Chineme Okafor examines the widespread commotion that greeted the federal governmentâ€™s reported concession of the Port Harcourt refinery to a group of private firms and the need for credible closure to the challenges of the country’s refineries
The plans by the federal government for the upgrade of the refineries were recently halted by the Senate when it raised a red flag against a reported concession arrangement already agreed between the government and private firms for the 210,000 barrels per day (bpd) capacity Port Harcourt refinery.
During one of its plenaries, the Senate decided on the back of a motion by Senator Sabo Mohammed (APC, Jigawa South) who raised issues at the manner the transaction was allegedly conducted, to investigate how the government and the private firms – Oando and Agip, agreed on the deal to revamp the Port Harcourt refinery without due process.
It subsequently asked the government to suspend all processes leading to the concession arrangement, and set up a seven-man ad hoc committee led by Senator Abubakar Kyari to investigate it and the criteria reportedly used by the government to select Agip/Eni and Oando to operate and maintain the refinery.
The senate equally mandated its panel to probe the cost and timeframe of the reported concession agreement.
But prior to the senateâ€™s decision, the government had begun to gain some momentum on its plan to revamp three of the refineries operated by the Nigerian National Petroleum Corporation (NNPC) in Kaduna, Warri and Port Harcourt, using private investments and operators to bring them back to 100 per cent efficiency levels.
Based on this, it repeatedly held talks with interested investor, and as disclosed by Kachikwu in a briefing with journalists and stakeholders at the May 2017 Offshore Technology Conference (OTC) in Houston, Texas, the government was on the verge of unveiling the preferred candidates.
At the Houston briefing, Kachikwu said: â€œNigeriaâ€™s refineries would soon have new investors. These investors would be announced on or around September 2017, as part of the governmentâ€™s full commitment towards attaining self-sufficiency in petroleum products.â€
The minister further disclosed that his overtures to international oil majors operating in the country had begun to yield results following the decision of the Nigerian Agip Oil Company, a subsidiary of the Italian oil giant, ENI, to commit to repairing the Port Harcourt refinery, as part of a larger $15 billion investment by the company that included the building of a 150,000bpd refinery and a power plant in the country.
Shortly after this disclosure of Agips interest in the Port Harcourt refinery, the Chief Executive Officer (CEO) of Oando Plc., Mr. Wale Tinubu, told members of the Nigerian Stock Exchange (NSE) that Oando had received governmentâ€™s approval, albeit in principle, to â€œRepair, Operate and Maintainâ€ the Port Harcourt refinery in partnership with Agip. These two separate statements, first by Kachikwu, and then Tinubu, immediately stirred reactions from the Senate and experts in the industry.
Senator raises motion
However in a motion titled, â€˜Non-transparent Transaction Relating to the Planned Concession of the Port Harcourt Refinery to Agip and Oando by the Ministry of Petroleum Resourcesâ€™, Senator Mohammed alleged the reported transaction was opaque and without due process.
He queried the process saying: â€œThe Senate is aware that the federal government recently entered into an agreement with Nigerian Agip Oil Company, a subsidiary of Eni, an Italian oil giant, to construct a $15 billion refinery in the Niger Delta region. It is a deal that also includes investment by Agip in a power plant, with the Italian company assisting Nigeria in the repairs of the Port Harcourt refinery.
â€œIt also notes that while the resolve by the federal government to increase local refining capacity is laudable and should be applauded by all Nigerians, the observance of corporate governance principles and the countryâ€™s extant laws must be followed to the letter,â€ he added.
The senator further explained that: â€œAny exclusive arrangement that does not follow the above procedure, hatched in the dark without the knowledge and participation of relevant stakeholders, tends to lead to sub-optimal outcomes for the seller; in this case, the federal government.â€
He then added that major stakeholders like the Bureau of Public Enterprises (BPE) and labour unions in the industry were not involved in the process.
In addition to the senateâ€™s views, experts in the industry equally flagged down the reported transaction as being without the right procedures.
FG Cancels Deal
While it became increasingly obvious the senate would remain firm on its disapproval of the process, the government and Oando had to make clarifications on the process in their attempts to come clean on allegations of inappropriate steps.
First to do this was Oando which said in a statement from its Chief Strategy and Corporate Services Officer, Ainoije Irune, that it was just a party to the agreement reached between the government and Agip to repair, operate and maintain the Port Harcourt Refinery (PHR).
Oando noted that the arrangement would ensure the refinery raised its productivity level from the 30 per cent it currently has, to 100 per cent, therefore refining its nameplate capacity of 210,000bpd of oil.
It then added that final agreements on this would be reached by the end of July 2017.
Days after Oandoâ€™s clarification, Kachikwu also tried to excuse the government of any wrongs or inappropriate practices in the process when he told journalists that the process was still inconclusive with no preferred partner picked yet by it.
He said that while the government needed about $1.2 billion to repair and bring the three refineries to their optimal production levels, it had not found the financiers to take this up and so was not concession of the refineries.
The minister noted that the government was still fine-tuning its plans for the refineries revamp and that the technical committee set up by it to undertake the review and selection process was yet to submit its report to it.
The committee, he explained had at best been able to come up with a holistic investment figure that would be enough to fix the three refineries, but not selected any firm yet even though some firms had shown interests.
â€œInternally, we have been able to determine the sort of amount that would be required to do this work, in terms of what work is really required to be done. The total cumulative amount is in the $1.1 billion and $1.2 billion category between all the refineries. And that of course does not include the pipelines. You have got to address the pipelines and that is something else that is being done,â€ said Kachikwu.
He further stated: â€œWe are looking for financing of the repair and upgrade of the refineries. We are not concessioning refineries; it is simply a financing packageâ€.
â€œWe havenâ€™t reached there (concessioning), and so anybody indicating that contracts have been given is wrong. In terms of who wins the financing awards, that is still work in progress. We have not received from the technical committee their final report on this, we need to review and accept and go to FEC for approval and the National Assembly before we proceed. There is an urgency in this sector that we need to address. We have begun engagements with the National Assembly and the process continues, but we need speed in all these,â€ Kachikwu added.
Need to end refineriesâ€™ woes
Despite the recent respective questions and disapprovals on the refineries revamp programme of the government, the truth however remains that the NNPC can no longer continue to operate its refineries the way they are.
For long now, the refineries have become loss making centres, and regularly messing up the monthly profit and loss statements of the corporation. Collectively, their average refining capacities according to Kachikwu have been 25 per cent, which roughly translates to just about six million litres of the countryâ€™s daily petrol consumption rate of 35 million litres.
Also on the back of their inefficiencies, Kachikwu disclosed that the countryâ€™s petrol import bills have remained high up. He said within the last one year the country spent about N4.74 trillion on importation of petrol, adding that such cost took about 30 per cent of the total foreign exchange outlay of the Central Bank of Nigeria (CBN).
According to him, such cost on importation necessitated the urgency to get Nigeria to stop importing petroleum products through improvements in in-country refining.
â€œThe importation of petroleum products between January and December of last year amounted to about 20 million metric tonnes. A total amount of N3.4 trillion was spent, the consumption of FX from CBN was approximately 30 per cent of CBN total FX outlay, and the logistic costs of that importation was about N1.34 trillion within the same one year period. The domestic refining capacity as of today is six million litres out of a total consumption of about 35 million litres, averaging less than 25 per cent. In the midst of this sort of statistics, it was absolutely critical that we move in to try to end importation of products, improve our refineries and get them up to 100 per cent name plate,â€ Kachikwu explained.
Before now, the government had between 2003 and 2007, attempted to privatise the refineries using the BPE and a consortium of advisers led by Credit Suisse First Boston, which is now Credit Suisse Securities.
But that attempt failed on the basis of reported interest against the preferred bidders.
But as proffered by experts within the context of the refineries conditions and Nigeriaâ€™s expenditure on petroleum products importation, the government does not seem to have that much of choices to make from on this.
The government can only either transparently find a credible solution to the troubles of the refineries or retain its soaring expenditure on importation of petroleum products â€“ a responsibility that could eventually weigh down the productivity of the NNPC, which has now become the sole importer of products into the country.