Kaduna refinery

BY EMEKA EJERE

In what many see as in line with its desperation to achieve public acceptance of the planned rehabilitation of the Port Harcourt Refinery as a way of enhancing local refining capacity, the federal government is working towards another increase in the pump price of premium motor spirit (PMS) also known as petrol.

The Group Managing Director of the Nigerian National Petroleum Corporation (NNPC), Mele Kyari, had at the fifth edition of the special ministerial briefings coordinated by the presidential communications team last week admitted that the Corporation pays as much as N120 billion to subsidise the price of petrol monthly.

For selling PMS otherwise called petrol at N162 per litre instead of the current landing price of N234 for a litre, the federal government says it is now paying as much as N120 billion monthly to subsidize the estimated 60 million litres of petrol the country consumes daily.

This is coming as the NNPC, the government agency bearing the burden of the subsidy, insisted that the pump price of the product will remain N162 per litre in the month of April to allow government dialogue with the organised labour on the situation.

But the assurances notwithstanding, the GMD, Kyari, has insisted that price would inevitably increase, stressing that market forces must be allowed to determine the pump price of petrol in the country.

Kyari lamented the burden NNPC has inflicted on itself by the ongoing subsidisation of the cost of PMS in the country, saying that sooner than later Nigerians have to pay the actual cost for the commodity.

He said the NNPC absorbs the cost differential, which is recorded in its financial books. “Our current consumption is — evacuation from our depots about 60 million liters, per day. We are selling at N162 to the liter. Current market price is N234, the actual market price today. The difference between the two, multiply by 60 million times thirty, will give you the real price per month. If you want exact figures from our book, I do not have them from this moment but it’s between N100 billion and N120 billion per month. We cannot continue to bear this.”

The current crisis followed an exit from the payment of subsidy, which was announced in March last year and eventual deregulation of the downstream sector. Under the arrangement, the control of pump price is expected to be determined by market forces, especially crude oil price and foreign exchange.

The Nigerian Labour Congress (NLC) and the Trade Union Congress (TUC), unable to stand the speed at which the pump price was heading as crude oil price rebounded at the international market, had held government by the throat after succeeding in reducing the price from N167 to N162 per litre last year.

Organised labour had returned to its earlier position after Sylva and Kyari hinted of a price increase in late January. Since then, government had backpedalled on a liberal market, thereby bringing back subsidy payment, which has always been marred by corruption.

Nigeria, Africa’s biggest oil producer, relies on crude oil for about 50 per cent of government revenues and over 90 per cent of export earnings. The country, however, relies solely on imports to meet its petroleum products needs as its refineries have remained in a state of disrepair for many years despite several reported repairs.

What this means is that while rising oil price brings move revenue to the government, it removes more money from the pockets of the masses by way of higher pump price due to exchange rate.

Perhaps attempt to reverse the trend prompted the Federal Executive Council (FEC), presided over by President Muhammadu Buhari penultimate week to approve the sum of $1.5 billion, about N575 billion, for immediate commencement of rehabilitation work on the largest refining company in the country, the 32-year-old Port Harcourt Refinery.

The Minister of State for Petroleum Resources, Timipre Sylva, who disclosed this to newsmen after the FEC, had said while the first phase is expected to be completed within a period of 28 months, the second and third phases would be completed in 24 and 44 months respectively.

The minister added that the funding has three components from Nigerian National Petroleum Corporation (NNPC), Internally Generated Revenue (IGR), budgetary allocations provisions, and Afreximbank. He also gave the assurance that the government would also facilitate the complete rehabilitation of the Warri and Kaduna refineries before the end of the lifespan of the current administration.

Amounting to waste

However, the announcement raised concerns among Nigerians who wondered why the government would spend such amount on reviving the refinery with little or no chances of success despite being caught up in the web of unemployment, low trade output, infrastructural deficit, and mounting debt among others?

They had rather expected the execution of the federal government’s earlier plan to sell or concession no fewer than 36 of its properties, including the moribund refineries in a bid to raise funds to finance the 2021 budget.

At inception in 1989, the Port Harcourt Refinery had a capacity to process 150,000 barrels of crude a day and was later upgraded to 210,000 barrels per day. The refinery has been repaired innumerable times, under various Turn Around Maintenance (TAM) contracts that had gulped huge amounts.

Findings show that Nigeria has spent about $25 billion in turnaround maintenance of refineries in the past 25 years while NNPC audit report had last year revealed that three of the nation’s four refineries recorded N1.64 trillion cumulative losses in their 2014 to 2018 details.

These were among the bases of the arguments of many critics of the planned refinery rehabilitation, including former Vice President, Atiku Abubakar, Rivers State governor, Nyesom Wike and former Anambra State governor, Peter Obi.

Atiku had described the decision to vote $1.5 billion for the repairs of the Port Harcourt refinery as “suspicious” in a statement read in part:

“At this critical period, we must as a nation be prudent with the use of whatever revenue we are able to generate, and even if we must borrow, we must do so with the utmost responsibility and discipline.

“To therefore budget the sum of $1.5 billion to renovate or turn around the Port Harcourt Refinery would appear to be an unwise use of scarce funds at this critical juncture for a multiplicity of reasons.

“First of all, our refineries have been loss-making for multiple years, and indeed, it is questionable wisdom to throw good money after bad. At other times, I have counseled that the best course of action would be to privatise our refineries, so they can be run more effectively and efficiently.”

Wike saw the news as nothing to cheer about, saying Nigerians should be ready for a deluge of similar promises from the APC government as the 2023 elections draw near. “We have heard these promises and nothing has happened,” he said, adding that “approval is not disbursement of the fund”.

On his part, Obi argued that the planned spending of $1.5 billion by the federal government on renovation of the Port Harcourt Refinery would be a huge waste. Obi who took to twitter to react to the news said the development was worrisome, especially in light of economic situation of the country.

“The news of the planned expenditure of a whopping $1.5 billion for Port Harcourt refinery repairs is worrisome to well-meaning Nigerians. In light of our precarious economic situation, it is a huge waste,” Obi said.

“Our country is on life support, but sadly the managers of our affairs are worsening the situation by their financial rascality.”

Even outside the shores of the country, the International Energy Agency (IEA) has said the plan to rehabilitate government refineries in Nigeria are unlikely to materialize.

“The start-up of the 650 kb/d refinery in Lekki, Nigeria, expected in the next three years, will mark a turning point in the continent’s refining fortunes”, IEA said in a report.

“At the same time, the plans to repair and re-launch the country’s three existing refineries that have not been operating in the recent years, are unlikely to materialise.”

Beyond routine TAM

But the NNPC GMD has maintained that in terms of outlook and job scoping, the rehabilitation project is different from the routine Turn-Around Maintenance, which was last carried out on the Port Harcourt Refinery 21 years ago.

Kyari explains: “We are not doing turnaround maintenance, we are doing rehabilitation of the refinery, and it is very different; it means that we are replacing certain major components.

“We are introducing some items that ordinarily we won’t need to do in turnaround maintenance and there are major shifts in the status of the plant that we have to do and it is not done during turnaround maintenance.

“During rehabilitation, by the 18th month, part of this plant will begin to produce, particularly the gasoline plants. In rehabilitation, we normally don’t shut down the plant completely, we repair a segment of it, and then it starts working, and then, you move to the next segment.

“You continue to scale up and that is why, within the four-year period, the contractor would have completely left your premises. What it means in a technical sense is that in 18 months, we will see production coming from that plant; we will follow it plant by plant until we are completely done.”

Behind the times

But analysts in separate interviews with our correspondent insisted that it does not make economic sense to spend $1.5 billion on a refinery which, according to them, have been overtaken by technology.

A public affairs analyst, Aare Oladeinde Ariyo said: “Technology has overtaken that kind of refinery. Any money spent on Port Harcourt Refinery now is a waste of scarce resources. It is better for government to go into modular refineries.

“In fact, many suspect that this is a ploy for the APC government to corner some money for the 2023 elections.

“The world is moving towards solar and electricity to power automobiles. In the next 10 years, there may not be much need for petrol.

“A broadcast journalist, Ezeugo Chukwudi, said: In the 21st Century, there is no basis for such as action. It will amount to a total waste of time and money to go in that direction now that a lot of pressing needs are fighting over our scarce resources.

“So much has been spent on turn around maintenance, yet no result. What we should do now is to look for alternatives like modular refineries.”

A social commentator Jide Ojo, said: “It is also important for the federal government to note that in a couple of decades from now the developed world is migrating away from the current fossil fuel to clean renewable energy.

“Twenty years or thereabout from now, petrol and diesel powered cars and vehicles would be phased out in western world to be replaced with electric cars. By that time, much of our crude oil will no longer be in demand.

“This is part of the reason the government ought to have sold off the ailing refineries to private sector players who can use their funds to revitalise them.

“I join millions of other patriots to urge the Federal Government to quickly rescind its decision on the obviously futile revitalisation agenda of the moribund refineries!”.

 

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