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Published On: Sun, Sep 17th, 2017

Planned rehabilitation of refineries challenges past experience of state control

         

The state of the country’s refineries is so decrepit that any attempt to delay in selling them would amount to a desire to sell scraps. Though the senate agreed that it should be repaired, and the group managing director has already set up seven committees for total turn around at optimum capacity by 2019, many analysts believe the best option is to sell. Adebayo Obajemu takes a look at Maikanti Baru’s planned rehabilitation of the refineries.

Now, NNPC has once again announced a new set of plans to do a total overhaul of the refineries by setting up seven committees with a timeline of  2019 to full capacity utilisation. Already, it has also announced a repair effort on the three refineries in Warri, Port Harcourt and Kaduna. The NNPC Group Managing Director, Dr. Maikanti Baru, said this in Abuja last Wednesday on the sidelines of the inaugural Nigerian Pipeline Security Conference and Exhibition, organised by the Pipeline Association of Nigeria (PLAN).

According to Baru, the comprehensive rehabilitation is aimed at bringing the refineries in Warri, Kaduna and Port Harcourt back to their nameplate production capacities. The NNPC boss expressed optimism that the refineries would return as new facilities after the overhaul ahead of Nigeria’s plan to stop the importation of petroleum products by 2019.

“As you know, it has been the perception of the public that the repairs of the refineries are never done thoroughly; so this time, our intention is to shut down the refineries when we are ready. We will then fully bring them back to what they should be as new refineries.

“Obviously, it is going to be a complex procedure; and as such, we have to breakdown the various work packages to ensure that all the various workforce have sufficient focus,’’ Baru said. He explained that the eight committees on the refineries’ rehabilitation that were inaugurated comprised top management officials that would be having a day-to-day look at the work streams.

“We intend to focus on the repairs of the refineries with all that it takes to ensure that by the time we are done by 2019, these refineries will be as good as new,’’ he said.

In an address at the event, Baru said the incessant breakages of critical crude oil pipelines such as the Trans Niger Pipeline (TNP) and Forcados, had contributed to the recession the country experienced. He said in 2016, the TNP and Forcados collectively recorded breaks on their various segments, which resulted in about 700,000 barrels per day (bpd) loss of oil production.

“In 2016, the Trans Niger Pipeline (TNP) with a capacity of 150,000 bpd was breached 39 times. Year-To-Date 2017, we have recorded 27 breaching incidents on the TNP. For the Trans Forcados Pipeline (TFP) with a capacity of 300,000 bpd, we recorded 17 breaches in 2016 while Year-To-Date 2017, we have recorded at least 15 breaching incidents on the TFP.

“On the average in 2016, about 700,000 barrels of oil per day were deferred due to pipeline vandalism,” he explained.

He further said towards the end of first and second quarter of 2016, the attacks on pipeline reached the highest point when the two major crude oil export pipelines of Forcados Oil Terminal (FOT) and Qua Iboe Terminal (QIT) were lost due to sabotage.

“Nigerian daily production during the period went down as low as 1.3 million barrels from 2.2 million barrels targeted during the same period.

“Similarly, because of the inter relationship between the crude pipeline and condensate evacuation from the gas plants, power generation in the country also dropped significantly as the gas plants had to shut down, thereby resulting in shortages in gas supply to power.

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“At present, huge amount of money is spent on protecting these pipelines which significantly add to the cost of production.

“The foregoing summarises the effect of pipeline vandalism and therefore underscores the importance of protecting our pipeline system and treating them as national assets.

“The huge capital investment made in the pipeline network across the country should trigger more resolute determination to finding lasting solutions to the perennial challenges threatening the future of pipeline infrastructure in the country,” Baru said.

Earlier, a statement from Mr Ndu Ughamadu, the NNPC Group General Manager, Group Public Affairs Division, said the corporation was working in line with President Muhammadu Buhari’s mandate to rehabilitate the three refineries.

Ughamadu said that more than 28 Expressions of Interest (EoIs) had been received so far by the corporation from private funding sources for the refineries’ rehabilitation project, adding it was expecting more EoIs by the end of the year.

Ughamadu quoted Baru as saying: “We want to show everyone that we can fully run the refineries. You must all work together to operate them at 100 per cent capacity as this was the only way to ensure profitability.

“We can fix the refineries but without the right people to operate them, they would go back to where they were or even worse.’’

As it is the federal government is not keen on sale, but analysts are of the view that the refineries will suffer hiccups when Dangote’s refinery dubbed the largest comes on stream. .

The most troubling dysfunction in the oil and gas industry in the country over the years is the gradual destruction of the existing four oil refineries in the country without holding anybody culpable and liable. In addition to this is the inability or unwillingness of the Federal Government to sell off the refineries to private operators in accordance with the privatization of poorly managed public enterprises since November 2013 when the power sector was unbundled and privatized.

According to reliable figures, the government has reportedly spent over N264 billion on refinery repairs in 16 years alone, not to talk of the amount spent on other sundry matters for the continuity of the refineries as a going concern.

This whopping sum is aside of the $308 million reportedly spent for the same purpose by the military governments of the late General Sani Abacha ($216 million) and retired General Abdusalami Abubakar ($92 million).

In spite of these figures there is nothing to show for it. The refineries have not performed up to expectations. Their services in terms of refining of crude oil for local consumption have been epileptic at best.

Built to refine 445,000 barrels of crude per day, Nigeria’s four refineries, located in Port Harcourt, Warri and Kaduna have, over the years, suffered what one analyst described as “total disrepair and comprehensive paralysis in the past three decades.” Although Nigeria produces millions of barrels of crude oil per day, the failure of the oil refineries has led to importation of refined petroleum products which alone consumes about 35 percent of our annual import bills.

Whenever the refineries manage to resume production after a lengthy repair work, hardly do they work for up to 90 days before shutting down again, thus perpetuating the maintenance cycle.

Dr Ibe Kachikwu had earlier on May 9, 2017, announced that the Nigerian Agip Oil Company, a subsidiary of Eni, an Italian oil giant, had committed to repairing the Port Harcourt refinery, as part of a $15 billion investment that includes building a 150 thousand barrels per day refinery and a power plant. The plan was aimed at strengthening Nigeria’s drive to end fuel importation by 2019, Kachikwu said.

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However, the major setback in the downstream sector occurred not over Turn-Around-Maintenance but over the privatization of the refineries in late 2006. President Obasanjo administration had then embarked on the privatization of the refineries to the private sector operators notably Dangote, believing that it was the way to go. At that time, nobody doubted the relative sincerity of the decision, even though some quarters criticized the privatization exercise as favouring his cronies in the private sector.

However, the privatization was reversed by late President Umaru Musa Yar’Adua in 2007 on the ground that the privatization exercise then was not transparent enough – and at any rate the Nigerian State was not willing at all in the first place to be left without control of the downstream sector.

The decision to reverse the sales of the refineries was definitely not unconnected with the fact that the political balance of forces has changed with the election of Umaru Musa Yar’Adua. But fundamentally, Yar’Adua did not believe much in privatization. Rather he believed in the ideology of state-capitalism, i.e. state-driven economic development.

Soon after the late President Musa Yar’Adua stopped the sale of the refineries in 2007, the NNPC reportedly announced that it had awarded a contract to a Nigerian firm to carry out comprehensive turnaround maintenance on all the refineries. The contract sum was said to be $57m. Nothing came out of that contract.

Similarly in 2009, the then Group Managing Director (GMD) of the NNPC, Alhaji Mohammed Sanusi Barkindo, also announced that the corporation spent $200m on the maintenance of the Kaduna refinery alone. Nobody could account for how the contract was executed and the beneficial fallouts.

A former group executive director, corporate strategy of the NNPC, Dr. Tim Okon, told a Senate committee in 2015 that when the corporation invited the original builders from Japan and Italy for the turnaround maintenance, they declined and recommended Saipem, a foreign firm operating in Nigeria, to carry out the maintenance on their behalf.

Why did the foreign firms reject the contract offers? What did they see that we did not see, that informed their decisions to reject the contract offers? Why did they recommend Saipem? Why the original builders declined the invitation was not known. But it can be speculated that they don’t want to be dragged into the murky water of the Nigerian oil sector. They are conscious of their global corporate integrity and want to safeguard this. Nobody can blame them.

In February 2015, the NNPC announced that local engineers repaired the refineries at a cost of N99b following the refusal of the original builders of the refineries to handle the maintenance contracts. The refineries only functioned for less than three months before they were shut down again. Furthermore, the NNPC, in a document made available to investors at a road show in China sometimes ago, said it would require between $1.4b and $1.8bn rehabilitating the refineries.

The failures of repairs are unending while the requests for fresh repairs are also insatiable. The nation is caught between the Scylla and the Charibdis, between the Devil and the Rock, not knowing which way to go. It is one of the greatest dilemmas of our times in the evolution of the current political economic system.

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