Still on the raging controversy over $1.5bn refinery rehab

The news that Nigeria plans to spend $1.5 billion to rehabilitate a refinery that is presently not working has continued to draw the ire of Nigerians. In this report, BENJAMIN UMUTEME looks at the issues around the proposed repairs.

When the Minister of State for Petroleum announced the approval of $1.5 billion for the rehabilitation of the moribund 210,000 barrels per day Port Harcourt refinery, the news sent shockwaves down the spine of many Nigerians.

This has drawn a lot of criticism from Nigerians who expressed doubts over the high maintenance cost and the government’s transparency towards the project. They also expressed their disapproval of ’s decision to spend such a huge sum of money on an asset that they eventually plan to privatise. And rightly justified is the question being asked by many Nigerians.

The first thing that came out of the mouth of many is why spend that huge amount for repairs of a refinery that is not even working? Many experts have opined that deciding to spend $1.5 billion to rehabilitate a refinery that has sunk so much is definitely a mistake for the government when the country’s debt sentence is gradually crippling on the long term.

The opposition against the project is not far-fetched. The Port Harcourt is part of the trio that the NNPC spent $396.33 million between 2013 and 2017 in Turn Around Maintenance (TAM), with no apparent result achieved. In 2019, the refineries were also reported to have lost N167 billion in a consecutive 9-month period, with Port Harcourt refinery alone losing N33.31 billion as it idled away for at least seven months.

The FEC approval

Speaking with the State House Correspondents after the 38th virtual FEC meeting presided over by President Muhammadu Buhari in Abuja, the minister of state for petroleum, Timipre Sylva, revealed the federal government has approved the sum of $1.5 billion to rehabilitate the Port Harcourt refinery. According to Sylva, the rehabilitation will be done in three phases of 18, 24 and 44 months. The contract is expected to be awarded to an Italian company, Tecnimont SPA with funding from NNPC internally generated revenue (IGR), Afreximbank and budgetary provisions.

“The Ministry of Petroleum Resources presented a memo on the rehabilitation of Port Harcourt refinery for the sum of 1.5 billion, and that memo was $1.5 billion and it was approved by council today. So, we are happy to announce that the rehabilitation of productivity refinery will commence in three phases. The first phase is to be completed in 18 months, which will take the refinery to a production of 90 percent of its nameplate capacity.

“The second phase is to be completed in 24 months and all the final stage will be completed in 44 months and consultations are approved.

NNPC’s explanations

Speaking with journalists on Monday in Abuja, NNPC’s GMD, Mele said the approved exercise s a worthy undertaking. He said further that it was embarked upon after diligent consideration and in strict adherence to industry best standards. According to him, the rehabilitation is significantly different from the routine Turn-Around Maintenance which was last carried out on the Port Harcourt Refinery 21 years ago.

Kyari explained that unlike TAM which should normally be executed every two years but was neglected for many years, the rehabilitation project would involve comprehensive repairs of the plant with significant replacement of critical equipment and long lead items to ensure the integrity of the plant on the long term.

On the financing for the project, the NNPC boss said African Export-Import Bank (Afreximbank), as a reliable lender, has agreed to raise $1 billion towards the rehabilitation project. He argued that a credible and capable lender like Afreximbank would never agree to put such a huge amount of money where there would be no value.

Experts’ views

In spite of the various reasons given by the government for the project, many still insist it doesn’t make economic sense for a country that is in dire need of all the foreign exchange it can lay its hands upon to spend $1.5 billion on rehabilitating a refinery that is virtually not working, despite spending N9.8 billion on personnel in 2019, according to the audited financial statement by the Corporation.

For renowned economist Pat Utomi, the approval of $1.5 billion for rehabilitation of a P/Harcourt refinery “does not make any sense in economic logic.”

He said, “Not that you spend $1.5 billion in a country that is in so desperate poverty. That every damn we could find can be invested in productive areas that can create jobs and expand opportunities for the young ones of this country. What is the value of petrol? Where is it going? We know that the world is moving away from fossil fuels.

“Such an investment after you made it, so you can sell it will turn out to be a superfluous investment. It’s a complete waste of money because 20 years from now petrol is not what will be running your cars.”

Similarly, a professor of Petroleum Economy at Baze University, Ahmed Adamu, said while fielding questions on ChannelsTV’s Sunrise Daily, that with an efficiency level of 30 per cent and the huge liability on it has left on the government over the years, the rehabilitation plan is a risky and expensive investment.

“These refineries are outdated. And the money ($1.5 billion) that you are going to use to rehabilitate the Port Harcourt refinery, if you can get three more of that you can build a new refinery,” he said.

On his part, an anti-corruption advisor at The Integrity Organisation, Babatunde Oluajo, was adamant that “it is not in public interest to continue rehabilitation.” According to him, rehabilitation is not the best option as it gives room for corruption. “The interest behind fuel importation will not allow the refineries to function properly.”

In his view, the coordinating director at Praxis Centre, Jaye Gaskia, was even more damning when he told Blueprint Weekend that “these refineries are not moribund as they are trying to make us believe because if they are moribund you won’t be so much interested in selling them.”

‘Rehabilitation well-intentioned’

With a wage bill that is close to N10 billion and no revenue from the refinery over the years, Uche Uwaleke, a financial economist, believes that rehabilitation of the refinery will address the problem. According to him, the essence of the rehabilitation is to make it viable.

He said, “Why initial reaction was why rehabilitation again until I got more information. The last TAM was for the refinery was in year 2000 and since then it has been left to decay. But this time around what government is seeking to do is to rehabilitate, that means changing significantly some if those equipment, bringing them up to date so that at the end of the day the capacity of the refinery can be restored. I think it is something that is well intentioned.

“When you look at the funding, the Afreximbank is bringing close to $1 billion and the government is bringing $500 million. The bank as a credible institution cannot commit its funds in that kind of venture if it was not sure that it’s not going to be viable. That is why it is an Operate and Maintain contract. This is a case of a self liquidating loan, you are putting the money in a project that will pay itself, so in a way, it’s not going to add additional burden to the debt situation.”

Be the first to comment

Leave a Reply