Nigeria: As Refineries Gulp N276bn in 4 Years - Govt Embarks On Fresh Multi-Billion Naira Repairs

18 September 2020

After spending N276 billion on the maintenance of its three refineries between 2015 and 2018, the federal government is set to spend additional N600bn on them starting early 2021.

The refineries had gulped N152bn between 2013 and 2017.

In addition to other factors, Daily Trust investigation shows that the poor state of the refineries worsened the country's dwindling oil revenue and increases in the price of petrol for local consumers.

Shortly after announcing the full deregulation of the downstream oil sub-sector recently with the attendant hike in petrol pump price, the Minister of State for Petroleum Resources, Timipre Sylva, said the increase in the pump price of petrol was unavoidable.

Sylva said fuel price was increased because the international crude oil prices now determined the local price.

But people with knowledge of the oil industry say assuming the refineries have been working, Nigeria wouldn't have been badly hit by all the factors that affected the oil economy including the coronavirus pandemic.

And while some experts believe the planned repairs of refineries would yield a positive result and liberate Nigeria from the comity of importers, others said the refineries "are too old to be fixed" and advised government to build new, potable ones that would be adaptable to fast-changing technology.

Fresh anxiety mounts over refineries' repair

Amidst this turbulence of the petrol price hike, the federal government has sought to douse the tension with the latest news being on restoring the refineries to at least 90 percent capacity in about three years.

The Group Managing Director of NNPC, Mr Mele Kyari, in a briefing said the nation's four refineries (Kaduna, Warri, Port Harcourt and Indorama Petrochemical, Eleme) with a combined capacity of 444,000 barrels per day (bpd), would be rehabilitated.

He disclosed that they were deliberately shut down due to the absence of the Turnaround Maintenance (TAM) and major rehabilitation.

But this is in spite of the over N276bn spent on this same process since 2015.

He said the absence of TAM led to a huge capacity loss at the refineries, prompting major rehabilitation works.

"Every refinery is expected to operate at least 90 percent of installed capacity.

"With all the TAM down, it was impossible to run any of these refineries at 90 percent capacity.

"Our estimate was that we could run at 60 percent capacity but if we do that, it's simply value destruction.

"We want to make them work and that's why we're doing full rehabilitation," he said.

The NNPC helmsman said they got local engineers from the National Engineering and Technical Company (NETCO/KBR), a subsidiary firm in May, 2020 for the Port Harcourt and Warri refineries.

According to records, the repair works for the Port Harcourt refinery will gulp $1.5bn (about N576.75bn), prepayment deal that has already been signed with firms, for the exchange of crude oil for the cash.

The scheme, Project Eagle, was supported by the African Export-Import Bank (Afreximbank).

Apart from this, an undisclosed amount would go into financing the repairs for the Warri and Kaduna refineries.

In August 2020, the Kaduna Refining and Petrochemicals Company (KRPC) made plans to turn off its power plant and connect to the national power grid through the Kaduna Electric, ahead of the refinery's maintenance.

The MD of KRPC, Engr. Ezekiel Osarolube, said the top management officials of NNPC were keenly looking forward to its successful completion.

It was also learnt that plans were on to mobilise the contractors cleared by the Bureau of Public Procurement (BPP) for the repair of the Kaduna and Warri refineries.

Daily Trust reports that apart from the refineries, the feedstock pipelines are in bad condition.

According to the July report of NNPC released yesterday, 36 pipeline points were vandalised, representing about 9% increase from the 33 points recorded in June 2020.

The pipelines, which connect depots: Atlas Cove-Mosimi and Aba-Enugu network recorded 28%, PHC-Aba and the other locations were 14% and 31% respectively.

NNPC, the local communities, and other stakeholders continuously have strived to reduce the menace of pipeline vandalism,' the report said.

However, NNPC in its refineries rehabilitation plan said the completion target would be before 2023.

How refineries gulped N276bn

Though the Nigerian National Petroleum Corporation (NNPC's) spokesman, Dr. Kennie Obateru, declined to comment on the amount spent on the rehabilitation of the refineries to date, records show that N276.87bn was spent between 2015 and 2018 to carry out repair works under TAM scheme on three of the refineries in Port Harcourt, Warri and Kaduna.

At least $396.33 million (about N152.4bn) had earlier been spent between 2013 and 2017 on TAM schemes on the refineries, a report by Nigeria Natural Resource Charter (NNRC) shows.

Present state of the refineries

Investigations by Daily Trust across the refineries showed that works for the new rounds of rehabilitation of the facilities did not commence even when they were slated for January 2020.

At the Alesa Eleme headquarters of Port Harcourt Refinery Company (PHRC), sources said the refinery was shut down in 2017 because of obsolete and malfunctioning machines that litter the operational base of the company.

One of them said the refinery has had no refining since three years ago when a Memorandum of Understanding (MoU) was signed between Italian oil company, ENI and NNPC in Rome on the renovation of the refinery.

"When the GMD of NNPC visited the plants last year, he promised that TAM will commence in January 2020 but as we talk now nothing is happening.

"Last year the contractor came in and dismantled many of the machines and as we speak now, all the dismantled machines are littering everywhere and the new ones have not been brought to replace them."

Attempts by our correspondent to speak with the PHRC Public Affairs Manager, Mr. Gerald Ohaji, did not yield any result as he did not pick calls made to his mobile line.

KRPC was down since 2017.

A visit by Daily Trust to the plant showed several tankers parked along the premises but the usual hustle and bustle around the vicinity had ebbed.

"Since June 2017, we have not had it easy as production has not been steady.

"Many of our colleagues have left while those of us still around only wait for whenever they call us," one of the drivers said.

An official of the Petroleum Tankers Drivers, Comrade Muktar Hassan, maintained that KRPC had not produced for the past two and a half years.

Daily Trust's on-the-spot assessment of the Warri Refinery showed the facility had not operated after it laid off over 2,000 technical support staff members in January, 2020.

A senior staff of the refinery, who spoke to our correspondent in strict confidence, said: "As I speak with you, there is nothing on ground to show the place is functioning.

"There has been no sign of it since it was announced by the federal government in 2016.

"What we have here are monuments of dilapidated and moribund facilities."

Huge losses

Official figures compiled from NNPC's operations reports showed that P/H refinery stopped producing crude in March 2019.

Kaduna refinery, the worst performer has not received or processed crude since 2017 while Warri refinery stopped in June 2019.

The report by NNPC further showed that the refineries lost N123.25bn between January and October 2019.

While KRPC posted a loss of N49.3bn, PHRC and WRPC lost N36.7bn and N37.24bn, respectively.

The corporation blamed the refineries' lack of positive performance on largely the 'on-going rehabilitation works in the refineries' but Daily Trust confirmed that there was no rehabilitation until the 2021 kick-off target.

"The declining operational performance recorded is attributable to ongoing revamping of the refineries which is expected to further enhance capacity utilisation once completed," it said.

Despite this, the federal government still spent N36.8bn on it as the cost of salaries and employee wages in 2018.

The breakdown shows N13.8bn was spent each at KRPC, WRPC, while N9.2bn was spent at PHRC on these items.

This spending was not inclusive of directors' remuneration, staff pension, and other benefits.

'Collapse refineries responsible for high fuel price'

Experts have blamed the recent increase in the pump price of petrol from N148 to over N160 (the third of such increase in the last three months) on high fuel importation and its associated cost occasioned by the lack of functional local refineries.

The experts and marketers spoken to by Daily Trust pointed out that the moribund refineries were to blame for the increase in the pump price of fuel in the country in recent time.

Dr. Timi Olubiyi, entrepreneurship and small business management expert said there was a lack of major turnaround maintenance and poor governance for the plants.

"The existing refineries can be rehabilitated and brought back into operation and full capacity utilisation through private sector-led financing and rehabilitation initiative," he said.

A professor of Chemical Engineering at the Ahmadu Bello University (ABU), Zaria Ibrahim Mohammed-Dabo advised the government to return to the drawing board by developing unconventional refineries in the short term.

Prof. Dabo who is Russian trained and the Team Leader, ABU refinery project said: "Kaduna, Port Harcourt, and Warri refineries are not producing but the Niger Delta youths are producing and polluting the environment, yet people are buying from them, this is the worst way of producing fuel.

"What we need is to go back to the drawing board, gather engineers and scientists, study what the bigger refineries are doing and do it better."

Another professor of Economics and Dean of Post Graduates Studies, University of Port Harcourt, Prof. Okechukwu Onuchukwu said reactivation of the refineries will help Nigeria overcome the present challenges.

He called on the federal government to look into the activities of illegal refinery operators at the creek and encourage them in the form of modular refineries.

However, Engr. Abubakar Mohammed who specialises in pipeline engineering said the federal government through the NNPC should sale the refineries to investors as scrap.

"Instead of continuously spending billions on TAM, why can't we build new ones and also encourage investors to do same?

"The refineries have outlived their usefulness and I doubt much if they would come back to life and run for years at maximum capacity.

"I am happy Dangote Refinery is about being completed and I hope other visitors would be brave to build similar refineries," he said.

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