NNPC and Refineries Rehabilitation

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BUSINESS/Perspective PAGE

Benjamin Isani

I’m, sadly, aware that you have read something like this before! It has become trite to read news about rehabilitation or turn-around maintenance of Nigeria’s refineries. For decades we have been told that the four refineries, which have been in epileptic conditions for so long, would soon start producing at optimum capacities. Huge sums had been mentioned as resources for the turn-around. But year in and year out, the story has remained the same and Nigeria has continued to depend on fuel import to meet domestic energy demand.

As of June, 2020, Nigeria’s total domestic fuel consumption was 409,000 bpd. If performing at installed capacities, Nigeria’s four refineries would process slightly above 441,000 bpd, with the Port Harcourt Refinery alone capable of producing 210, 000 bpd of crude oil. That would have been more than enough to take care of domestic fuel need and spare the country the stress of fuel scarcity and the subsidy monster.

It is a shame that Africa’s largest and the sixth largest crude oil producer in the world cannot process its own crude and has to depend on refineries located in other countries. That has, expectedly, created its own problems and stunted growth in the industry.

The country has been held down by dependence on fuel imports because the Federal Government has to subsidize the cost of importing refined petroleum products to make them available to end users at affordable price. This has inevitably encouraged corruption as privileged Nigerians capitalized to milk the country. In 2019 alone, the FG spent a humongous N1.5trn on fuel subsidy payment. That same year, the Ministry of Works and Housing, which got the highest budgetary allocation, received only N262 billion!

It is anyone’s guess what could have been if the subsidy budget was given to the ministry of works and housing.

But the current administration of President Muhammadu Buhari has courageously decided to take another road to meeting the fuel needs of Nigerians. Instead of throwing trillions of Naira into the pockets of some cartel, the government has seen the urgent need to extricate the country from dependence on oil cartels who could decide to hold the nation by the jugular anytime it catches their fancy.

The Nigerian National Petroleum Corporation (NNPC) has been quietly working on how best to proceed with the rehabilitation of the refineries so as to get them working again at full capacity. And if everything continues according to their timeline, Nigerians would soon begin to experience a new lease of life when the country achieves self-sufficiency in fuel production.

According to a timeline for the overhaul of the four refineries, the Port Harcourt Refinery would be re-commissioned for production by 2023. The NNPC had already carried out a detailed scoping of Port Harcourt and Warri refineries since last year to determine what needed to be done in each of the assets. Detailed Technical Inspection, carried out by Technimont SpA (the representative of the Original Refinery Builder), was completed in October 2019. Technimont SpA is an international leader in the field of plant engineering with indelible global technology footprints.

The reconstruction is being supervised by NNPC’s engineering subsidiary- the National Engineering and Technical Company, NETCO. The NETCO and KBR were appointed as Owners Engineer (OE) and Project Management Consultants for the rehabilitation of the Port Harcourt and Warri refineries since May 2020 while NNPC had also issued Invitation to tender for the repair of the refineries.

Importantly, the NNPC had signed a $1.5 billion prepayment deal that will see it selling crude to some oil trading companies in exchange for prepaid money for the overhaul. The financing package, called Project Eagle, was backed by the African Export Import Bank.

Detailed scoping has also been concluded for the Warri and Kaduna refineries and Owners Engineers selected for KBR and NETCO. The financing of Warri and Kaduna has advanced to term sheet level with Luke Oil and other commercial banks. This process will lead to issuance of tenders for EPC contract to list EPC contractors that have been cleared by Bureau of Public Procurement (BPP).

Shortlist of Bidders for the EPC project was approved in June 2020 while financing approval has progressed substantially with Afrexim Bank raising $1bn by NNPC Bond in July 2020.Prequalification of Bidders was in August 2020 while Certificate of No Objection from BPP for the provision of EPC services to progress to the next phase obtained same month.

Issuance of Invitation to Tender to Bidders was scheduled for 14th September 2020 and award of EPC to best globally reputable EPC Contractor would be in December 2020. By first quarter of 2021, contractors would mobilize to site and it is expected that the refinery would be pre-commissioned for operations in the first quarter of 2023.

The work is not only on-going to achieve self-sufficiency in petroleum products manufacturing, efforts are also afoot to boost domestic gas production and further expand the industry. The NNPC has signed the engineering, procurement and construction (EPC) contract to boost the country’s liquefied natural gas output by more than 30 per cent. Construction activities are set to begin by 1st quarter 2021.

President Buhari on July 5 flagged off construction work on the 614-kilometre Ajaokuta-Kaduna-Kano (AKK) Gas Pipeline Project designed to deliver 2.2 billion cubic feet per day of gas to the domestic market.

In addition, Public tenders have been done to partners on build, operate and transfer basis for the construction of associated pipelines for crude and produce transportation. The NNPC has set a target of 2023 for completion.

FG’s plan to achieve total deregulation of the oil sector is what will encourage quicker turn-around of the refineries and by implication, the oil and gas industry in the country. The financing model chosen to deliver the reconstruction of the refineries and boost gas production would ensure the projects are sustainable.

The GMD of NNPC, Mele Kyari, had explained recently that efforts were ongoing to implement an operating model which allows the government-owned Corporation to be a minority shareholder in the refineries as the Government does not have the resources to fund the rehabilitation 100 per cent .It therefore plans to offer majority stakes of its four refineries to private investors.

“Government does not have the resources to fund 100 per cent of the Refineries. We are resorting to private capital, this will free NNPC from direct responsibility of running the Refineries, support the processes and we will have a more efficient way of running it,” Kyari had stated.

Industry stakeholders believe this is the way to go in order to create a competitive market that will lead to efficiency in the running of the refineries. But the government must ensure total deregulation of the industry to promote a competitive market in the sector to curb cases of monopoly.

Experts believe the privatisation of the refineries and the deregulation of the oil industry would free the NNPC to properly oversight the industry. As the regulatory and monitoring organ of the government in the sector, the Corporation’s role is hugely critical to efficient operation of the sector.

This is why the steps taken by the NNPC to revive the nation’s refineries must be commended. Since taking over as the GMD of the Corporation in June last year, Kyari has injected the oil and gas industry with strong doses of vitality, honesty, transparency and a goal-driven energy that had not been seen in a long time. He has provided leadership with integrity and promoted synergy in the industry.

His hands-on approach to governance, complimented by his in-depth knowledge of the industry has engendered stability in the sector. Nigeria is lucky that the men currently at the helm of the oil and gas sector are acknowledged technocrats who share similar vision of the industry. The Minister of State for Petroleum Resources, Timipre Sylva and Kyari are two of a kind and have worked together with dogged determination to meet the expectations of Nigerians and President Buhari.

The two have spent less than two years in office but have already made significant impact in the industry and in the country. Even if their tenures were to end this year, both would leave with a report card that carries a number of performance distinctions. But they will only win the gold if they deliver on the refineries as scheduled.

• Isani writes from Umuahia