Port Harcourt Refinery TAM: NNPC’s blank cheque contract

Nigerian National Petroleum Corporation (NNPC) has announced the commencement of rehabilitation work in Nigeria’s embattled 210, 000 barrels per day (BPD) capacity refinery in Port Harcourt, Rivers State.

Port Harcourt refinery comprises of the old 60, 000bpd plant built in 1965 and the more modern 150, 000bpd plant which came on stream in 1989. Nigeria’s four refineries have very delinquent maintenance history.  Two months ago, Maikanti Baru, NNPC’s group managing director, confessed that the refineries have not been rehabilitated in the last 30 years despite billions of dollars flushed down the drain in the name of turnaround maintenance (TAM). Port Harcourt refinery has been idle for seven months.

The historic TAM of the refinery is a strange project to be executed by an Italian firm named Maire Tecnimònt S.p.A.  NNPC claims that when the first phase of the rehabilitation of the mismanaged refinery is completed, its installed capacity utilisation would rise to 60 per cent. The plant capacity utilisation is expected to surge to 90 per cent at the completion of the TAM.

Nigerians have heard such stories before. Diezani Alison-Madueke, Nigeria’s immediate-past Minister of petroleum told the National Assembly in 2013 that if the lawmakers approve a foreign loan of $1.6 billion for the TAM of the four refineries, their capacity utilisation would surge to 90 per cent. 

The National Assembly fell for Alison-Madueke’s bait and approved the foreign loan.  No TAM was carried out on the refineries and no one knows precisely what happened to the money appropriated by the lawmakers for the mysterious project.

The managers of the refineries told a different story when Ibe Kachikwu was appointed Group Managing Director of NNPC. Within months of Kachikwu’s resumption at NNPC, the refineries managers claimed that they have used local personnel and materials to carry out major repairs and that their capacity utilisation has surged tremendously.  The ‘miracle’ lasted a few weeks and fizzled out. The refineries returned to their historic dormancy.

The TAM to be carried out by Maire Tecnimont on Port Harcourt refinery is a strange project.  NNPC has practically given the Italian firm a blank Cheque to execute the contract.  There were no competitive bids. No one in Nigeria knows the cost of the project.  Even the contractor does not know. The Italians would open up the plant before giving NNPC the cost of the TAM several months after the contract had been signed.

That may be an innovation in the award of contracts in the oil industry.  The old procedure would have required the Italian firm to assess the damage to the plant and give the client the cost of the project which would be debated before the contract is signed for the TAM to commence.  This time first things are done last. 

Not even the federal government has lifted a finger in protest against the murky contract procedure. NNPC has shortchanged Nigeria for months now with fictitious consumption figures on petrol that allows it to fritter away billions of naira monthly on mysterious petrol subsidy claims.    

The ownership structure and maintenance of Nigeria’s four incapacitated refineries have been a thorn in the flesh of NNPC in the last three years.

Various options had been considered at different times as Nigeria wastes billions of dollars in refined petroleum products import. At first, Ibe Kachikwu, who initially doubled as Group Managing Director of NNPC and Minister of State for Petroleum Resources came with the conviction that government was a bad businessman and had consequently mismanaged the refineries through endemic corruption and bureaucratic stranglehold. As a private sector technocrat he was determined to privatise the refineries.

That line of thought met a stiff resistance from the labour unions in the refineries who were pre-occupied with saving the jobs of their members even at the risk of shutting down the refineries.  The federal government was reluctant to buy the full privatisation formula as a solution to the dwindling fortune of the refineries.

A school of thought within government believed that for security seasons government must maintain a foothold in the downstream sector of the oil industry.  That school of thought prevailed on the presidency to dump the privatisation plan.

However, with the federal government in dire financial straits, there was no way to raise billions of dollars for the TAM of the refineries if government must remain their sole owner.  The full ownership plan was again crippled by the liquidity crunch in Aso Rock.

That probably brought up the idea of joint ownership through which private sector investors, largely the key players in the upstream sector of the industry, would bring out funds for the TAM of the refineries while the plant would be managed along the lines of the Nigeria Liquefied Natural Gas (NLNG) in Bonny. That also failed.

The third option on the cards was concession.  Under that option, the concessionaire would fund the huge cost of the TAM and recover its funds with interest as it runs the refineries after the maintenance.  That option received the provisional nod of the men in Aso Rock.

Sometime in January 2019, Kachikwu announced that the federal government has struck a deal to concession Port Harcourt Refinery to Agip/Eni, the Italian oil giant.  Agip was to rehabilitate and manage the plant in collaboration with Oando, a Nigerian oil firm.

From all indications, that option has again been jettisoned.  The Italian firm to carry out the TAM of Port Harcourt refinery would obviously be paid directly by NNPC. Only the men in Nigeria’s profligate oil monopoly have the secret on how to fund the contract.

The irony of the whole gambit is that Nigeria is wasting its scarce resources at these trying times in a venture that NNPC has grossly mismanaged in the last 30 years.  I have said several times in this column that NNPC lacks the managerial acumen to run the refineries.  Last year, the corporation lost N132 billion to the refineries even as it declared paltry surplus in other ventures.

Friends of NNPC believe that since other nations own and run refineries, Nigeria should not be an exception.  However, in the last 30 years, NNPC has proved beyond reasonable doubt that refinery management is not its comfort zone.  The federal government has dogmatically refused to accept that fact.

The blank Cheque contract signed with Maire Tecnimont is a calamitous misadventure and should be stopped without a second thought. If NNPC cannot convince the oil firms to execute the TAM of the refineries on concession basis, the refineries should be auctioned and sold at market price to the highest bidders.

With the Dangote Refinery in Lagos coming on stream in April 2020, Nigeria’s four refineries may be reduced to mere sitting ducks.  When Dangote refinery comes on stream and effectively ends Nigeria’s shameful dependence on imported refined petroleum products, the federal government  would abandon the refineries and allow them to rot away the way Nitel’s facilities languished after the GSM firms took competition in the telecoms industry to higher levels.

The first casualty of government’s rigid posture on the refineries would be members of the Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN) and National Union of Petroleum and Natural Gas Workers (NUPENG) who were so engrossed with protecting their jobs at the expense of Nigeria’s eternal dependence on refined petroleum products imports.  They would be thrown into the streets to suffer the fate of Nitel staff.

SOURCE: independent.ng