Home Oil & Gas PH REFINERY $1.5B REPAIR: Mele Kyari vs. old trust deficit and why...

PH REFINERY $1.5B REPAIR: Mele Kyari vs. old trust deficit and why he wants Nigeria to believe him

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APECIAL REPORT By IKENNA EMEWU

Port Refinery, NNPC wants new life in it

* Kyra wants to be held by his words

*Refinery will give Nigeria 50% of daily fuel need

Since March 1988 when the Nigerian National Petroleum Corporation (NNPC) was elevated to an outfit with commercial concerns and an integrated international oil company, it has borne more responsibility to the country.

The expanded roles include exploration, development, production, processing and marketing of crude and refined petroleum, its by-products and derivatives.

Of the four refineries Nigeria has, NNPC inherited one in Alesa-Eleme built in 1965 but built the rest three including Kaduna in 1983, Warri in 1978 and the second Port Harcourt mill in 1989.

When the corporation awarded contracts for the turnaround maintenance of the refineries in April 2000, they produced or refined 40 percent of the petroleum consumed in Nigeria according to the OPEC News Agency. But 19 years down the line, in 2019 and 2020, the refineries produced absolutely no litre of petroleum. From NNPC reports in 2020, the refineries that refined nothing rather accumulated a deficit of about N10.02 billion. The cost was to keep them in best affordable shape to avoid beyond-repair collapse.

Within the 20 years of dwindled fortunes from 40 percent production to zero and in fact, deficit, Nigeria spent an incredible US$25 billion in phased and series of turnaround maintenance (TAM) their results have remained questionable.

Another maintenance in 2021 

So, when on March 17, 2021 the federal government through the Minister of State for Petroleum, Timiprey Silva announced a contract of US$1.5bn, which is over N530 billion to maintain and rehabilitate the Port Harcourt refinery, the largest of them, the uproar that greeted the announcement was justified.

Nigerians have not stomached that plan and their anger or resentment of it is founded on fact and old experience of disappointment from the earliest in the democratic era in April 2000 when Jackson Gaius-Obaseki, then NNPC Group Managing Director announced a maintenance that never really saw the light of the day.

That Nigeria allowed the refineries collapse irredeemably to a point of deficit in refining is pointer to how down the country has gone even with the sitting president as the oil minister since 2015. In the days of President Olusegun Obasanjo, he was also the oil minister and under their watch, their cash cow depreciated to comatose.

Mele Kyari faces old fire

It looks like the lot of the present GMD of the NNPC, Malam Mele Kyari to bear the brunt of the failings of the past. That is normal for a system that is continuous even though none of the failed TAMs happened during his days in charge.

So the anger and mistrust that heralded the present plan, may not be about Kyari as an individual, but the system and its uncomfortable history.

Since Mele Kyari came in July 2019, there has been no maintenance of any refinery, rather some six months into his tenure, the NNPC, oil sector and indeed the world ran into troubled waters occasioned by the global Coronavirus pandemic that crumbled global economy to a stand still as businesses shut down and nobody needed the oil.

This latest rattling doesn’t sound palatable to the Nigerians on the face of it, especially coming in an administration that hasn’t shown much good faith in keeping promises. When the present government campaigned in 2014, it promised Nigeria that when in power it would build one new refinery a year for the first four years. Rather than having the promised new one, the ones in existence dwindled to extinction. Also, questions are asked about the commencement time of the project when the tenure of the government is far spent.

An exclusive discussion we had with the public communications office of the NNPC assured that with the antecedents of the Corporation under Kyari, Nigerians can trust this last move as workable and sincere.

NNPC fights battle to save situation

Kyari shows good faith

There is just one or two points that would make one ask if Kyari should be given the benefit of the doubt. Yet some others would ask, what happens if the trial fails like others.

The projection from the world’s largest refinery that is coming soon at the Lekki Free Trade Zone, Lagos is that in about 2023, Dangote Refinery takes off and would possibly handle a greater percentage of the country’s refining needs. But what about the negatives that might attend it? With Dangote dominating the cement sector, the market has gone through strain with the monopoly advantage that rides roughshod. The entire nation’s cement consumers are literally held at the company’s mercy.

The oil sector may not be different. Remember that the independent petroleum marketers in the past years made mince meat of the oil consumers in Nigeria until NNPC’s intervention took to refined petroleum dispensing. That brought the arrogance and trampling down under control. As they declare frequent strikes, NNPC outlets become their back breaker that provided the consumer an alternative at less cost. As NNPC outlets keep increasing in number the incessant scarcity at the filling stations is pushed back more and more.

The oil being a very vital sector of the economy that touches on all aspects of our lives should not be left in the hands of a single player like the Dangote group. If we do that, we would have gambled into the same error of mono economy of the nation that has atrophied for relying on oil alone.

So, why not bring on the PH refinery believing that Kyari and his NNPC would live up to their promise of the planned alternative?

In fairness, the NNPC under Kyari introduced the novel step of publishing the accounts of the corporation every month as part of its promised openness. This was not anticipated possible before now. Today, even the Nigeria Extractive Industries Transparency Initiative (NEITI) quite unlike before, has some semblance of oversight on the activities of not just the NNPC but the entire oil and gas industry.

PH refining will deliver 50% of daily consumption 

Nigeria’s three refineries in Warri, Kaduna and Port Harcourt have the combined capacity to refine 445,000 barrels a day at optimal operation and they were built with the intention of making sure Nigeria attained local refining sufficiency.

Unfortunately, they all have suffered years of neglect due to delays in conducting mandatory Turnaround Maintenance (TAM) that resulted in performance decline over the past two decades and they have all been shut down to allow proper diagnosis and rehabilitation.

The Port Harcourt Refinery is adjudged the most strategic to Nigeria by the NNPC because of its highest capacity daily refining capacity of 210,000 barrels that results in the production of 10.4 million liters of Premium Motor Spirit (PMS) per day. This refining volume if achieved would be approximately 50% of Nigeria’s 428,000 barrels daily petroleum consumption, a huge mileage and intervention indeed. It was last refurbished in 2000 when Gaius-Obaseki was in charge at the NNPC under Obasanjo who doubled as the oil minister.

Kyari, NNPC CEO, anger not about him but history of system

NNPC this time under Kyari promises that what it intends to do is unlike TAM that needs two-year routine maintenance. This projected rehabilitation will be a comprehensive repair of the plant with significant replacement of critical equipment to ensure the plant integrity is maintained for a minimum of 10 years. If this plan comes through, the refinery back in operation would generate employment and save Nigeria so much in forex we have spent over the years importing refined oil as the only country in OPEC that imports the bye-product of the crude oil it exports.

Between rehabilitation and building afresh

Most of the critics of the planned rehabilitation for their justifiable reasons of accumulated trust deficit have also posited that the planned or projected US$1.5 billion or over N530b is just enough to build a fresh refinery and therefore that it amounts to colossal waste to embark on it.

But simple research on the costs of recent refineries don’t seem to support this position. A good and close instance is the refinery that is on-going by our own Dangote here in Nigeria whose cost is projected to be US$19 billion for the 650,000 barrels per day capacity.

Looking outside our shores, we can verify that Saudi Arabia’s Aramco, world’s ;largest oil conglomerate, recently budgeted to build a 250,000 barrels per day refinery in Pakistan at a cost of US$10 billion.

In Brazil, the Abrue Lima 230,000 per day refinery goes for a budget of US$12bn, Similarly, the Pengerang Refinery and Petrochemical Integrated Development, (RAPID) of 300,000 barrels per day + 3 mtpa naptha steam cracker in Indonesia goes for a cost of US$27bn.

Taking all these factual findings together implies that if Nigeria is to build a new refinery of the capacity of the one NNPC wants to rehabilitate, the cost would not be less than US$10 billion. With such bill, it stands clear that the budgeted amount for rehabilitation if adequately done and judiciously used makes so much difference. Moreover, if the country builds a new one, what would become of the existing refinery when all over the world, with adequate maintenance, refineries older than the 1989 facility are still working.

Credible funding

Of this projected cost, the African Export-Import Bank (Afreximbank) is to provide US$1 billion while the Nigerian government picks the remainder US$550 million bill.

It is not in doubt that the Afreximbank is a credible international organisation affiliated to the African Development Bank. From its credibility, it is doubtful if the agency would dabble into the frivolity of a project that is headed no way or doomed. The name Afriximbank confers some trust and fidelity in the discussion.

Likewise, NNPC beats its chest that the job is contracted to one of the best in the sector in the world, Tecnimont SpA, representative of the Original Refinery Builder (ORB) which is one of the top ten global Engineering, Procurement, Construction, Installation and Commissioning (EPCIC) Contractor in refineries.

Too important to be sold

Like we have earlier argued, the oil refining sector is so central to the economy and its lifeblood to be left wholly in the hands of monopoly private players.

Therefore, NNPC may rightly argue that it would not stand aloof and watch the sector. It would rather fix this refinery and possibly checkmate any excesses that may arise from an individual company ruling the skies all alone. What the Nigerian cement sector, another very vital organ, has experienced is enough to discourage a situation that would grant Dangote sole operation in the country’s refining.

With the abundant hydrocarbon resources, Nigeria is sadly, the only oil and gas producer in the world that does not refine petroleum products. It would be a great opportunity that the refining sector has alternative players especially when the public sector and regulator, the NNPC is a major operator. The Corporation has recorded positive impact  over time in caging the manipulative oil marketing sector. It would be proper safeguard that it doesn’t hands off totally and watch an exploitative monopoly created against the interest of the ordinary Nigerian consumer.

Whereas many critics usually think the mere mention of rehabilitation means another round of “business as usual”, from past experiences, where resources were drained with nothing to show for it, let’s make up our minds to give Kyari a benefit of the doubt and watch if he keeps his promise given the benefits that would accrue to the country if he turns out credible and true to his words.

Some gains waiting

If the NNPC acts as it promises, we are sure there are some benefits in reviving the nation’s refineries. From satisfying local energy demand, growing the nation’s GDP, to strengthening the naira by reducing the demand for forex to creating thousands of jobs across the value chain – crude supply, operating and maintaining the refinery, product supply etc; including several third-party contractors that will supply outsourced services or goods, the advantages are huge. In fairness, Nigerians have always longed for these benefits and that the refineries come back to life, and it is hoped that this time, the deed would be done and the dreams actualized as the NNPC assures.

The refined products also would serve as feedstock for small scale local manufacturing. The most significant and visible benefit is energy security for the country. Imagine if COVID-19 lockdown became global and Nigeria couldn’t import, it would have been a disaster as there was no capacity to refine crude in-country and as such, there would have been no products at all.

Operate & Maintain model (O&M)

It looks like the past experiences have taught NNPC a lesson and this time, sources from within the system said the planned rehabilitation when complete and the refinery starts operation, it would adopt the Operate and Maintain (O&M) model.

A document NNPC availed us noted that one of the conditions and terms agreed to and accepted by the financier, the Afreximbank is the O&M.

And the planned refinery would:

• Be a single point of responsibility for managing operations, maintenance and technical services within the refinery’s battery limit

• Operate and maintain the refinery efficiently to generate sufficient margins to pay back the debt

• Be able to manage local and specialized sub-contractors

• Retain current NNPC staff, and actively support employee development to prepare for the transfer of the refinery management back to NNPC within a determined timeline.

• NNPC will retain 100% of refinery ownership that would exclude a Joint Venture (JV) procedure on takeover at the agreed time.

• NNPC does not expect significant capital projects such as upgrades, de-bottlenecking etc during the O&M contract phase. That implies divesting the public sector or the Corporation of any financing obligation.

Rehabilitation aims to stop old order of product scarcity and anguish on citizens

• NNPC’s structure and mandates outside of the refinery’s battery limits will not be impacted by the O&M strategy such as the PPMC.

A different approach

Quite unlike the prevailing procedure of operation, the NNPC vows that the current refineries rehabilitation project is different for the following reasons:

It consists of a governance structure that includes key independent external stakeholders: the Ministry of Finance, NEITI, ICRC, PENGASSAN and NUPENG. 

However,unlike the regular TAM, this rehabilitation will involve comprehensive repairs of the plant with significant replacement of critical equipment to ensure that the plant’s integrity is maintained for a minimum of ten years.

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