Unending Refinery Upgrades

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The Nigerian National Petroleum Corporation recently announced new plans to shut down its three refineries in Warri, Port Harcourt and Kaduna for comprehensive repairs. Chineme Okafor recalls that the same exercise has taken place several times with no tangible results

For a long time in the history of the three refineries of the NNPC in Warri, Port Harcourt and Kaduna, repairing and bringing them up to efficiency have remained quite challenging.
On the back of systemic corrupt practices and perhaps lack of commitment, the refineries have operated below their capacities and sometimes not at all because they rarely go through periodic Turnaround Maintenance (TAM).

Even when TAMs on the refineries have in the past been carried out, they have often failed to restore their operational capacities to acceptable levels, thus raising some doubts on the recent disclosure of the corporation that it intends to shut down and painstakingly repair them shortly.

A long history of poor repair works
A look into the recent records of NNPC’s attempts to comprehensively repair its refineries indicated that between 2008 and 2010, the Corporation completely closed down all the three refineries to undertake repairs on them.

While it however blamed the resurgence of violence in the Niger Delta region, which it said was responsible for attacks on crude supply pipelines to Kaduna and Warri refineries, for its decision to undertake the repairs on the two, it disclosed that the Port Harcourt refinery had some damages on its vital units from epileptic electricity supply to it.

It stated in 2008, that the TAM on Kaduna refinery had been scheduled for November 15, 2008, with the contractors expected to conclude and hand back the refinery to it in January 15, 2009. It similarly announced in 2009, through its Group Managing Director then, Dr. Sanusi Barkindo, that it spent $20 million on the Kaduna TAM.

Similarly, in December, 2011, the corporation shutdown the Port Harcourt Refinery again, claiming attacks on its crude supply pipeline had impacted its operations. It further disclosed that a contract to undertake a TAM on the refinery was awarded to a Nigerian firm at a reported cost of $57 million.

Also, in 2015, the Minister of State for Petroleum Resources, Dr. Ibe Kachikwu, explained during an inspection tour of the Port Harcourt refinery, that the country saved about $287 million from undertaking a TAM on the refinery with local engineers within the employs of NNPC.

Kachikwu, at that time said foreign companies had requested to carry out the TAM at a cost of $297 million but the NNPC used its manpower and local oil servicing firms to achieve the maintenance at the cost of less than $10 million.
“The asking price by the original refinery builder was $297 million. The disaster with that was that they were not professionals and they were not ready to give us guarantees. What we have done so far is under $10 million.

“Obviously, had we consistently done this overtime, we would not have the sort of nightmare that we have had today. Whatever it takes, we are going to raise money; we are going to raise some vessels to give them what they need to run this place and run it efficiently,” said Kachikwu.
Despite these TAMs, the refineries have however remained quite unprofitable and largely inefficient in their operations, thus necessitating the recent proposal of the NNPC for ‘a fresh and holistic TAM’.

A different approach

Notwithstanding the troubles of the corporation with its previous TAMs, its Group Managing Director, Dr. Maikanti Baru disclosed recently at an oil and gas meeting in Abuja that it will yet again close down the three refineries for a comprehensive rehabilitation aimed at bringing them back to their nameplate production capacities.
Baru in his interactions with reporters stated that the shutdown of the refineries will allow the corporation to undertake their rehabilitation in ways that are different from what had been done in the past.

He noted that the refineries will come back on stream as new facilities when it concludes the rehabilitation project ahead of the country’s plan to exit petroleum products importation in 2019.
“As you know, it is being the perception of the public that the repairs of the refineries are never done thoroughly, so this time, our intention is to shut down the refineries when we are ready, and then fully bring them back to what they should be as new refineries,” Baru said.

To undertake this new venture, he inaugurated eight committees and charged them with the task of returning the refineries to their nameplate capacities by 2019.
The committee which included workstations for rehabilitation; stakeholder management; financing; legal; procurement; pipeline and crude oil supply and security, as well as staffing and succession planning, would according to Baru, initiate and deploy ingenious solutions to their given responsibilities.

On this, he stated: “Obviously, it is going to be a complex procedure and as such, we have to breakdown the various work packages to ensure that all the various workforces have sufficient focus, and if you notice the time that we inaugurated (eight committees on the refineries rehabilitation), the work streams are composed of the general managers and executive directors level, and they will be having a day-to-day look at it, while the steering committee is at my level and that of the chief operating officers all looking at the problems the workstations have and they will proffer solutions immediately.”
He further explained: “We intend to focus on the repairs of the refineries with all that it takes to ensure that this time, when we are done, by 2019, these refineries will be as good as new.
“I am convinced that the teams we have selected here today will give the necessary direction towards returning the refineries back to their optimal levels of performance.”

He said the committees were expected to deliver well and within schedule because time was of the essence.
“We want to show everyone that we can fully run the refineries. You must all work together to operate them at 100 per cent capacity as this was the only way to ensure profitability. We can fix the refineries but without the right people to operate them, they would go back to where they were or even worse,” he noted.

New funding source
While the NNPC had in the past taken monies from the government to reportedly repair its refineries, it however indicated that its new approach would include alternative funding sources for its repairs of the refineries.
Kachikwu, had in 2016, disclosed that new repairs of the refineries would be done without government funds, but private investment finances.

Based on this, a statement from the Group General Manager, Public Affairs, at the NNPC, Mr. Ndu Ughamadu, stated that over 28 Expressions of Interest (EoIs) had been received so far by it from private funding sources interested in funding the refineries’ rehabilitation project. It also said it was expecting more EoIs to come in by the year end.

Quoting NNPC’s Chief Operating Officer, Refineries and Petrochemicals, Mr. Anibor Kragha, the statement explained that the country’s attempt to exit petrol importation in 2019 was possible because the corporation has both the political will and the economic climate to ensure effective retrofitting of the refineries.

Kragha said on the funding scheme, that Nigeria would not suffer financially from the project, and that the approved financial model would guarantee payment to partners only from incremental profits.

“Payment is therefore hinged on performance, ensuring a win-win situation for Nigeria”, Kragha said.
Even though past TAM record on its refineries are quite poor, and without results, the new approach the NNPC seeks to adopt in repairs of the refineries appear quite promising, especially on the back of private financing of the repairs which in return would demand improved efficiency from the refining facilities to repay their expenses on them.