Refineries’ rehabilitation: Fresh or old story?



When the federal government announced an increase in the price of petrol, there was outrage across the country, considering the fact that Nigeria is a major oil producer. However, with plans to rehabilitate the nation’s moribund refineries, analysts believe there could be hope in the horizon; BENJAMIN UMUTEME reports.

When in 1959, oil was discovered in Oloibiri, in the present Bayelsa state, it was believed that Nigeria’s development would be fast-tracked, especially with the petrol dollars that would be rolling in due to massive oil exploration. The massive shift in focus from agriculture which accounted for majority of the country’s earnings to oil moved the country into a mono-economy, thus making it to totally rely on foreign exchange from oil to the detriment of other sectors of the economy.

In a bid to further drive the growth of the sector, the federal government built refineries to refine crude for local consumption. And as is the case with every government-run establishment, the refineries were soon to enter a state of disrepair.

TAM

When the federal government decided to build refineries, it was with the aim of cutting down on the amount spent on importing refined products. However, the government’s lack of maintenance and investment culture in these critical national assets has been responsible for the importation of petroleum products for domestic use for many years now.

Accordingly, four refineries, namely, Old Port Harcourt Refinery; capacity 60,000 bpsd commissioned in 1965; Warri Refining and Petrochemical Company; capacity 125,000 bpsd commissioned in 1978; Kaduna Refining and Petrochemical Company; capacity 110,000 bpsd commissioned in 1980 and the New Port Harcourt Refinery; capacity 150,000 bpsd commissioned in 1989 emerged.

Thus, with total installed capacity of 445,000 bpsd, in the last 15-20 years, the plants have been poorly operated leading to an average capacity utilisation of between 15 and 25 per cent. As a result of their near comatose state, the country is left with no other choice than to import fuel to meet local demand.

Unfortunately, the decline in the performance of the local refineries started in the early 1990s when the NNPC was ordered to close its accounts in commercial banks and transfer them to the Central Bank. The situation led to its inability to promptly carry out maintenance of the refineries notably, decisions on when to carry out turnaround maintenance (TAM) and which contractor (s) to execute it came under the influence of the government rather than by professionals within the Corporation. Hence, things very quickly went downhill.

Since the mid-1990s, the refineries have had a checquered history of irregular turn around maintenances which had had a knock-on effect on the state of the refineries. According to figures released by the Senate, the country has so far spent about $25 billion in turnaround maintenance of refineries in the past 25 years. Specifically, the Upper Legislative chamber disclosed that the Nigerian National Petroleum Corporation (NNPC) expanded over $396 million on Turn Around Maintenance on the refineries between 2013 and 2015.

Scores of Nigerians have stated that those who profit from fuel importation have continued to sabotage government’s continuous efforts to carry out an effective TAM of the refineries.

A former governor of Ogun state, Senator Ibikunle Amosun, believes that the lack of maintenance culture in the country is a major reason the refineries are the state they are at the moment.

“Oil should be a blessing to us but in Nigeria, it makes a lot of establishments lazy. We should be concern about it. The refineries are bad and people are now taking the crude outside the country and bringing back refined product to the country at exorbitant prices,” he said.

Similarly, an economist and public affairs commentator, Jude Onah, told Blueprint Weekend that the failure of successive governments to monitor how monies release for TAM is responsible for the sorry state of the refineries.

“With the amount released over the years for turnaround maintenance, it beggars believe that the refineries are still not working. How does the government explain that it releases money for TAM and it cannot explain how the monies were spent. It smacks of corruption,” he said.

A novel approach

In an attempt to wriggle out of the TAM trap, the NNPC took the bold step of going a step further by signing a contract for complete rehabilitation of the refineries. This, the Corporation says, will give the refining plants a new lease of life.

The Corporation’s group managing director, Mele Kyari, last week said as a result of the paucity of funds, the government would be adopting the Build, Operate and Transfer (BOT) strategy to fund the rehabilitation of the refineries.

Kyari said the Corporation resorted to the BOT strategy due dwindling resources resulting from low crude production, falling oil price and OPEC production cuts, adding that those that provided the fund would have a part in running the refineries.

“It is a system where people will put their money and operate it with us, especially the Warri and Kaduna refineries,” he said.

He also said the refineries were deliberately shut down “because the crude pipeline network supplying crude to the refineries was completely compromised due to activities of vandals and others who for reasons known to them do not want the refineries to work.”

The NNPC boss said further that it would have been possible operate the refinery at 69 per cent capacity, but it would be not getting optimum benefit from operating it. According to him, “If you do that it would be like supplying $100 crude and getting out 70 per cent products.”

Analysts are of the opinion that the recent petrol price increase has made it imperative that the refineries start working again. With the new strategy by the state run oil firm, Nigerians are confident that by 2023 which is the completion date of rehabilitation projects, Nigeria will be able to once more begin to refine its crude.

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