Business
Port Harcourt Refinery responsible for high price of fuel – BH investigation
Why the refineries will not work after $3.1bn and N1.2 trillion costs
The revitalized Port Harcourt Refining Company (PHRC) I in Alesa Eleme, Rivers State, may never perform optimally again, despite the huge investments sunk into its revival, Business Hallmark findings have revealed.
While Nigerians are lauding the NNPCL for reviving the refinery and hoping for a drop in price of fuel, BH can authoritatively reveal that the refinery is actually the reason fuel price cannot come down, as it produces at a much higher cost than Dangote Refinery.
According to findings, the refinery which comprises two plants, the recently refurbished old plant commissioned in 1965 with refining capacity of 60,000 barrels per day, as well the modern PHRC II commissioned in 1989, will only be able to utilize a fraction of their installed capacity owing to several identified factors, including old and outdated machinery, redundant workforce and bureaucratic inefficiencies.
It would be recalled that the nation’s four public-owned refineries, the Port Harcourt Refineries I and II, Warri Refinery and Kaduna Refinery with an installed refining capacity of 445,000 barrels per day failed to operate for several years due to lack of maintenance, as well as corrupt and inefficient processes.
At their recent best in 2010, the four refineries combined ran at a loss operating at 30 percent production capacity.
For instance, two of the refineries, Kaduna and Warri, made a paltry revenue of N6.706billion between 2017 and 2019, but incurred losses totalling N631.907billion.
According to the financial statements of the two refineries released by the NNPC, salaries for unproductive workers accounted for N43.25billion, while maintenance of the Kaduna refinery cost N1.6887trillion.
Successive administrations have made valiant efforts to resuscitate the refineries by committing billions of dollars on their turn around maintenance.
Available documents showed that civilian administrations between May 1999 and May 2015 blew over N400 billion on the refineries in the last 16 years without getting the desired results.
The amount is different from the $216 million and $92 million earlier spent for the same purpose by the military administrations of late Gen. Sani Abacha and Gen. Abdusalami Abubakar.
Owing to the inability of the four public owned refineries to refine petroleum products, the country was forced to rely on petrol imports to meet its needs, estimated at 50 to 60 million liters.
The refineries were finally shut down by the NNPC in 2020 for functioning below capacity. Speaking on the shutdown of the moribund refineries in September 2020, the Group Managing Director of NNPCL, Mele Kyari, said it became necessary to stop them from operating altogether having ascertained that they were under performing.
“All the four refineries in three locations are shut down and it was a deliberate decision for two reasons.
“One is that the delivery of crude oil to these refineries is completely challenged because the pipeline network has been completely compromised by vandals and all kinds of people that will not allow us to operate these pipelines.
“That means you are not able to deliver crude oil to these refineries effectively to their maximum capacity.
“Secondly, what you call rehabilitation is different from the turn around maintenance. Turnaround is routine which every refinery does.
“But when you talk about rehabilitation, it is that colossal loss of capacity in the refinery and it means you haven’t done the turnaround maintenance properly”, Kyari has said back in 2020.
In the same vein, the administrations of former President Muhammadu Buhari and incumbent President Bola Tinubu had in the last three and half years expended billions of dollars on the repairs of the four refineries.
Records show that the Federal Executive Council (FEC) approved $1.billion, $897,678,800 million and $586,902,256 million respectively for the rehabilitation of the Port Harcourt, Warri and the Kaduna refineries in April 2021.
While the Warri and Kaduna refineries are still undergoing repairs, construction works on the old Port Harcourt Refinery was mechanically completed in December 2023.
On November 25, 2024, the refinery finally commenced fuel production to the delight of millions of Nigerians expecting a drop in the prices of petroleum products with the ramping up local refining capacity.
Confirming the great stride to BH, on Monday, November 25, 2024, NNPC spokesperson, Femi Soneye, said the production of petrol, diesel, kerosene, naphtha and other products had commenced at the refinery and that fuel loading by trucks would commence the following day.
“NNPC Ltd delivers Port Harcourt Refinery as plant begins truck out of products today, Tuesday 26th November 2024 at 1.45 pm. Watch the commissioning and trucking out event LIVE”, Soneye said in an update.
However, despite the celebrations and official fanfare that greeted the announcement, BH findings revealed that all is not yet well as the refineries, even at their peak, will struggle from operational inefficiencies, notably their limited designs, inability to attain optimal production level as a result of still running on largely old equipment, high cost of production, bloated, aged and redundant workforce and many other challenges.
One of the challenges working against the 60,000 Port Harcourt Refinery I, which is perhaps its biggest headache, BH reliably gathered, was the way it was originally designed and built.
Unlike the new Port Harcourt refinery, which came with full options like the Dangote Refinery in Lekki, Lagos, comprising a Crude Distillation Unit (CDU), a Vacuum Distillation Unit (VDU), a Naphtha Hydrotreating Unit (NHTU), a Catalytic Reforming Unit (CRU), a Continuous Catalyst Regeneration (CCR) Unit, a Kerosene Hydrotreating Unit, a Fluid Catalytic Cracking (FCC) unit and a Dimersol Unit to convert propylene into a gasoline blendstock, the old refinery, comprising one crude distillation unit (CDU), a catalytic reforming unit (CRU) and a Liquefied Petroleum Pas (LPG) plant, was primarily designed to produce straight-run gasoline (Naphtha), kerosene, Automotive Gas Oil (Diesel), Low Pour Fuel Oil (LPFO) and Liquefied Petroleum Gas (LPG).
According to Heurtey Petrochem Solutions, a world leader in process furnaces for refining, petrochemicals, syngas and hydrogen markets, crude oil distillation unit is the first processing unit in virtually all petroleum refineries.
The CDU, also known as the atmospheric distillation unit, distills the incoming crude oil into various fractions of different boiling ranges, each of which are then processed further in the other refinery processing units.
In other words, the CDU sets the stage for subsequent processing steps in units such as hydrocrackers, reformers and desulfurization units.
On the other hand, a CRU converts naphtha already refined from crude oil into liquid products called reformates, which are premium blending stocks for high-octane gasoline (petrol).
Available data suggest that the newly refurbished and commissioned plant can only produce PMS by blending semi-processed petroleum products like naphtha and resins already cracked by Dangote Refinery, Indorarama and highly advanced catalytic cracking units in the new Port Harcourt refinery.
Since the old refinery can only blend petrol for now, it will need to buy its naphtha and other blending feedstocks from producing refineries both locally and abroad at a competitive price, significantly jerking up the production cost of finished products from the plant.
Another problem that might draw back the newly refurbished plant from reaching optimal production level is the advanced age of the facility.
Commissioned in 1965, the old Port Harcourt was designed to operate 100% manually/mechanically and will require massive manpower to run, unlike its biggest competitor, Dangote Refinery, which is semi automated (85% automated).
Energy experts told our correspondent that unlike the old Port Harcourt Refinery, Dangote Refinery, owing to its high level of automation, will save the company billions of dollars in labour costs which would have passed to the final consumers.
Apart from the original design dilemma, BH gathered that though just refurbished, the old PH refinery still retains a large components of the old parts installed more than 60 years ago.
According to the terms of agreement with the contractor executing the Port Harcourt Refinery projects, Tecnimont of Italy, the deal involves only rehabilitation and not an upgrade.
“It is like marrying a 60 year old woman with about 20 to 30 years to function and deciding to get her a new heart. But what the new groom didn’t factor in is the fact that like her heart which was replaced, other ageing parts like the lungs, kidneys, liver, brain, just mention it, which are also old, will need replacements.
“It will be fever today, headache tomorrow, arthritis the day after and dementia the next week. From one problem to another. These are age related ailments that will take time and money to fix.
“Unfortunately, there is nothing that can be done about it as the new bride (Port Harcourt Refinery) due to advanced age will keep breaking down and the groom will continue to keep spending to keep her alive.
“On the other hand, Dangote Refinery is brand new and will, apart from the periodic turn around maintenances, operate for at least 35 to 40 years before needing a major overhaul.
“These are some of the reasons why petrol from the Port Harcourt Refinery is presently selling about N65 above Dangote’s own.
“That’s the unfortunate situation we’ve found ourself in with government’s insistence on reviving the four moribund refineries, instead of privatizing them a long time ago, or scraping and selling the parts still serviceable scraps as advised”, an energy expert who begged for anonymity stated.
Speaking last week during a media tour of the facility arranged to address public misgivings, the Director of Operations of the Nigeria Pipeline Storage Company (NPSC) Ltd, Mr. Moyi Maidunama, inadvertently confirmed the source’s observation by acknowledging a temporary reduction in production, which he said was aimed at improving the delivery capacity of the facility.
“Our operations were not totally halted but reduced due to some of the improvements that we needed to make in terms of getting more loading arms operational”, Maidunama said, which confirmed fears the plant is still having some teething problems.
The old PH Refinery and the three other government owned refineries, BH findings indicated, will not be able to favourable compete with Dangote Refinery and other newly built refineries springing up across the country for lack of competent hands.
Most of the engineers still with the refineries are either too old or too young to manage a refinery, especially old plants needing constant care and attention.
According to a 58-year-old systems specialist, who resigned from the NNPC 17 years ago and relocated abroad for greener pastures, Engr. Tayo Shokunbi, many of his older colleagues still in the employment of the national oil company are out of tune on how to run modern refineries, after practically being idle for up to two decades.
“The four refineries were permanently shut down in 2022. That’s about four years ago. Before that, they were barely producing, with the nation importing over 90% of its petroleum needs from abroad.
“What this means is that without going for further retraining, workers of these refineries are largely redundant and can no longer give their best. Unfortunately, technical staff that were recruited in the last ten years also lack hands-on experience with no operational plants to work in.
“While NNPC have not embarked on meaningful construction works that I know of in the 25 years, many of its businesses, especially the refineries and pipelines have been idle or out of commission. This means that a lot of organisational knowledge was lost within this period.
“Left to compete with new and modern refineries like Dangote, they cannot cope as their products will be more expensive and not market friendly. They cannot survive without getting bailouts from government, which I see as another way of throwing good money at a bad one.
“Without being propped up by government, I don’t see the refineries surviving another 10 years. Something must give. Even refineries in much better conditions in Europe, China and South America are folding up as they can’t compete with newer ones springing up daily in Asia and Africa”, Shokunbi added.
An analysis of a document on the age and renumeration of NNPCL workers seen by our correspondent indicated an average age of 54, and salaries and allowances of each staff N30 million to N48 million per annum.
