Last week, the Nigerian National Petroleum Corporation disclosed that its plans to repair Nigeria’s four refineries would not go as planned because it failed to see through deals to fund the repair. This may affect plan by the country to stop the importation of petrol, writes Chineme Okafor
In its September 2018 operations and financial report, the Nigerian National Petroleum Corporation (NNPC) had indicated it will stick to its plans to ensure Nigeria stopped importing petrol by the end of 2019.
Though a tall order from experts’ assessments then, the corporation had stated that since it was the intention of the federal government for Nigeria to stop running its economy wholly on imported petrol, it would thus abide by the goal and time limit given to it.
“NNPC is intensifying efforts towards the rehabilitation of the refineries to meet December, 2019 target of ending fuel importation,” the report had stated.
It had revealed that it was making progress on the plan which meant that its refineries in Port Harcourt; Warri; and Kaduna ought to be back to full or near-full production levels, thus producing huge chunks of the petrol Nigeria’s domestic economy consumes.
Besides the dependence on the NNPC to get back its refineries into full operation, the government was also expecting that the completion of the 650,000 barrel per day (bd) Dangote refinery would also help the nation in its bid to end petrol importation.
All of NNPC’s refineries at the moment have a combined installed production capacity of 445,000 barrels per day, but the report had showed that they maintained an average of 11.66 per cent production levels between September 2017 and September 2018.
To buttress its commitment to the goal, the Minister of State for Petroleum Resources, Dr. Ibe Kachikwu, in an interview in 2017, had reportedly offered to resign if Nigeria continued to import fuel by 2019.
Kachikwu, in the interview, had assured Nigerians that the refineries would be repaired to work at optimum capacities.
Also, in 2018, the minister had maintained that the 2019 target was still in place and that the country would in addition to revamping NNPC’s refineries, expect the 650,000bd processing capacity Dangote refinery to come up and complement efforts at weaning itself from foreign-refined petrol.
He had explained that a steering committee he headed had been constituted to fine-tune the processes of achieving the targets.
Need to End Petrol Importation
Based on THISDAY’s conversations with experts stressed the need for Nigeria to put an end to the importation of petrol.
Additionally, huge economic opportunities in the downstream petroleum sector have been lost due to imported petrol by the country, hence, the need to see that the country refines its oil locally.
A report by the Financial Times on the state of Nigeria’s oil sector, had explained that Nigeria’s annual expenditure on subsidising imported petrol was worth about $7 billion. They also hinted that the expected emergence of Dangote’s refinery could change the country’s energy balance and effectively send cause NNPC’s three refineries to die naturally because there would be no need for them again on account of the huge production capacity of Dangote’s.
Reinforcing this, the Group Managing Director of NNPC, Dr. Maikanti Baru, recently disclosed that the total amount of under-recovery – a term NNPC now uses to describe the financial amount of subsidy the government absorbs for keeping the pump price of petrol at N145 per litre, was N25 per litre.
This figure when calculated against the three billion litres of petrol the corporation recently imported, suggested Nigeria may have recorded about N75 billion under-recovery in this regards, since the initiative was introduced.
Additionally, if calculated on the basis of 60 days which the NNPC said the three billion litres it imported would last Nigeria, and which amounted to 50 million litres consumption per day, then the corporation could have possibly recorded an under-recovery of N1.250 billion daily to keep petrol pump price at the government-regulated price of N145 per litre.
Some experts considered the development wasteful and unproductive, and exerted that to end importation of petrol means for Nigeria, to bring back jobs to her downstream oil sector and perhaps further enlarge its market clout across countries in the West African region where the NNPC claims most of the petrol it imports ends up through smuggling.
Efforts to Meet NNPC’s Target
When contacted on efforts by the NNPC to meet the target it had set, Kachikwu, had disclosed that the board of the corporation was to meet December 15 last year, to hold discussions with investors on whether to continue with the planned upgrade of the refineries in Warri, Port Harcourt and Kaduna, or not.
He had acknowledged that negotiations with investors for the refineries’ upgrade had been slow, and not as fast as he would have expected, but underlined that, “the board of the NNPC has decided that by December 15, we should draw a ceiling whether we should be going forward or not with investors.”
He further explained then: “We think that we will be able to go forward with minor adjustments in terms of the terms and by first quarter of next year (2019) we begin to see some works begin at least with the initial ORBs.”
But prior to that, Kachikwu had reportedly said it was no longer going to be possible to meet up with the plans to fix the moribund refineries and make them work in utmost capacity by 2019, adding that 2020 was now the new target
“I am very excited about the development as they tend to create fuel sufficiency as well as employment opportunities. We are also working hard to see the Nigerian National Petroleum Corporation (NNPC) four refineries coming up with 425,000bd in 2020,” he had said at the 18th edition of the International Biennial Health Safety and Environmental (HSE) Conference on the oil and gas industry in Nigeria organised by the Department of Petroleum Resources (DPR).
Negotiations Collapse
After negotiating for over one and half years with potential financiers, the corporation last week indicated the negotiations may not continue because a common ground on the commercial terms of the transaction was not achieved.
It explained it could not agree with select investors on the commercial terms to be used in the revamp of the Port Harcourt; Warri and Kaduna refineries.
Speaking at a session at the just concluded 2018 edition of the Nigeria International Petroleum Summit (NIPS) in Abuja, the Chief Operating Officer (COO), Refineries of the NNPC, Mr. Anibor Kragha, said a lot of issues were affecting the refineries, and that the negotiations broke down in December 2018.
Kragha’s disclosures were also confirmed by Kachikwu.
According to Kragha though: “There are various fundamental issues affecting the smooth operations of refineries. The primary one has been lack of funding. Another one is the infrastructure to deliver. But the thrust of the government is essentially to go out, get all financial consortia that will deliver funding and technical expertise.
“So, what did the NNPC do? We spent time, got consortia, traders and technical folks and spent over a year and the half negotiating. But at the end unfortunately by December we could not agree on the commercial terms. We were willing to do finance because we wanted to bring in private investments into it without selling the refineries and giving unnecessary guarantees.”
He explained what the corporation has now decided to do was to focus on fixing one refinery at a time, instead of trying to get all the four fixed at once using funds from financiers.
“Like I earlier said at the end of the day the commercial terms we could not agree on them. So what we are doing now is that we are focusing on one refinery at a time starting with Port Harcourt, which is the largest one.
“It (Port Harcourt refinery) alone can deliver about 11 and half million litres of PMS (Premium Motor Spirit) and we are also going to look for O&M (original manufacturers) to actually support us to deliver on the mandate. That’s what we have been doing in the last couple of weeks,” Kragha explained.
Further responding to questions about the country’s refining gap, Kragha, noted that the gap had continued to expand following steady growth in the number of households across the country who use petroleum products, as well as increase in their discretionary incomes.
“It is actually believed that our petroleum products’ requirements will grow by at least three to five per cent a year. So, the refining gap is actually growing. By 2025 we are expected to need about 45 million litres of PMS per day, all things being equal,” he explained.
The NNPC refineries, he added, would be able to deliver an estimated 22.4 million litres of petrol wen operational, adding that Dangote refinery would deliver about 53 million litres and that Nigeria would soon have more than enough petrol for local consumption in the nearest feature, as well as additional volumes to export.
Kragha, also noted that the NNPC’s plan was to get the Port Harcourt refinery optimally functional before the end of next year which is 2020, before getting on to revamp others.
In this regards, he said: “So, in terms of what we are doing, NNPC is focused now and again, we started with three groups, expanded the groups to 28 financiers and we got two consortia at the beginning of last year, negotiated and tried to get the best terms possible.
“But at the end of the day you cannot take terms that are too rigid and don’t make sense for you at that time. We are focused on Port Harcourt right now and one of the reasons I am rushing is to go and finalise terms with the original refinery builder to get to site as soon as possible, definitely this quarter and then we are going to move forward from there.”
He also said 28 companies expressed interest to revamp the refineries, adding: “We evaluated them on various parameters and eventually, the NNPC board approved two consortia. For Port Harcourt, it was ENI for technical capacity, Sepsa, Oando, Trafigura, and A. A. Rano.
“We joined Warri and Kaduna because of the inter-dependency of those two refineries on crude. We have Vitol, GE, MRS, and Sahara.”
On his part, Kachikwu said: “What I understand from the result that has come back to us is that they (NNPC) were not comfortable…NNPC has looked at the economic fundamentals and they are not quite happy with what they see on the table.
“I think they are coming up with something new to present to the board as a way to go forward. A board meeting is slated for next week and I will be getting a report from them.”
Experts’ Opinion
Although most energy experts declined to speak to THISDAY, Mr. Dan Kunle, a global energy business advisor with experience working with various energy agencies of the Nigerian government in the past, said the initial cut-off date to exit petrol importation was illogical and unconvincing.
Kunle, said the NNPC had done very little to convince Nigerians it was serious about the plan to exit importation.
He pointed out that the finances for the refineries upgrade were going to be hard to raise, and even accused Kachikwu and officials of the NNPC of misleading Nigerians with a plan he claimed lacked concrete strategies.
“How can they work? Who will invest to fix the refineries? How many months do they think it would take to fix the refineries, considering that the parts and units of the refineries would have to be produced first?” Kunle asked.
According to him: “What were even the terms and conditions for the refinery upgrade programme, which is the contract between them and the vendor to rehabilitate the refineries? We don’t have the terms or how it was tendered.
“How will the refineries work this year and at what capacity exactly would they operate? By the way, they are working at maybe 10 per cent now, but that is epileptic.
“We need to see the template and milestone of what they have done to make it work. The officials have played along with the body language of President Buhari, to say they will exit importation but that is not the issue because we are still importing petrol and paying subsidy.”
