Daily Trust (Abuja)

25 November 2012

Nigeria: Country's Refineries Moribund for 15 Years, Have Worst Performance Record - Report

The Kalu Idika Kalu-led National Refineries Special Task Force (NRSTF) report is one among those gathering dust in the office of the minister of petroleum, Mrs Mrs Diezani Alison-Madueke. Though the minister has not worked on the report, it is surely one of the ways of tackling the rot in the petroleum downstream sector.

Following the general protests that greeted President Goodluck Jonathan administration's move to totally deregulate the Downstream Petroleum Industry in January 2012, the minister of petroleum, Alison-Madueke inaugurated NRSTF.

This was necessary owing to reports of endemic poor performance of the country's refineries and huge leakages from the national treasury in the name of payments for fuel subsidy claims. At the end of 2011, it was said that oil subsidy payments amounted to about N1.5 trillion for that year alone.

The taskforce was therefore set up to advise government on "how best to achieve self-sufficiency of petroleum products in Nigeria within a strong commercial framework in the shortest possible time".

The taskforce which was headed by the minister of finance during General Ibrahim Babangida regime, Dr Kalu Idika Kalu had 22 members cut across technocrats and labour union officials in the oil industry.

The taskforce with eight-point terms of reference did diagnostic review of the refineries, advised government on the best approach to turn them around and gave an effective performance monitoring system for the refineries.

What did the taskforce found?

The taskforce found that refineries have been, in the new millennium operated at an average capacity utilization of about 20 percent, placing Nigeria at the bottom of the ladder among African refineries.

This is clearly in contrast to records of 1990's when Nigerian refineries produced enough petroleum products to satisfy national demand and exported the excess.

Through export of products Nigerian refineries earned for Nigeria US$124million and US$156million in two consecutive years, 1991 and 1992 respectively. This, as reported by Engr Ogedegbe, Academy of Engineering, June 11, 2009) was cited by the Kalu taskforce.

The taskforce reported that the three Nigerian refineries in Port Harcourt, Warri and Kaduna have not been efficiently and safely operated and maintained for more than 15 years.

"During the same period, they have not been able to refine the designated quantities of petroleum products. They have not operated as performance-oriented businesses and are plagued with severe plant maintenance and integrity issues, as well as irregular crude supply and products evacuation.

"Furthermore, they are beleaguered by poor governance in a non-commercial operating structure, which is considered unsustainable," the taskforce's report submitted to the minister of petroleum resources on August 1st 2012 observed.

According to the taskforce, frequent and extended periods of shutdown resulting in the poor performance crippled the refineries.

It found irregular and inadequate supply of crude oil, the main feedstock; unstable and inadequate power supply; inability to carry-out TAM on schedule as some of the factors that did not help the refineries.

The deterioration of the maintenance culture and activities over many years has contributed to the non-availability of critical pieces of equipment and systems for continuous operation, NRSTF observed. They have a very poor physical state of the plants and some critical equipment. For example, the Old Port Harcourt Refinery was found to have been shut down for over 7 years, for maintenance related reasons. Similarly, the Lubes Plant in Kaduna Refinery has been largely idle on account of both shortfalls in crude oil supplies and maintenance constraints.

Nigeria's stand in African refineries

The taskforce looked at Nigerian refineries in comparison to others in Africa and concluded that Nigerian refineries have the worst performance record among the 42 with an average capacity utilisation of only 18 percent, compared to 81 percent and 85 percent respectively for Egypt and South Africa in 2006-2009.

The taskforce found that all the refineries had failed to meet the normal international benchmarking standards; namely 80-90% capacity utilisation and 90% on-stream time efficiency for continuous operation. This places the Nigerian refineries at the worst rating in Africa, with only 18% average annual capacity utilisation in the period 2006-2009, according to Refineries Survey in the Oil & Gas Journal. (APP. 3.2.3A ).

Solution

The taskforce gave both short and long term measures in the effort to make the refineries work. In the interim, it wants a new offshore refining scheme to be initiated.

"NNPC currently receives 445,000 barrels of crude oil per day. Of this, only a fraction is refined locally. We propose that the total balance of the unrefined crude should be refined by a new independent arrangement to meet the national demand of the regulated products (PMS and DPK).

"In this regard therefore, the NNPC refineries should be supplied only crude that they can refine. An accountable specialist team should be instituted within NNPC to implement the scheme, based on clearly defined governance and operating guidelines," the taskforce advised.

It suggested changes in the ownership structure and business model of the refineries in order to turn them around.

It is recommended that the federal government should relinquish control of the operation and management of the refineries by divesting a majority of its 100 percent equity to competent, resourceful and experienced refining private partner(s) in accordance with the Public (Privatisation and Commercialisation) Enterprises Act 1991.

It wants this privatisation process to be accelerated in an aggressive but workable time-frame, which should culminate in the transfer of majority ownership and operatorship of the refineries to experienced and capable partners within 18 months.

NRSTF advised that the plan for full rehabilitation of the plants should be discontinued.

Taskforce membership

Membership of the NRSTF consisted of 22 Nigerians from diverse backgrounds and experiences, and from different parts of the country, under the chairmanship of Dr Kalu Idika Kalu, past Minister of Finance, National Planning and Transport.

Chairmen of the two trade unions in the Petroleum Industry, PENGASSAN and NUPENG represented organized Labour. The Group Executive Director, Refineries and Petrochemicals (GED R & P) of NNPC as well as the Managing Directors of the three NNPC refineries were members, in ex-officio capacity.

The NNPC refineries

The taskforce gave the state of the refineries. Port Harcourt refinery consists of two process plants, Old PH Refinery and New PH Refinery. Old PH Refinery was built in 1965 with an original installed capacity of 35,000 BPD. It was subsequently expanded in 1972 to 60,000 BPD. It is essentially a straight distillation unit with very little upgrading facilities for enhancement of yield of PMS.

New PH Refinery: This Refinery was commissioned in 1989, with an installed capacity of 150,000 BPD and a mix of units to enhance the yields of PMS and light products. Crude oil supply to the refinery is by pipeline from the SPDC Bonny Terminal, while evacuation of products is designed to be by a combination of pipeline, marine vessels and trucks. The products slate consists of the standard fuels from a refinery: LPG, PMS, DPK, AGO and Fuel oil.

Warri Refinery: Warri Refinery was commissioned in 1978, with a throughput capacity of 100,000 BPD. It was subsequently upgraded in 1987 to a capacity of 125, 000 BPD. Crude oil is obtained from CHEVRON and supplied by pipeline from the PPMC Escravos Terminal or from SPDC through their Ughelli Quality Control Center (UQCC). Similar to Port Harcourt, products evacuation is by pipeline, marine vessels and trucks.

A petrochemical plant which converts some of the refinery streams to polypropylene and carbon black, raw materials used by the plastics and tyre industries respectively, were added on in 1988.

Kaduna Refinery: It consists of two process plants namely: Fuels Plant and Lubes Plant. Fuels Plant: Originally commissioned in 1980 with a throughput capacity of 50,000 BPD, the plant was expanded in 1986 to 60,000 BPD capacity. It is designed to process Nigerian light crude supplied by pipeline from the PPMC Escravos Terminal in Delta State into fuels.

Lubes Plant: The Plant was commissioned in 1983 with a capacity of 50,000 BPD to process imported heavy crude into fuels and other heavier products, such as lubricating base oils, asphalt and waxes. The imported crude oil is discharged into a receiving facility at Escravos, Delta State and accordingly delivered by pipeline to Kaduna via the Warri Refinery.

Being an inland refinery, there is no provision for the evacuation of products by sea. However, there is provision for evacuation by rail, in addition to pipelines and trucks.

A 91 MTPD petrochemical plant, similar to the Warri Refinery, was also added on in 1988. This plant produces linear alkyl benzene (LAB), a vital raw material for production of detergents, as well as other industrial solvents.

Therefore, the NRSTF believes that given the right conditions, the Nigerian Refining Industry is potentially capable of achieving self-sufficiency in petroleum products.

Recently, the petroleum minister told Reuters that all reports submitted to her are received as drafts so committees will be set up to study them. Her failure to work on the Nuhu Ribadu subsidy payment report generated heat prompting President Goodluck Jonathan to call for it.

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