Despite the promises by the Federal Government to revamp the refineries for better oil production and refining, eight years after, there has not been any appreciable improvement in the refinery sub-sector of the oil and gas industry. Besides, oil production remains abysmally low, with oil theft festering more, MUYIWA LUCAS writes.
For stakeholders in the oil and gas sector, the biggest problem confronting the rising subsidy payment Nigeria has had to contend with is the comatose state of the refineries.
This is because with the state-owned four refineries not functioning, the country has had to depend on importing petrol for local consumption at a huge cost in foreign exchange spending.
The four refineries located in Port Harcourt (two), Warri and Kaduna, have a combined capacity of 445,000 bpd.
The then President-elect, Muhamadu Buhari, in March 2015, blamed the fuel scarcity on the inability of his predecessor, Jonathan Goodluck and past governments to fix the refineries, thereby subjecting the country to be reliant on fuel import.
“The countless man hours that will be spent at petrol stations will reduce our productivity as a nation. This should not be so. In my time as NNPC chairman and Petroleum Minister in the late 1970s, two of our four refineries were built and domestic consumption catered for. But over the last several years, our refineries have declined, and we are at the mercy of imports,” he lamented then.
Whither the refineries
Fixing Nigeria’s unprofitable refineries to functional capacity has remained the promise of every administration since 1999 as the government prefers to pile debt rather than follow the path of examples on how to run a successful refinery or rein in its appetite for waste that has eaten the country’s national budget for decades.
Hope, however, appeared on the horizon for the moribund sub-sector as, upon the assumption of duty on May 29, 2015, Buhari, promised to revamp the country’s refineries. The efforts, after some years in office, began to manifest in March 2021, when the administration awarded a $1.5 billion contract for the Port Harcourt refinery modernisation. The rehabilitation project was to be undertaken in three phases, with completion date set at 2025.
The Federal Government, through the Nigerian National Petroleum Company Limited (NNPCL), aimed to restore the Port Harcourt Refinery complex to 90 per cent of its design capacity by the end of last year.
Similarly, the Federal Executive Council (FEC) also approved the award of contracts worth $1.48 billion for the rehabilitation of the other two major refineries in Nigeria – the Warri Refining and Petrochemical Company (WRPC), with a production capacity of 125,000bpd and Kaduna Refining and Petrochemical Company (KRPC)- with 110,000bpd production capacity in August 2021.
Prior to this rehabilitation approval, the WRPC and KRPC, both subsidiaries of NNPCL, last processed crude oil in May 2019 and June 2019.
Yet, the refineries have remained in comatose, becoming a drainpipes and an avenue for wasteful spending. While the four refineries did not generate income between 2020 and 2021 due to lack of activities, yet several billions were wasted on Turn-Around-Maintenance (TAM).
It is on record that the four refineries recorded deficit of almost N10 billion in 2019, as they did not refine any crude. From documents sighted at the then NNPC, Warri Refinery recorded a deficit of N2.67 billion in the period, while Kaduna Refinery and the two Port Harcourt refineries posted deficits of N4.18 billion and N2.7 billion to bring the total deficit to N9.546billion.
Still, findings showed that between 2015 and 2019, the government spent $550 million and $50 million on TAM of the refineries.
At a virtual conference organised by Atlantic Council, an American think tank, in 2020, the Group Managing Director of the NNPC, Mele Kyari, explained why it had been difficult for the country to put her refineries in top shape.
“First, we never knew what we wanted to do with it; we didn’t get the right advisory, the right strategy to go through this. And we started a process four years ago to getting oil traders to come and help us fix this; that never worked. We also have the strategy to make sure that we get in the original refinery builders to help us do it. That is not their job. It’s just like you are buying a car and saying that Toyota must come and repair it for you, that doesn’t work anywhere,” Kyari explained.
He added that the national oil company was working on building a condensate refinery to achieve self-sufficiency in refined petroleum products, saying the condensate refinery which would have a total refining capacity of 200,000 barrels per day would complement production at Dangote Refinery when it takes off and the four NNPC refineries when they are eventually fixed and revived.
Stakeholders have since warned that until the refineries commence production, it is safe to say that all the cost invested in repairs, maintenance of operations, including payment of personnel without any productions, are a direct loss to the country. The cost of subsidising imports, which hit N6.3 trillion last year, remains a huge loss for the country. The loss to the economy, small medium enterprises, productivity and man hour’s losses to fuel queues arising from scarcity of products, also amounted to unquantifiable losses.
Production drop
It is worrisome to note that the country never met its Organisation of Petroleum Exporting Countries (OPEC) oil production allocation. It has not been able to meet its OPEC production quota for over a year, thereby raising concerns for the country’s revenue. For instance, in February, March, April, and May 2022, oil production fell steadily to 1.25 million bpd, 1.24 million bpd, 1.22 million bpd, and 1.02 million bpd, while in June it rose marginally to 1.15 million bpd, before falling to 1.08 million bpd in July.
In August, it fell to 972,394 bpd and further fell to an all-time low of 937,766 bpd in September, before rising to 1.014 million bpd in October.
The Nigerian Upstream Petroleum Regulatory Commission (NUPRC) in a report stated that between January 2021 and February, last year, Nigeria lost more than 115,000 barrels per day (bpd), valued at $3.27 billion worth of crude oil to oil theft and vandalism.
According to analysts, the steady decline in oil production is associated with operational and maintenance issues, supported by incessant pipeline vandalism, which has prevented the country from meeting its OPEC+ production quota, despite upward adjustment that has seen Nigeria’s production quota rise to 1.8mb/d (excluding condensates).
In addition, capital expenditure investment in the oil and gas sector continues to lag below pre-pandemic levels, despite the passage of the Petroleum Industry Act (PIA).
For the Minister of State for Petroleum Resources, Timipre Sylva, poor investment and the exit of oil majors are major issues affecting the country’s inability to meet the oil production quota. He added that the drive towards renewable energy by climate enthusiasts had discouraged funding for the sector.
Oil theft
More worrisome, however, is the surge in petroleum pipeline vandalism and oil theft under Buhari. The alleged decrease in the petroleum production may be unconnected to surge in pipeline vandalism and crude oil theft incidents in its oil-producing region, a development that worsened the country’s revenue challenge.
Kyari said Nigeria lost $4 billion to oil theft at the rate of 200,000 barrels daily in 2021. As at August 2022, he said the country had lost $1.5 billion because pipeline vandalism escalated, adding that the country was losing 95 per cent of oil production to oil thieves at Bonny Terminal, Rivers State.
Still, in its recent draft fiscal strategy paper for 2023 through 2025, presented by the Minister of Finance, Budget and National Planning, Zainab Ahmed, stated that oil revenue underperformed due to significant production shortfalls such as shut-ins resulting from pipeline vandalism and crude oil theft.
“The actions of vandals on pipelines have become a difficult thing to deal with. There are still ongoing activities of oil thieves and vandals on our pipelines and assets, very visible in the form of illegal refineries that are continuously put up in some locations and insertions into our pipeline network,” Kyari said during the launch of an applications platform to monitor crude oil theft in the country, last August.
Buhari has not hidden his unhappiness on this, declaring that the large-scale crude oil theft, was affecting the country’s revenues “enormously”. He, therefore, instructed security agencies to clamp down on those involved in oil theft in the Niger Delta, adding that Nigeria was also strengthening cooperation with its neighbours to stop criminals syphoning stolen crude by sea.
Former Minister of State, Petroleum Resources, Timipre Sylva, while on visit to security personnel fighting to stamp out oil theft in the Niger Delta, reiterated President Muhammadu Buhari’s directive to end the menace before May 29, stressing that the government can no longer tolerate the criminality in the region.
“He (President Buhari) wants crude oil theft completely eliminated by May 29, 2023 as one of the legacies of his government. This is the message from Mr. President. We are not where we want to be, but we are happy at what we are seeing,” the minister said, adding: “We want to return in another few months to show Nigerians that we have successfully tackled the problem of oil theft and pipeline vandalism in the country.”
According to BudgIT, a Nigerian civic-tech organisation, the government under Buhari lost $74 million daily in 2022 due to the shortfall in crude oil output. The report reads: “Did you know that in 2022, Nigeria lost roughly $74million daily due to decreased crude output? The Federal Government predicted daily crude oil production of 1.88million barrels, but the nation only produced a daily average of 1.14million barrels, resulting in a loss of 740,000 bpd at an average price of $100 pb. While daily production peaked in January at 1.39m barrels and dipped to 937,766 barrels in September of 2022, overall crude oil output dropped from its 2020 high of 546.52m to a 2022 low of 417.20million,” the BudgIT had report said.
Toxic fuel saga
Perhaps another low point in this period was the influx of over 100 million litres of “toxic” fuel in late 2021. The incident led to acute fuel shortage across the country and damaging several vehicles in the process. In February, last year, a large consignment of imported petrol had to be withdrawn from the market, after it was found to have excessive levels of methanol, which was causing engine damage in vehicles, including environmental pollution.
NNPCL, as sole importer of petrol, however, claimed the importation of toxic petrol was not deliberate, insisting that it was impossible for importers to have known that the petrol contained methanol, as checking for the substance was not a primary requirement for the relevant bodies.
Kyari, at an interaction with the House of Representatives Ad-hoc Committee investigating the circumstances that led to the incident, had said: “No one out there will bring this product into this country deliberately. There is no way we would have seen this methanol except your supplier decides to disclose to you because it is not part of their requirements to look for this.” This position, stakeholders argued, raised serious concerns over the regulation of fuel standards.
Compensation
With stakeholders and vehicle owners whose automobile engines were damaged from the usage of this product, calls for compensation rented the air. For instance, at the peak of the incident, the National Coordinator of the Human Rights Writers Association of Nigeria (HURIWA), Emmanuel Onwubiko, had insisted that the oil importers ought to have entered into “constructive dialogues with the government and the victims of their bad fuel on issues of compensations to stave off huge legal damages that may come up if the victims are forced to go to court.”
He called on the Federal Government, to, as a matter of importance, work out and enforce systematic compensations of damages resulting from the use of the toxic fuel by Nigerians, adding: “The defaulting companies should be dragged to court by the government if they fail to compensate their victims.”
While Buhari had taken a tough stance on the incident, unfortunately, it has only turned out to be a mere verbal toughness as nothing has been done to punish perpetrators of the dastardly act.
