Nigeria: How Refineries Can Function Optimally

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Over the years, Federal Government-owned refineries have suffered neglect, resulting in their inability to process crude at their installed capacities, despite efforts by the Nigerian National Petroleum Corporation (NNPC) to put them back into shape. However, experts say the refineries can still function optimally once NNPC is able to garner enough funds, build expertise and ensure the passage of the Petroleum Industry Governance Bill (PIGB), among others, writes AKINOLA AJIBADE

The Group Managing Director, Nigerian National Petroleum Corporation (NNPC), Mallam Mele Kyari, seems to have hit the ground running with his plans to fix the four state-owned refineries by 2023, and return them to their combined capacity of 445,000 barrels of crude oil daily.

The refineries are Warri Refinery and Petrochemical Company (WRPC), Kaduna Petrochemical Refinery Company (KPRC) and Port Harcourt Refineries 1 & 2.

The plans include the establishment of condensate refineries  to fast-track the supply of petroleum products across the country, supporting Dangote Petrochemical Refineries to actualise its dream of processing 650,000 barrels of crude daily and other private investors in the refinery business, in addition to ensuring that Nigeria becomes a net exporter of fuel globally.

Expectedly, the plans were greeted with  applause by stakeholders who believed the idea would open a vista of opportunities for the refineries, which are on the verge of collapse, due to several years of neglect by various governments.

Against this backdrop, there is the need to consider salient issues that border on the establishment of refineries by the Federal Government.

Cost of refineries

The refineries were estimated to have cost the government about $1.5 billion in the 70s and 80s, as the project were spread over time. Of note is that the refineries have become the most-prized national assets in Nigeria, despite their inability to process sufficient fuel for the daily running of the economy.

With the exchange rate at N350 per dollar, the cost of putting a refinery in place is expected to be much higher. The former Managing Director, Nigerian Liquefied and Natural Gas (NLNG) Limited, Mr Godswill Ihetu, said refineries are multi-billion dollar projects and, as such, cannot be allowed to waste by any government that places the welfare of its citizens as a priority. The investment, he said, runs into billions of dollar and the government cannot afford to do away with it.

Challenges

Problems, such as bureaucratic bottlenecks, poor corporate governance, shortage of funds and obsolete equipment, are believed to have hindered the refineries from good performance.

Others are lack of reforms in the industry and difficulties in getting suitable partners to repair the refineries.

The Director, Energy Information Division, Centre for Energy Studies, Nigeria, Prof Omowunmi Iledare, told The Nation that the inability of the stakeholders, including the Federal Government, to  reform the oil and gas sector has caused a drawback to the refineries.

He said lack of reforms has prevented the sector from having a clear-cut policy on the operation of some aspects that are key to its growth, adding that the issue makes monitoring of the sector difficult for the NNPC and other regulators in the industry.

According to him, NNPC and other institutions saddled with supervising the industry depend on political expediency, adding that the issue was preventing them to use what he described as ‘rational economic decision determinants’ to stimulate growth in the industry.

This, he said, was affecting the revenue base of the refineries and other areas. “The great barrier to the attainment of economy of scale in the petroleum industry is political interference, adding that the issue is affecting growth across the value chain,” he said.

Maintenance

The Federal Government has spent $1.6 billion on turnaround maintenance (TAM) of the refineries in the past 15 years. The figure, the immediate past Minister of State for Petroleum Resources, Dr. Ibe Kachikwu, said was ridiculous in view of the state of the economy, adding that the cost of maintaining the refineries should be reviewed downward to grow the economy well.

Kachikwu, who spoke at a stakeholders’ forum in Lagos, advocated the timely repair of the refineries to end fuel import.

Similarly, the Southwest Chairman, National Union of Petroleum and Gas Workers Union (NUPENG), Mr. Tayo Aboyeji, said the billions of dollars spent on the maintenance of the refineries was ridiculous. The Federal Government, he said, should try and fix the refineries, adding that the cost of maintaining the refineries was too high. By fixing the refineries, he said, the country would have enough fuel for its citizens, adding that fuel importation was killing the economy.

Dormant refineries

Some of the refineries are dormant, a development which requires urgent attention to put them back into use. In fact, the output of the refineries have continued to plummet as they posted losses for nine consecutive months, the NNPC has said.

Findings from NNPC’s latest monthly financial and operational report showed the refineries recorded continuous monthly losses from May, last year to January, this year. Further analyses by the NNPC report showed that since January, last year, only Warri Refinery Petrochemical Company was able to make profits in February (N127.91million) and Augus, last year (N578.16million).

The report showed that Kaduna Refinery and Petrochemical Company (KRPC) posted the highest loss of N374 billion for January 2019 as it stayed dormant and failed to refine any crude from January 2018 to January, this year.

The Port Harcourt Refinery recorded loss of N2.11 billion in January 2011 and the refinery was idle from July 2018 to January this year as it could not refine a drop of crude for seven months.

Also, WRPC lost N2.513 billion in January 2019 but the report showed that of the four refineries managed by NNPC, only Warri refinery was able to process some volume of crude oil from January, last year to January this year. In January, this year, Warri refinery processed 104.459 metric tonnes of crude and posted capacity utilisation of 19.76 per cent.

Way forward

Experts said Nigeria is fuel-dependent; as a result, it uses the product for domestic and industrial activities. Nigeria consumes an estimated 35 million litres of fuel daily as against 50-60 million litres before the Federal Government shut its borders to countries, such as  Benin Republic, Ghana, Togo, and Niger in the sub-region where the product was allegedly smuggled to.

Ihetu said it is imperative that NNPC shop for investors to improve the production from the refineries.  NNPC, Ihetu said, must put in place structures that allow corporate governance to thrive, adding that the idea would help in developing the refineries better.  “Lack of good corporate governance has impacted negatively on the operation of the refineries owned 100 per cent by the Federal Government,” he added.

Iledare urged the government to reduce interference in the control of oil business. When this happens, operators would not lack the petroleum policy framework needed to survive in the sector.

“Once the industry is freed from political interference, operators would be able to work well.  Operators would be able to guide themselves by the provisions of the PIGB. With the PIGB, there would be distinctions between policy, regulatory and commercial functions,” he said.

He said selling the refineries in their current state is not the best option, arguing that the country would benefit when the refineries are fixed. “Selling or repairing the refineries should be a technical board decision not a management or ministerial decision, but if NNPC goes ahead to fix the refineries, the better for the country. In future, NNPC can leverage the refineries to achieve more growth,” he said.

The Managing Partner, Zenera Consulting, Mr Meka Olowola, said the plans by NNPC to fix the refineries by 2023 could only be feasible when the country and the industry, in particular, were rid of the challenges facing them. Factors responsible for the continuous interruptions in the industry must be dealt with first before the refineries are fixed, he added..

The problems, he said, include lakaidasical attitude of those in government and poor corporate governance, adding that the problems have resulted in the deterioration of facilities, pipelines vandalism that supply crude to the refineries and government’s inconsistent regulatory approach.

The government, Olowola said, needs to put a better performance to stop irate youths from destroying pipelines and other facilities if the refineries should operate well in the country.

“Refineries are set up to produce specified quantities of agreed products. If for whatever reason, operations are interrupted and they are unable to achieve production goals, the aims have been defeated. To prevent this from happening, when the refineries are fixed, the government has to put up a good performance with a view to stop the operation of the so-called vandals,” he added.

Contracts for the surveillance, Olowola said, must be given to the right firms, adding that the idea would help in gaining the confidence of the communities in which the oil facilities are located

Authored By: Akinola Ajibade

SOURCE: THE NATION

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