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Revamping Of The Refineries

It is unbelievable that fuel scarcity is creeping back barely a month after a two-week-long grueling scarcity that almost crippled the economy. Obviously the seeming respite did not force a serious rethink in government and among operators in the sector for joint and patriotic efforts to find a lasting solution to the controversial supply and demand linkages in the sector.

For now, crude oil remains the country’s mainstay. Realism demands that it should be given the attention it deserves until other sources relieve the country of this natural monopoly. Yet the government that should take the lead in handling the scarcity crisis seems to be more concerned with addressing the crisis gripping its party than solving the crisis threatening the life force of the country. In this absence of effective and appropriate institutional response, things can only get worse and not better.

It’s easy to forget that seven years before the birth of the Fourth Republic in 1999, the country’s refineries produced enough petroleum products to meet local demand and export the excess, thus netting US$124m and US$156m in 1991 and 1992, according to the 2012 Report of the Petroleum Refineries Special Task Force headed by Dr. Kalu Idika Kalu, former Minister of Finance. This Task Force report of a functioning sector just seven years shy of this Fourth Republic formed the basis for the Jonathan administration, which set it up, to begin the restoration of the refineries through phased maintenance.

The government’s intention was indeed patriotic. It completely revised for good the plan by the previous President Obasanjo’s administration to sell off the refineries in 2007, after claiming frustration by the antics of 18 private refinery operators who simply held on to the licenses granted them since 2005. Public outcry stopped the government.

Subsequently, Turn Around Maintenance (TAM) of the refineries became a tango between the original builders of the facilities, Japanese Gas Company (JGC), and the NNPC. Soon, the sustained terrorism by Boko Haram, rampant incidence of kidnapping and continued pipeline vandalism in the Niger Delta reportedly frightened the JGC to chicken out after demanding a futile omnibus risk guarantee as part of the maintenance contract.

JCC refused to honour government’s invitation to rehabilitate the facilities. In the event, a recommended consultant, Technimont of Italy, was said to have submitted such an outrageous bill without performance guarantee that the NNPC with government backing had to choose the viable alternative of sourcing expertise internally to carry out phased maintenance of the refineries. This partly accounts for the slow pace in the ongoing maintenance work of the two 210,000bpd Port Harcourt refineries, and the 120,000bpd Warri and 110,000 Kaduna refineries. That forced choice, it appears, has vindicated itself in the N11.6b annual profit made by one of the two   Port Harcourt refineries rehabilitated so far. This success has encouraged the Corporation to upgrade maintenance to other plants in Warri and Kaduna, allocating modules according to capacity. Interestingly, the commercial department at the PH refineries has reportedly been fired up to adopt ahead of time measures to explore business opportunities inthe sale of fuel and non-fuel products to the tune of N182b.

Raising hopes that the recent crippling petroleum scarcity in the country would soon be over, the Managing Director of the Pipeline and Products Marketing Company (PPMC), Haruna Momoh, disclosed recently that the PH refineries would run at a minimum of 80 percent of installed operational capacity, refining and supplying about 5million litres of petrol daily when the repairs are completed.

Still, there is problem on the way. The international oil companies, IOCs, which maintain a joint venture operation with the NNPC, are compounding matters. They have consistently rejected government’s regulation to refine 50 percent of their crude in the country because of what they consider a non–profitable venture in a regulated market.

What is left now is government backing to enable the NNPC finish the maintenance of the refineries in Kaduna, Warri and the two in Port Harcourt it started since October. Official withdrawal of support or any policy somersault would not only dislocate ongoing maintenance but also send the wrong signal to sectorial operators with unpredictable consequences in an already volatile market. Even if it is only for the test and experience of in-house competencies of the NNPC, the ongoing project should be supported and sustained.

Moreover, the praiseworthy strategies adopted by the Jonathan administration to speed work at the 210,000bpd Port Harcourt refineries should be sustained via the supply of crude by marine transportation, supply of power by an Independent Power Plant (IPP) and the approval for the use of in-house expertise.

If the assurances by the Group Executive Director, Refining and Petrochemicals, NNPC, Mr Ian Udoh, is anything to go by, then the 18 months maintenance timeline should make the country’s refineries with a combined capacity of 445,000bpd operate optimally up to 90 percent of installed capacity by the first quarter of 2016.

Laudable as these efforts are, it is sad to note that only 50 percent of the current daily consumption of 40 million litres of PMS would be met.

To make sure these efforts are not in vain, it is advisable that government adopts pro-active measures that would not only sustain the ongoing restoration efforts but also boost the sector’s self-sufficiency in manpower capacity and efficiency.

We urge the recent 4-man Governor’s probe team of the NNPC to, in addition to their other recommendations, come up with measurable and workable proposals to put the Corporation on track. In the light of the Idika Kalu’s report, the refineries can be restored to their good old profitable days. Other initiatives and policies that could boost the sector’s high performance should be adequately supported. There is the Petroleum Industry Bill (PIB) which if passed and implemented is expected to, among other things, deregulate the sector to allow for more private local and foreign investment. A worthwhile initiative on this front is the proposed 650,000bpd proposed refinery by the Dangote Group expected to come on stream in 2018.

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