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Kachikwu Unfolds New Business Model For Refineries

...Dazzles Senate With Rockstar Performance

Sopuruchi Onwuka

The Group Managing Director of the Nigerian National Petroleum Corporation (NNPC), Dr. Ibe Kachikwu, who scaled ministerial screening at the chambers of the National Assembly left Nigerians with a message of hope as he unveiled new business model for the country’s refineries.
Heads were up at the National Assembly, and millions of Nigerian homes where the ministerial screening were watched on live telecasts, when Dr. Kachikwu gave assurances that all the local refineries would start working by the end of the year to displace massive fuel imports, cut huge import bills, reduce pressure on the nation’s lean foreign exchange revenue and create multiplier effects in the domestic economy.
He reiterated his confidence and trust in the technical workforce of the refinery, saying that over 80 percent of the nation’s technical skills pool for operations of the NNPC are competent and pointed at the achievements of the Port Harcourt Refining Company (PHRC) at rehabilitating its plants as part of the potentials available in the industry.
Dr. Kachikwu whose response to legislators’ questions presented a business flip of the Nigeria petroleum industry promised to drive operations model that would place the corporation on a performance platform that would guarantee commercial viability.
In giving detailed explanation of a reform package that would soon be activated to re-inject vibrancy in the entire petroleum industry, he pointed at plans to enhance efficiency and transparency in the sector, as well as restructure the national oil firm to be competitive across the full value chain of the industry.
He promised to build local capacity across the entire business units of the corporation to enable it live up to the roles as domestic industry leader, government’s revenue earner, custodian of national petroleum assets and lead domestic fuel market supplier.
He said all the programme targets would only be a dream unless operations of all the business arms of the corporation are profitable. He singled out the refineries for emphasis, pointing at their new role as profit centers, reliable fuel sources and feedstock sources for ancillary businesses.
He gave examples with the new business model at the Port Harcourt Refining Company Limited (PHRC) which he said has become the sign post of domestic technical ingenuity, internal innovation and revival model for sister refineries in Warri and Kaduna respectively.
The refineries collectively hold capacity for 445,000 barrels of crude oil processing per day, producing some 18 million liters of the premium motor spirit which is highly prized in the country as the main fuel for transportation and light machines used by homes and small businesses.
However, they have remained largely moribund for years due to poor maintenance and wrong business models as they relied on parent NNPC for administrative and funding control, a system that slowed processes and starved them of funding.
Dr. Kachikwu who is tipped to become the junior but powerful petroleum minister declared that the new business model which he said has been activated in the system would dismantle all administrative and funding constraints at all the corporation’s business units, especially the refineries, and leverage internal energies and competencies in optimising uptime at the plants.
He had earlier declared in Lagos that the refineries are of strategic national economic and security importance and restated the commitment of his administration to not only recover their capacity but also explore opportunities of building new plants in a plan that would leverage economies of scale at existing industry hubs.
Dr. Kachikwu, stated that all the nation’s refineries must revamp and attain 60 percent process capacity by December when government would consider the best management model to adopt in making them efficient.
Below 60 percent capacity, he said, any of the refineries would no longer operate profitably and would not be supplied crude oil feedstock through traditional allocation processes. He said the situation would leave the corporation with the option of exploring private sector management for any underperforming refinery.
He specified that the acceptable 60 percent performance benchmark must not be a flash in the pan, adding that it would require sustainable uptime at the refinery’s fluid catalytic cracking unit (FCCU) which, according to experts, is the optimum process unit.
To scale the 60 percent performance hurdle the refineries must add value to crude oil at all the process units in order to cut waste, enhance commerciality of operations and optimize resources.
He said the new government met the nation’s 445,000 barrels per day installed refining capacity at an average performance level of about 30 percent.
Interestingly, out of the three refineries, only the 210, 000 barrels per day Port Harcourt Refining Company (PHRC) Limited currently has all its three key process units including the Crude Distillation Unit (CDU), Vapour Distillation Unit (VDU) and Fluid Catalytic Cracking Unit (FCCU) on-stream after an internal rehabilitation programme.
The company which initiated and successfully evolved the downstream petroleum industry local content model for in-country refinery refurbishment and upgrade is already working to ramp up its production performance level to 80 percent installed capacity in order to enter a sustainable commercial comfort zone.
Dr. Kachikwu pointed out that only PHRC appears to have crossed the performance hurdle and stressed that government would no longer run unprofitable businesses when better option exist in private sector partnership.
After revamping the refineries, he said, their business models would be examined to determine the management approach to take. The model, he said, would protect and preserve the public interest in the refineries without compromising efficient commercial and technical operations standards.
In providing market outlook for the local petroleum industry, Dr. Kachikwu said plans were on to expand existing refineries to broaden the country’s revenue windows under the prevailing crude oil price downfall.
He said that in driving the expansion, government would also explore localization of refinery industry around existing facilities in order to maximize economies of scale, optimize industry skill set and beat down cost drivers in the business.

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