13 June 2017

Nigeria: Again, Govt Turns to Original Builders of Refineries for 100% Restoration Exercise

The federal government is again contemplating inviting the original builders of the three refineries operated by the Nigerian National Petroleum Corporation (NNPC) in Kaduna, Warri and Port Harcourt, to undertake their planned restoration to their nameplate capacities, the Minister of State for Petroleum, Dr. Ibe Kachikwu, has disclosed.

Kachikwu said there was a consensus within the government circles that the original refineries builders (ORBs), which are Saipem for Warri; JGC for Port Harcourt; and Chiyoda for Kaduna, should be invited to undertake the repairs as a result of their better knowledge of the refineries.

Collectively, the refineries which were built in the 1980s' have a refining capacity of 445,000 barrels per day, with which the government regularly allocates this volume of crude oil to the NNPC for domestic refining.

The minister also stated that within the programme, which would cost about $1.2 billion, and for which the government was shopping for financiers, an incentive scheme which would likely include participation of the financiers in the current Direct Sales Direct Purchase (DSDP) of petroleum products of the NNPC could added as incentives.

According to him, the incentives would allow for recovery of invested funds in the revamp programme by the financiers whom he said would also be shortlisted on the basis of their capacities and records in downstream and midstream operations.

Kachikwu noted that this would build into the business models of the eventual preferred bidders for the revamp programme to guarantee profit for them especially with consideration to the country's downstream sector which has not been deregulated yet.

"Internally, we have been able to determine the sort of amount that would be required to do this work, in terms of what work is really required to be done. The total cumulative amount is in the $1.1 billion and $1.2 billion category between all the refineries. And that of course does not include the pipelines. You have got to address the pipelines and that is something else that is being done," Kachikwu said.

"We are looking for financing of the repair and upgrade of the refineries. We are not concessioning refineries; it is simply a financing package. Once we identify those individuals and see how we can make contacts with those who built the refineries - Saipem in Warri; JGC in Port Harcourt; and Chiyoda in Kaduna, to ensure that we go back to them because they have the designs, engineering outlay and upgrade capabilities, and in some cases, they have the access to spare part. If we are going to achieve this within the timeframe we gave, we are going to meet them and I think we have largely decided that those are the people we should use," Kachikwu explained.

In the past, the government had mulled the idea of engaging the refineries ORBs in its repeatedly failed turnaround maintenance (TAM) exercises, but past reports also indicated that discussions with the ORBs often broke down on the basis of either security concerns, financing models, and in most cases, reported commitments from the government.


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