NNPC’s $1.5b Port Harcourt Refinery Rehabilitation Mess

NNPC’s $1.5b Port Harcourt Refinery Rehabilitation Mess

THEFRONTLINES With Joseph Ushigiale

It is quite obvious by now that the President Muhammadu Buhari’s administration is hell bent on exiting its tenure as one of the most unpopular government since independence in 1960.
Since assuming office in 2015, the administration has left no one in doubt that Buhari only changed his military uniform to ‘mufti’. In reality, his actions and utterances have all the footprints and trappings of a maximum ruler.

For a man who was packaged and marketed to Nigerians as a dictator who has transformed to a democrat, Nigerians had expected Buhari to lead more by consensus building through public participation in policy formulation and implementation. But what are they seeing?

Buhari, in his almost six years on the saddle, has demonstrated his disdain for people-driven democracy. He has jettisoned people’s power for rulership by a few or call it a cabal. He has transmuted from a President mandated by popular votes to an autocrat, a despot who rules without recourse to what the people want.

From his disregard for the rule of law through the level of contempt the administration shows to judges who are arrested and hounded out of office on charges of corruption to disregard for judicial rulings as in the case of Sambo Dasuki and leader of Islamic Movement of Nigeria (IMN), Sheik Ibrahim El Zakzaky who have remained incarcerated even after several court rulings for their release.

In the energy sector, Buhari’s sphere is influence is ubiquitous and strangling. Since his debut, Nigerians have experienced untold hardship never before known under even a military dictatorship. He has approved increases in electricity tariffs arbitrary severally with the latest being under the COVID-19 period when families are finding it difficult to survive.

Barely a year into office, he approved the first adjustment on May 11, 2016, when the price was raised by about 67 per cent from N86.50 per litre to N145. This was followed by a downward review in March to N125 following the drop in oil prices in the global market and deregulation of the downstream sector of the oil industry and hence removal of subsidy.

The price was raised again in May 2020 to a band of between N121.50 to N123.50 per litre for petrol. This was followed by another upward review in July to a band of N140.80 – N143.80 per litre. In August, the price was readjusted to N148 – N150, and further to price of N162.44 per litre in December following continued rise in crude price.

For a President that disparaged previous administrations and insisted that there was no subsidy regime except corruption; no one knows today whether the petroleum sector is regulated or deregulated largely because of policy inconsistencies and deceit.

According to a recent research conducted by BudgetIT titled “Nigeria’s Petrol Subsidy Regime: Dilemma of the World’s Most Populous Black Nation”, “Nigeria currently imports an average of 91% of its daily petrol needs, thus disproportionately exposing local petrol prices to price shocks from international factors of production and exchange rate volatility. There is a near perfectly inverse relationship between the fall in the value of Naira and the rise in the cost of imported petrol. That is, when next the Naira is devalued, Nigeria’s subsidy bill can be expected to jump.”

It noted that “the continuation of petrol price regulation perpetuates safety nests for exceptional forms of corruption within the country’s subsidy regime. Import subsidy creates petrol price arbitrage ( which is the differential between the regulated price in Nigeria and the high petrol prices in neighbouring countries) which is big enough to incentivise smuggling of subsidized products to neighbouring border towns.”
It would be recalled that Nigeria has spent about $25 billion in turnaround maintenance of refineries in the past 25 years, the prevailing development is coming after promises by the administration that the government would no longer spend on the facility.

Nonetheless, by its own admission, the Nigerian National Petroleum Corporation (NNPC) audit report had last year revealed that three of the nation’s four refineries recorded N1.64 trillion cumulative losses in their 2014 to 2018 details. “There was no associated crude plus freight cost for the three refineries since there was no production but operational expenses amounted to ₦10.27 billion.
However, opinions remain highly divided over the latest decision by the Federal Executive Council to approve $1.5b for the rehabilitation of Port Harcourt refinery in the light of the huge losses recorded in the last 25 years.

Throwing his weight against the FEC’s decision, founder of Stanbic IBTC Bank Plc, Atedo Peterside, who had earlier asked the government to subject the plan to a national debate, said NNPC would only “enmesh Nigeria into a deeper financial mess by throwing $1.5 billion (including debt) at a problem it created.”
He lamented that while the Port Harcourt refinery contributed zero revenue in 2019, it incurred N47 billion; almost N4 billion a month, the reason he is recommending an end to the ‘nightmare’ through a Bureau of Public Enterprise core investor sale.

Peterside, who thought Nigeria would have learned lessons from the COVID-19 pandemic by making informed decisions did not see the rehabilitation as a priority, adding that going ahead with the project amounts to “mortgaging the future of our children and grandchildren in the hands of people who have not shown that they can manage anything.”

Yet palpable fears of corruption continue to dog the refinery project, stakeholders are also raising concerns over what they described as scam in the return of petrol subsidy, questioning the nation’s daily petrol consumption, which now hovers around 60 million litres from estimated 52 million litres.
Energy expert Micheal Faniran, sees continuous subsidy payment as reinvigorating corruption and smuggling.
“That is the challenge with subsidy. At some point, people were getting subsidies in Nigeria and selling the product to other West African countries. So, in any case, we are subsidising the whole of West Africa,” Faniran said.

Predictably, it is government officials who remain adamant and have been defending the government’s insistence on spending $1.5 billion on the rehabilitation even as the nation may have spent over N360 billion on subsidy of Premium Motor Spirit (PMS) in the first quarter of 2021, Group Managing Director of the Nigerian National Petroleum Corporation (NNPC), Mele

Kyari, said the overhaul of the refinery remained the best option.
But people are angry that Buhari has taken them for a ride with fake promises. Their expectations were that given his campaign promises to reinvigorate local refining capacities, end products importation as well as subsidy regime and restore seamless petroleum products supply across the country, choosing to do nothing in the last six years is the hall mark of deceit and failed promises.

People are also asking why the initial plan of the former minister of state, Ibe Kachikwu to bring back the original builders of the refineries to undertake the rehabilitation and turnaround maintenance was jettisoned?
For a project that was designed and engineered by JGC Engineering with the Main contractors for this project listed as Chiyoda Group of Japan – original constructors of the refineries and Spibat of France- which built two units while Maire Tecnimont Group of Italy- contractors engaged by Federal Government for the TAM with LEE Engineering as subcontractors, why would the government sideline the main contractor from carrying out the turnaround and rehabilitation of the refineries? Again why did government engage Maire Tecnimont for TAM when Chiyoda is available for the same job?

There is no doubt that the nation’s refineries have become pawns in the hands of legislators, government officials and NNPC big wigs and their cronies. First, it failed to tie down Chiyoda with a TAM contract after delivering the project and preferred to engage an Italian company Maire Tecnimont in its place. Retaining or inviting Chiyoda to carry out either the periodic two yearly TAM or rehabilitation of the refineries would put the refineries in top working condition, ensure adequate local production that would meet local demands and end both importation and subsidy regimes.

It would have also meant the end of an entrench rent seeking era for the beneficiaries who have continually held the petroleum sector by the jugular.
Therefore, the latest approval by FEC for the rehabilitation of the Port Harcourt refinery is yet another money gone down the drain and a monumental scam. Given the timing of this approval for the project to commence and with 2023 general elections just by the corner and the All Progressives Congress (APC) desirous of retaining power, $1.5b is enough war chest to go to battle against the People Democratic Party (PDP).

Buhari’s decision to ignore the refineries for six years despite raking in huge losses only to turn around at the eleventh hour to insist on rehabilitating the Port Harcourt refinery raises more questions than answers. Is it just now that he is aware of the need to rehabilitate the refinery? How accounts for the huge losses for six years of inaction? What plans are there for the other three refineries and why 44 months for the completion of the project?

Again, is TAM or rehabilitation of refineries rocket science? What happened to local our content? Nigerian engineers have been at the helms of affairs in the nation’s refineries and have gained the prerequisite engineering experience to carry out any TAM or rehabilitation work on our refineries. Indeed, Kachikwu made this point in 2016 when a group of Nigerian engineers carried out TAM in one of the refineries. It was a feat that those in authority if not for their greed, should have built up on.

From $296m demanded by a contractor for the TAM, the Nigerian engineers were able to carry out the feat on a lowly budget of just $10m to bring the refinery back to life. It would have set a solid foundation for whatever TAM and rehabilitation works that needed to be carried out in any of our refineries at almost zero cost, stopped subsidy arising from products importation, saved foreign exchange and put several people back to work. Regrettably, those benefitting from the ‘system’ would never allow that to endure.

Why did government have to borrow for this project, couldn’t they have settled for a Rehabilitate, Operate and Transfer model that would have taken off the financing burden from government? How transparent is this transaction?
Going by the mandate given to the contractor, if by 2023, the refinery is not working and refining crude oil for local consumption and leaving Nigeria to still import refined products, then the jury would be out: Buhari, as oil minister has failed woefully.

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