NNPC’s nonsensical rehabilitation

 

The Federal Executive Council chaired by the President, Major General Muhammadu Buhari (retd.), on Wednesday, March 17, 2021, approved the sum of $1.5bn, about N575bn, for immediate commencement of rehabilitation work on the largest refining company in the country, the 32-year-old Port Harcourt Refinery. The Minister of State for Petroleum Resources, Timipre Sylva, related this to newsmen after the council meeting at the Presidential Villa, Abuja. Sylva said the contract for the rehabilitation was awarded to an Italian firm, Tecnimont SPA, and is expected to be executed in three phases.

While the first phase which will take the refinery to a production of 90 per cent of its nameplate capacity is expected to be completed within a period of 18 months, the minister said the second and third phases would be completed in 24 months and 44 months respectively. He added that the funding has three components from the Nigerian National Petroleum Corporation, Internally Generated Revenue, budgetary allocations provisions, and Afreximbank. Sylva gave the assurance that the government would also facilitate the complete rehabilitation of the Warri and Kaduna refineries before the end of the lifespan of the current regime.

This is coming on the heels of the Federal Government’s proposal to sell or concession no fewer than 36 of its properties in the bid to raise funds to finance the 2021 budget. Top among these properties are the three refineries in Kaduna, Warri, and Port Harcourt, among others. I have had cause in my column on this page exactly a month ago to praise the Federal Government’s decision to sell off  the refineries alongside other national assets. I said inter alia, “Take the refineries for instance, Nigeria’s four refineries located in Port Harcourt, Warri and Kaduna have been a drainpipe for several decades now. I dare say since the 1990s when Nigeria started importation of refined petroleum products and payment of subsidies on them, the refineries have stopped working. Millions of dollars have been spent on their endless turnaround maintenances without anything much to show for it. Arguably, none of the four refineries has produced anything beyond 20 per cent of their capacity utilisation in over 20 years. Yet, there are workers being paid fat salaries without doing anything at these refineries. Former President Olusegun Obasanjo did sell the Port Harcourt and Kaduna refineries off to Dangote’s Bluestar Consortium in 2007 but labour unions and a section of the civil society pressured the late President Umaru Yar’Adua to rescind that decision.”

That was my position then before I read The Guardian report of March 18, 2021 titled, “After $25bn on maintenance, FEC approves new $1.5bn for PH refinery”. The story offered some historical perspectives on the operations of the refineries in Nigeria. It said the Port Harcourt refinery, which began operation in 1989, remains the largest refining company in Nigeria, until the time the Dangote refinery in Lagos will be activated. At inception, it had a capacity to process 150,000 barrels of crude a day and was later upgraded to 210,000 barrels per day. The refinery has been repaired innumerable times, under various Turnaround Maintenance contracts that had gulped huge amounts. The report noted further that, “…Nigeria has spent about $25bn 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. Previous rehabilitations notwithstanding, the Nigerian National Petroleum Corporation 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.”   This is preposterous!

The newspaper noted further that despite processing, no crude oil in June last year, the three refineries still cost the country N10.23bn in expenses. The NNPC had said the three refineries processed no crude because of the rehabilitation works being carried out on them. “There was no associated crude plus freight cost for the three refineries since there was no production but operational expenses amounted to ₦10.27bn. This resulted in an operating deficit of ₦10.23bn by the refineries.” The report stated that the combined losses from the Port Harcourt Refinery and Kaduna Refinery were N208.6bn in 2014; N252.8bn in 2015; N290.6bn in 2016; N412bn in 2017 and N475bn in 2018.    Currently operating at zero capacity, the NNPC had shut down the facilities stating that it would adopt the Build, Operate and Transfer model to run the refineries.

 If the above information of gargantuan losses incurred by the refineries is true, does it make sense to pump another $1.5bn on the Port Harcourt refinery? If government has spent a cumulative $25bn in 25 years on the turnaround maintenance and rehabilitation of these drainpipes called refineries without anything to show for it, does it make economic sense to continue to throw scarce resources at them again? To my own mind, what the Federal Government has decided to do to the Port Harcourt refinery as well as others is completely nonsensical, illogical, uneconomical, and whimsical.

I was on two radio programmes last Saturday, March 20, 2021 to discuss this decision, namely, Love 104.5 FM Abuja and Pensioners 106.7 FM Ibadan, to analyse the issues surrounding this decision. I noted that the resolution was politically motivated. The 2023 general election is around the corner and the All Progressives Congress regime want to use the rehabilitation of the refineries as a campaign issue to let Nigerians know that the APC government is doing something for the people of the Niger Delta region. This regime promised clean-up of the despoiled Ogoniland in the lead up to the 2015 presidential election, beyond the inauguration of the exercise in June 2016, what has been done on the project? Why is the Buhari regime talking about rehabilitation of the Port Harcourt refinery now when Dangote’s 650,000-barrel per day refinery is coming on stream in about a year’s time? There is no gainsaying that government has shown incapacity to manage our four refineries and the ideal thing should have been to sell them off and cut the country’s losses. After all, the government claimed that three modular refineries have also been established in the country. These and Dangote refineries should be able to meet the country’s refined petroleum needs in the nearest future.

Instead of pumping another $1.5bn to revitalise Port Harcourt refinery, what I think government should have done is to incentivise more private sector players to invest in the downstream sector of the petroleum industry so that healthy competition as was witnessed in the telecommunication sector will ensure that Nigerians are not ripped off but rather get value for their money. One of the ways government can encourage private investors into the oil and gas sector is to allow for cost reflective price. Guided deregulation or price fixing by government is patently counterproductive and the reason for payment of the fraudulent petrol subsidy. What government needs to do now is to effectively lobby the National Assembly for the passage of the Petroleum Industry Bill that will libralise the sector and bring in huge foreign direct investment into the industry.

It is also important for the federal government to note that in a couple of decades from now the developed world is migrating away from the current fossil fuel to clean renewable energy. Twenty years or thereabout from now, petrol and diesel powered cars and vehicles would be phased out in western world to be replaced with electric cars. By that time, much of our crude oil will no longer be in demand. This is part of the reason the government ought to have sold off the ailing refineries to private sector players who can use their funds to revitalise them. I join millions of other patriots to urge the Federal Government to quickly rescind its decision on the obviously futile revitalisation agenda of the moribund refineries!