PH refinery repair, another misadventure
ANOTHER misadventure in the bid to repair the country’s ailing refineries has taken off with the Nigerian National Petroleum Corporation’s award of a $50 million contract to an Italian firm – Maire Tecnimont – to carry out a technical audit and inspection of equipment at the Port Harcourt Refinery.
This phase foreshadows the Turn Around Maintenance that will gulp a yet-to-be known amount of millions of dollars. According to a Reuters report, the Italian company’s work will span six weeks. After the Port Harcourt Refinery overhaul, others in Warri and Kaduna will take their turn. This move runs against the grain with government’s avowal not to commit more public funds to the repairs after many failed efforts. These refineries are near scraps, therefore, they should be sold.
The four refineries – two in Port Harcourt – have a combined production capacity of 445,000 barrels per day. Official corruption has not allowed them to work, resulting in Nigeria spending a whopping $36.37 billion on petroleum products imports between 2013 and 2017, according to Central Bank of Nigeria statistics. This is a rank national embarrassment, which is emblematic of leadership failure, given that the country is a major crude oil exporter.
President Muhammadu Buhari, on assumption office in 2015, was given the benefit of the doubt that he could do something differently with his knowledge of the sector, having once served as a Commissioner (Minister) of Petroleum Resources under Olusegun Obasanjo’s military regime in 1977-1979. Optimism was further elevated when he appointed Ibe Kachikwu, a technocrat from outside, as the Group Managing Director of the NNPC. His stint there was brief before he was restricted to the Minister of State for Petroleum Resources, a role that he had combined with the NNPC post.
Kachikwu, who had earlier written off the refineries as scraps, has since backpedalled to adopt Buhari’s statist bearing: “Personally, I will have chosen to sell the refineries, but (President) Buhari has instructed that they should be fixed.” In one overdrive of enthusiasm, the minister set 2019 as target and vowed to resign if they were not fixed, in an interview with the BBC.
Like the proposed national air carrier, for which getting a core investor has been elusive, the fruitless and peripatetic search for investors in the refineries has seen Kachikwu shifting the goalpost a number of times. Last November, it dawned on him that the 2019 target of Nigeria achieving self-sufficiency in refining was unrealistic. He has shifted the mark to 2020.
That these refineries are more of liabilities than assets, was why the National Refineries Special Task Force chaired by Idika Kalu, which investigated their functionality level in 2012, recommended their outright sale within 18 months.
Unfortunately, the government that empanelled the committee ignored its well considered finding and continued the shadow-chasing repair game. The Kalu-led panel’s advice remains the only rational option.
Kachikwu is well aware that no amount of government effort will bring them back to their groove. The NNPC had spent N99 billion on their repairs in 2015, using local engineers, after the original builders from Japan and an Italy recommended firm had turned down contractual offers to fix them. They broke down barely three months after.
Sabotage was not far-fetched, evident in his lamentations: “It got to a point where I started wondering whether as we repair this, somebody was going out there to destroy so that contracting will be done.”
The Umaru Yar’Adua government failed Nigeria when it revoked their sale to the Bluestar Consortium at $750 million in 2007 by Olusegun Obasanjo in the twilight of his administration. The odds are stacked even more against them now. There is an ongoing construction of the Dangote Petrochemical Refinery with a 650,000 bpd capacity, expected to commence production in 2020. Other remarkable private sector initiatives are on stream, including the Azikel Refinery in Bayelsa State, licensed to produce 12,000 bpd. It began construction in 2018 and is due to begin operation this year.
With the graft-ridden management of the public refineries and notoriety for breaking down after each repair, they stand no chance at all of surviving or competing with Dangote and other refineries when they become operational. The GMD of the NNPC, Maikanti Baru, should, therefore, refrain from engaging in another round of waste of public funds.
Obviously, this is in pursuit of his illusion to raise the refineries’ capacity to 700,000 bpd from 445,000 bpd, which he stated at an Offshore Technology Conference in Houston, Texas, USA in 2017. He said Nigeria would borrow $6 billion to actualise it, as part of a hefty $16 billion foreign facility, for use in expanding its upstream activities.
But as Diezani Alison-Madueke, a former oil minister observed, government being in the business of running major entities in the country had been an anomaly because “we haven’t done a very good job at it over all these years.” The records, right from the administrations of Sani Abacha, Abdulsalami Abubakar and Obasanjo to Goodluck Jonathan have weighty evidence against committing more money to resuscitate these refineries. No, they are like a dead horse.
Saudi Arabia’s plan to sell part of its equity holding in Aramco in 2018, now shifted to 2019, shows that the downstream oil sector is a private capital playground. Nigeria can no longer pretend about it. The sale of these refineries is overdue. It will boost job creation the way privatised refineries in Singapore provide 10,000 jobs for its people.