By Chineme Okafor in Abuja
Analysts at FBN Quest Capital Limited, a subsidiary of FBN Holdings Plc, have expressed doubts that the latest attempts by the Nigerian National Petroleum Corporation (NNPC) to undertake a fresh Turnaround Maintenance (TAM) on its refineries in Port Harcourt, Warri and Kaduna, would eventually come good and help Nigeria address her challenges with protracted scarcity of petrol.
The analysts stated in a periodic report, Good Morning Nigeria, which THISDAY obtained yesterday in Abuja that the NNPC should consider allowing its refineries to “wither away” because new refineries like the 650,000 barrels per day (bpd) capacity Dangote refinery and others scheduled to come on stream soon would be the game changers.
They also pointed out that the NNPC refineries were old and past TAMs on them had not been successful to suggest that the latest effort would be.
“The fuel shortages highlight Nigeria’s failure to refine domestically the petroleum products it requires for its own consumption. The scarcity has been attributed variously to: flaws in distribution, upward movement in the international price necessitating subsidy payments under another name (absorbed by the NNPC), hoarding, and the fact that the set retail price of N145/litre for premium motor spirit (PMS, or gasoline/petrol) is far below that in the countries of the sub-region.
“The FGN’s response to the periodic shortages is to commit public monies to another programme of turn around maintenance (TAM) for the corporation’s refineries, costed at US$1.1bn and said to be achievable over 18 months. An earlier investment in TAM in 2013 made little, if any impact. In September 2017 the refineries achieved a combined capacity utilisation rate of 6.1 per cent compared with 9.5 per cent the previous month,” said the report.
It further explained: “We all know that the combined capacity amounts to 445,000b/d crude but very few of us can say when, if ever, the refineries produced at this level. Such low rates tend to result in losses. According to the NNPC’s financial and operations report for September, the refinery companies have reported operating losses for four of the past 12 months.
“We cannot say for sure that the latest programme of TAM will not be a success. However, the age of the refineries suggests not: Port Harcourt (commissioned in 1965), Warri (1978) and Kaduna (1980).”
According to it, “Our message is “Local refining, the obvious solution”. By local, we mean private sector. The corporation’s refineries should be allowed to wither away in our view. The game-changer is the Dangote refinery under construction in Lagos State, which over time is scheduled to process 650,000b/d crude.
“It is said that the Dangote plant will start processing some crude in 2019. There are other projects further down the line. To give a topical example, Petrolex plans to invest US$3.5 billion in a refinery with capacity of 250,000b/d in Ogun State and is talking of completion within five years. We would expect several more projects if the retail price of PMS was genuinely deregulated.”
It suggested that an ideological battle would have to be won, and the combination of the corporation, organised labour and some elements in the federal government defeated for a genuine deregulation to be achieved in the downstream petroleum sector.
“The gains from victory would include job creation, FX savings, the prospect of regular supply and, at some stage, exports to the sub-region even,” it added.