Nigeria’s Three Moribund Refineries

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After reportedly spending huge sums of money in various Turn Around Maintenance (TAM) operations on its three refineries in Port Harcourt, Warri and Kaduna, the Nigerian National Petroleum Corporation (NNPC) again said it would, in 2017, completely overhaul the loss-making refineries. Chineme Okafor writes

Last week, the Nigerian National Petroleum Corporation (NNPC) said it would no longer undertake short and stop-gap repairs of its refineries in Port Harcourt, Warri and Kaduna, but will from 2017 embark on a comprehensive rehabilitation of them to achieve optimal capacity utilisation.

According to a statement from the Group General Manager Public Affairs of NNPC, Ndu Ughamadu, NNPC’s Chief Operating Officer of Refineries, Mr. Anibor Kragha, said this at the Annual General Meetings (AGM) of the three refineries in Abuja.
Indicating that the corporation was determined to move away from the approach of quick fixes, Kragha stated that a comprehensive revamp of the plants which have for long traded in deficits would be undertaken from next year.

He noted that once the exercise was achieved, the refineries would in due course draw up a chart for their routine Turn Around Maintenance (TAM). The NNPC had reportedly spent huge sums of money in the TAM for the refineries, without improvements in their economics.

Data from the corporation’s monthly financial and operation reports have consistently confirmed the inability of the refineries to produce optimally even after repeated TAMs on them.
“The plan for next year is to get the comprehensive rehabilitation programme done. The situation is like having three cars in your garage that have not been maintained for 15 to 20 years while you expect optimal performance from them.

“Changing one fuel pump here, one compressor there, is not helpful. What we are doing now is to step back and take a holistic approach and do a full rehabilitation of all the refineries,” Kragha stated.
On plans to have other refineries co-located with the existing refineries, Kragha said though the plan was still on course, none of the projected co-location refineries would come on stream in 2017 based on existing timeline for assemblage of the plants.

The Refineries Economics
Notwithstanding the 2017 plan of the NNPC for the refineries, their economics in the last 21 months have, with regards to data from NNPC’s reports, remained poor.
Captured by the Nigeria Extractive Industries Transparency Initiative (NEITI) in its recent publication on transparency in Nigeria’s oil industry, the refineries have between January 2015 and September 2016 operated on an average capacity utilisation of 8.55 per cent.

The NEITI report stated that the refineries did not process crude oil at all in seven out of the 21 months it reviewed their operations, and that their consolidated capacity utilisation was above 20 per cent only in August 2015 when it achieved 24.08 per cent.
It also noted that Kaduna refineries had been the poorest performer while the Port Harcourt refinery remained the best performer.

Similarly, out of the 245.48 million barrels of crude oil that NNPC received for domestic supply in 21 months, only 24.78 million barrels were delivered to the refineries for processing, amounting to only10.06 per cent of what the NNPC received for domestic consumption.
NNPC, however, attributed the low capacity utilisation to prolonged TAM issues and pipeline vandalism. They also contributed immensely to the N418.97 billion operational deficit recorded by the NNPC within the period.

Experts’ Views
Though the Minister of State for Petroleum Resources, Dr. Ibe Kachikwu has repeatedly said the government will no longer spend its money in repairing the refineries but will invite private investors to co-invest and manage the refineries to profitability.

Kachikwu emphasised his stance when he recently hosted members of the National Assembly, stating that he would soon jet off to the Gulf States to convince their investors to invest in Nigeria’s domestic petroleum refining sector.

The Gulf State members include Bahrain, Iran, Iraq, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates.
The minister equally stated that the refineries will not be concessioned or privatised but will have private sector investment which could lead to a joint ownership and management arrangement for greater efficiency.

He noted that for the purpose of efficient management of the refineries, government money will not be committed to the refineries any more, adding that prospective private investors will bring in their money, take part in managing the refineries and from there, recoup their investment.

But in a separate interview with THISDAY, an oil and gas investment advisor, Mr. Dan Kunle, stated that such plan by the government and NNPC would need to be carefully considered on the back of the refineries’ operational statuses.
Kunle explained that the country had lost huge resources after it scuttled a prior plan to privatise the refineries.

He added that one of the investors who got approval to buy and refurbish the refineries, Dangote Group, was already building its private refinery in Lagos, which would when completed in 2018, render the country’s three refineries useless if they were still aground.

According to Kunle, finding a lasting solution to the refineries challenges would require the government taking its hands off it, and allowing for sound economic decisions to be made on them.
He said: “The government violated the sales purchase agreement for those two refineries before. Ironically, the same government goes abroad to do road shows looking for investment forgetting that violating contract agreement is counterproductive.”

“The more you politicise the privatisation of the refineries, the more those refineries are technically going obsolete and decadence, that no credible investor will come near them anymore. In fact, they become worthless because they have become technically insolvent.

“When you have assets that have become technically insolvent, it means, if you want to buy it you are buying liability because all the equipment you are supposed to produce with are obsolete. They have decayed, corrosion has taken place.

“That means you are going to invest money in building a new refinery. So, why will an investor come and take such a technically liable refinery. Not only that the refinery is technically insolvent, the refinery is socially insolvent. That is, the labour problem you are going to have in the refineries, unless government insulate you away from all these labour issues, and take away all the staff and pay them,” said Kunle.