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Another Hazy Deadline Beckons for Refineries

… We’ve learnt from past mistakes ― Official

… Supply chain bottlenecks may delay      target ― Expert

Modern chemical industrial equipment, distillation columns, tanks, heat exchangers, pipelines with valves at an oil refinery petrochemical plant. AI generated.

By Gideon Osaka

With the projected take off of the Port Harcourt refinery in December, Nigerians expect to breathe a huge sigh of relief this yuletide from the current tough fuel situation in the country, if assurances by the government are anything to go by.

Following the removal of subsidy on petrol and the unrest that trailed the decision, President Bola Ahmed Tinubu directed the Nigerian National Petroleum Company Limited (NNPC) and other authorities to fix the refineries, promising the organized labour that the refineries would be functional by December to cushion the effect of the removal of fuel subsidy. The NNPC Ltd, operators of the three refineries in Port Harcourt, Warri and Kaduna assured that the plants would start running in December beginning with the Port Harcourt refinery, while rehabilitation works were in top gear to ensure that both Warri and Kaduna resume operations by end of 2024.

Valuechain recalls that rehabilitation works commenced at the Port Harcourt Refinery in May 2021, after the Federal Executive Council approved the sum of $1.5 billion for the exercise. The ongoing rehabilitation, unlike Turnaround Maintenance (which should normally be carried out every two years but was neglected for many years), according to the government will involve comprehensive repairs of the plants with significant replacement of critical equipment to ensure the plant integrity is maintained for a minimum of ten years. The rehabilitation programme is expected to restore the refineries to a minimum of 90 per cent nameplate capacity utilization and reduce Nigeria’s dependence on fuel imports.

It is also expected to among other things, have a positive impact on the Nigerian economy by ensuring adequate supply of refined petroleum products across the country; increase local refining capacity and create opportunities for value addition, job creation, technology transfer and skills development. It will save foreign exchange that would have been spent on fuel imports and free up funds for other developmental projects and social services and support Nigeria’s energy security and diversification agenda.

Usual December deadlines

The antecedents of the NNPC Ltd especially around the restart of the refineries particularly in December may leave Nigerians in doubt over the Corporation’s ability to deliver on this promise once again.

Valuechain analysis showed that in 2012 when NNPC reportedly kicked off a planned Turnaround Maintenance (TAM) of the refineries, then petroleum minister Diezani Alison Madueke had promised that latest December 2014, the TAM project would have been completed and all the refineries would be refining crude. That plan never saw the light of the day with the then government citing exorbitant bills for the TAM from the original refinery builders and several other excuses why the rehabilitation failed.

Reports gathered by Valuechain showed that the abysmal state of the refineries was a major concern for President Muhammadu Buhari when he took office in May 2015. The implications of the refineries’ poor performance were the country’s over-reliance on import of most of its refined petroleum products with the attendant effect on pump prices and subsidy recorded by the NNPC on premium motor spirit, otherwise called, petrol.

The Buhari government on realization of this fact therefore promised to fix and get the refineries to work up to 90 per cent of their installed capacity by December 2019. Minister of State for Petroleum Resources at the time, Dr. Ibe Kachikwu, had disclosed that Nigeria would exit importation of petrol and totally depend on its own refined petrol by the time the refineries were fixed latest December.

“NNPC is intensifying efforts towards the rehabilitation of the refineries to meet December 2019 target of ending fuel importation,” the minister said at the time.

“We have been able to do a pie chart that shows that by 2019 we should be able to deliver, get the refineries working. Even if in 2019, I don’t achieve the target I still would have been able to reduce importation substantially, it is better than not doing anything,” Kachikwu had said in May 2017. The December 2019 deadline expired yet nothing happened as all the refineries continued in their state of underperformance.

Similar promise made in 2015 as Minister designate during his screening at the Senate, that any non-performing refinery would be shut down by December 2016, also did not materialize.

“The GMD toured the refineries and set a deadline of December for the refineries to produce optimally. If that doesn’t work, these refineries will be shut for a year to undergo comprehensive rehabilitation,” a 2015 statement by NNPC said. This did not happen as all the refineries struggled to remain afloat and were unable to churn out products in significant quantities.          

The commencement of the second term of the Buhari administration saw the emergence of a new Minister of State for Petroleum Resources in the person of Chief Timipre Sylva and like his predecessors, the minister undertook an elaborate and widely publicized inspection of the facilities. Based on this, a new December timeline was yet again set, this time December 2022. Following the approval by the federal government, rehabilitation works commenced first at the Port Harcourt Refinery on May 2021, and was scheduled to become functional by December 2022. December passed and again the refineries failed to perform.

Hold NNPC responsible if December 2023 target fails

The Tinubu administration upon inauguration in August announced that the Port Harcourt refinery will commence operations in December 2023, while rehabilitation works were in top gear to ensure that both Warri and Kaduna refineries resume operations by end of 2024.

Obviously basking in the euphoria of assuming a new role like his predecessors, the newly inaugurated Minister of State for Petroleum Resources (Oil), Sen. Heineken Lokpobiri conducted a well-publicized tour of the facilities. After inspecting the refineries to ascertain the level of work done, he announced that by December 2023 the Port Harcourt refinery will become operational. The minister, was however, quick to point out that he made the announcement of December, following a presentation made to him by the management team of NNPC Ltd.

The minister was quick to issue the caveat probably in awareness that his predecessors have given similar December deadline that failed to be met.

Speaking to State House Correspondents at the end of a three-day retreat for Ministers, Special Advisers and other presidential aides at the State House, early this month, Lokpobiri when asked about the expected completion dates for the refinery rehabilitation, reiterated his earlier position that the responsibility for having the refineries spring back to life rests solely on the NNPC and not him. “Phase 1 of the Port Harcourt will be ready by the end of this year” he said pointing that “I am not the one who is directly in charge of rehabilitation, it is the NNPC and they have told me and I am holding them accountable.”

“I want to make it very clear that I am not the one who is rehabilitating the refineries, the NNPC which is the national oil company is the body responsible for the rehabilitation of the refinery even before I came and I’m pushing them because of the importance of refineries in the country to ensure that they meet the timelines.

“Let’s have the first phase working, then the second and the third phases will work at the end of next year and that is what they are doing and I am holding them accountable. I am holding them responsible for these timelines they have said. So if you asked how possible the dates are, I’m not the one responsible I can only tell you that work is ongoing. We are still holding them for those dates that they have given.”

We’ll get it right this time – Source

A source in the government with knowledge of the matter said even though previous targets have been missed, stakeholders involved in the current rehabilitation are optimistic that the refineries will be delivered as promised.

“What happened in the past was the problem of sincerity of purpose and lack of enthusiasm on the part of the people entrusted with the process of delivering on the scheduled rehabilitation,” the official said.

“This time, we have learnt from the mistakes of the past. All the target set for the various rehabilitation phases of the refineries are achievable, there is now sincerity of purpose to ensure that Nigerians begin to derive maximum value from the refineries starting this year-end.”

Also commenting, Mr. Abiola Razaq, a former Head, Investor Relations at United Bank for Africa Plc (UBA) expressed optimism on the current administration’s capacity to rehabilitate the four publicly owned refineries.

“Nonetheless, I am conservative on the December 2023 target given that there is a lot of moving parts, including the supply chain bottlenecks which I am not sure the NNPC has effectively addressed. I think the focus has been on the technical rehabilitation of the plant, with little attention to knotty supply and administration issues, which are perhaps equally important. Albeit, if NNPC gets the technical rehabilitation right, and the plant is in good condition to start operation sometimes in the first quarter of 2024, I believe they can fix the adjoining issues quickly with the support of the various stakeholders in the market, with hope that we begin to see refined products from the plant by the end of the second quarter of 2024” Razaq said.

Razaq, an economist added, “It would be a good milestone for NNPC and the government and indeed a renewed hope for well-meaning Nigerians. It is not out of place if Nigeria becomes self-sufficient in meeting local demand and begins to export refined petroleum products to neighboring countries as a better way to add value to our crude and get better value for the resources. This is particularly important for the medium-term sustainability of the country, as many developed economies   begin to seek environmentally friendly alternatives in Electric Vehicles and other composite uses of oil. The United States and Canada are working with European and South Korean entities to enhance mining of lithium and other resources relevant for renewable energy infrastructures, hence the need for Nigeria to reposition its oil & gas strategy to mitigate any potential external shock that may arise from this emerging global appetite and commitment of world leaders for renewable, clean energy.”

“I must say that we should begin to consider how the NNPC would efficiently run the refineries when they do start operations to avoid a situation where rather than being a positive contributor to the government’s fiscal account, it may become another source of leakage. It’s not a question of privatization or not, rather it’s an issue of accountability and transparency. We have seen some publicly owned institutions work but I am also mindful of the very poor history of publicly owned entities in Nigeria. So, as the speaker of the House of Representatives suggested, perhaps the government may consider an approach of partly monetizing the assets and enhancing its effective operation by adopting a partial privatization through an IPO on the Nigerian Exchange Limited. Once the refineries start working, the government can better price the assets, commercialize it through the capital market and retain a stake in it. If it is done transparently, it would have a proper Board of Directors, with little or no government interference. This would also ensure fairness to private operators like Dangote Refinery and hopefully other refineries expected in the near term, such as BUA,” he concluded.

Lawmakers step up oversight

The Senate had in October constituted an ad-hoc committee to investigate all the contracts awarded for the rehabilitation of all the refineries said to have gulped N11.35tn in 13 years.

It also mandated the panel to interrogate the Ministry of Petroleum Resources, the Nigerian Upstream Petroleum Regulatory Commission, NNPC Ltd and the Bureau of Public Enterprises (BPE) on the best approach to commercialise state-owned refineries.

In setting up the panel which is to submit its report within four weeks, the lawmakers expressed concern that the state-owned refineries have been serious drain pipes of public finance, depriving citizens of the joy of being an oil-producing nation.

The lawmakers expressed worry that if a thorough investigation of the past and current rehabilitation projects is not undertaken by the Senate, the circle of awarding unproductive turnaround maintenance contracts may not abate, thereby retaining the status quo where rehabilitation contracts have become conduit pipes for siphoning public funds.

Senators in their various contributions, said the country could not continue to spend money on an unproductive venture and urged the relevant authorities to ensure that those responsible for the state of the refineries are sanctioned.