The recurring issue of fuel scarcity across the country in recent times has raised fresh debates about the state of the nation’s refineries with some of the critical stakeholders blaming the problem on the twin evils of bureaucracy and corruption. Ibrahim Apekhade Yusuf in this report, examines the issue
It’s true that Nigeria first discovered crude oil in commercial quantities in Oloibiri, Port Harcourt, in 1958. Of course, for those who witnessed that era, it was a real moment of discovery for the young independent country as the communities, and indeed Nigerians brought out their drums and cymbals to celebrate the good fortune. But several decades after, with the benefit of hindsight, not a few who witnessed that glorious day would argue that that prized resource, the proverbial black gold has turned out to be a bad omen for the country. All the promise of that discovery sadly lay in the past.
An insider’s perspective
In the view of some discerning Nigerians, since the discovery of crude oil in the late 50’s, the country, in a manner of speaking, has literally endured the “resource curse.”
Reason: the much sought-after black gold, with all its benefits, has been the cause of many woes including corruption that is endemic in the system.
In the upstream sector of the petroleum sector for instance, the hydra-headed monster of corruption has been there from the beginning.
Chief Benjamin Nnadi, a petroleum engineer and pioneer staff of Warri Refining & Petrochemical Company Limited (WRPC), where he worked for over 12 years, sadly reminisces about what transpired during his active working career at the WRPC.
“As young men working at Warri Refining & Petrochemical Company Limited (WRPC), we all looked forward with optimism when the Italians set to work in the late 70’s when the ground work for the first refinery was being built. But it saddens my heart that what the Italians bequeathed to us at the end was a caricature refinery and not a brand new refinery as was anticipated by many of us at the time,” Nnadi began.
Expatiating, he said: “As a retiree, each time I hear that Warri Refinery is not working I’m surprised because it was never built to work efficiently… The whole machinery should be scrapped… Most of the machineries they brought in were not brand new. They were sandblasted and repainted, which explains why the refinery has never worked at maximum installed capacity because I recall that anytime we wanted to raise its capacity everything will just ground to a halt…Things were really bad. And this is why I heaved a sigh of relief when I was redeployed to Benin in 1990 and later to Lagos to work at NAPIMS where I worked until my retirement in 2004.”
The foregoing terse statement speaks volume of the parlous state of the Warri refinery, albeit, the other refineries namely Port Harcourt Port Refining Company (PHRC), Kaduna Refining & Petrochemical Company Limited (KRPC).
A divergent opinion
In the view of the former Project Manager/Managing Director of the NNPC’s Eleme Petrochemicals Company limited, Dr Edet Oahimin-Akhimien, the refineries can still be revived despite the many hiccups.
Speaking in an exclusive interview with our correspondent, he said: “The refineries can still serve because if the refineries have been operating and running as they should be, there’s no reason why they should not be running now. I read in the papers today (Thursday) that the NNPC was going to bring back the contractors who built the refineries to help with their refurbishments and revamping and so on, which I think is a very good step. In fact, many refineries in the world are old and still running smoothly. I was somewhere and somebody said no new refinery has been built in America in the last 10 years or more. The youngest refinery in America should be about 20 years old.”
State of refineries
It would be recalled that former President Olusegun Obasanjo had embarked on the privatisation of the refineries in 2007 but it was later upturned by the late Musa Yar’Adua because the latter felt certain interest in the north and south were sidelined in the scheme of things.
From available information, the four refineries have a combined installed capacity of 445,000 bpd. The PHRC is made up of two refineries, located at Alesa Eleme near Port Harcourt with a jetty (for product import and export). The jetty is located 7.5km away from the refinery complex.
In 1983, the Port Harcourt refinery with 60,000 bpsd name plate CDU capacity and the tankage facilities were acquired by NNPC from Shell. Subsequently, a new 150,000 bpsd export refinery was built in 1988 and commissioned in 1989.
The current combined installed capacity of PHRC is 210,000 bpsd. The installed capacities of KRPC and WRPC are 110,000 bpsd and 125,000 bpsd respectively.
Notwithstanding the cheery statistics, the country has never enjoyed the benefits of the refineries as it has had to import refine crude in large quantities to augment local consumption, albeit, at a drain on the nation’s resources.
While giving his own perspective on the state of the refineries, the former Lagos Zonal Chairman of Petroleum and Natural Gas Senior Staff Association of Nigeria, PENGASSAN, Reverend (Comrade) Folorunso Oginni in an interview with The Nation regretted that a lot has gone awry over the years as such would require a careful and concerted efforts on the part of all concerned to turn the tide.
Poor maintenance culture
The country, analysts, have argued, has a poor maintenance corporate culture, refineries inclusive. The 150000 bpd Port Harcourt refinery was built in 1989. TAM operations were carried out in 1991, 1994, 2000.
The Kalu Idika Kalu Committee had in May 2012 during a visit to the Port Harcourt refinery found the federal government four boilers non-operational. Two out of the four power plants were down.
Besides, there was evidence of poor maintenance with serious corrosion of major key units just as morale of the workers was low and management was dysfunctional with little or no financial authority.
The last major TAM was in 2000. It will have to be modernised and upgraded, the committee concluded.
The same goes for the 110000 bpd Kaduna refinery, which had its last TAM in 2008. The one before that was in 1998 after a major fire. Production is at 25% of installed capacity. The 125000 bpd Warri refinery is also operating at 25% installed capacity. TAM operations were carried out in 1994, 2000 and 2008.
ABC of TAM
Refinery turnaround maintenance (TAM) is a planned partial or full shutdown of one or more units of a refinery in order to perform inspection, repair, and maintenance of equipment to ensure safe and efficient operations. Material and obsolete equipment are replaced. A refinery TAM takes place every three-five years and requires about one-two years of advance planning. The actual TAM operations take about 6-12 weeks.
A well implemented TAM programme reduces unplanned disruption of production activities in a refinery and helps maintain operations at more than 80% capacity utilisation.
A case for TAM
In its quest to achieve 90 per cent optimum capacity utilisation of the refineries the federal government proposed $1.6billion for TAM in all the four refineries from 2013-14.
Justifying the need for the TAM at the time, the then Minister of Petroleum Resources, Mrs. Diezani Alison-Madueke, said it was capable of turning the side in the sector.
The PHRC plants had operated for 12 years without TAM and this has caused the equipment to deteriorate and operate on very low efficiency.
Losses galore
According to independent checks by The Nation, the refineries are currently operating at huge losses. They are all operating at a loss, no thanks to the spate of pipeline vandalism, fuel theft, among others.
For instance, the NNPC recently revealed that about 45 per cent of refined products from the Kaduna Refinery have been stolen by unknown persons.
This accounts for total loss of about N12.5 billion revenue in five years by the Kaduna Refining and Petrochemical Company (KRPC), a subsidiary of the NNPC.
Though the management of the subsidiary said it had severally alerted the security agencies on how some people siphon the refined products through a nearby river to the refinery, nothing had been done to arrest the situation.
“Some of the staff of the Kaduna Refinery have suffered injuries and personal losses in our bid to put a stop to the stealing,” the official said.
Confirming the development in a statement issued recently, the NNPC Group General Manager, Group Public Affairs Division, Mr. Ndu Ughamadu, said the major threat of the refinery is inadequate security, which has been responsible for a huge loss being borne by the Corporation.
He however disclosed that the Kaduna Refinery is currently operating at 65 per cent installed capacity, producing 1.7 million litres of petrol, 1.7 million litres of diesel and 700,000 litres of kerosene daily.
He lamented however, that certain percentage of the products is stolen.
No longer at ease with fuel scarcity
The Minister for State for Petroleum, Ibe Kachikwu, recently admitted, to a joint National Assembly Committee, that NNPC does not have the capacity to comprehensively supply 100% of Nigeria’s fuel requirement, which is currently estimated at between 30-40 million litre daily.
According to the minister, billions of Naira repeatedly spent to revamp the existing refineries from 2015-2016, would have at least produced a modest steady output to supplement imported fuel.
While addressing the NASS joint committee on Petroleum Resources, on 4th January 2018, the Minister also suggested that “non performance of refineries” was due to factors, which include fraud and a lack of holistic maintenance programme.
Regrettably, however, the Minister did not report what steps were taken to punish the perpetrators of fraud or to indeed, arrest the degree of fraud in these public refineries, which have clearly gulped more money on basic ‘Turn Around Maintenance’ than is probably required to build more efficient new facilities.
According to Kachikwu, “it got to a point where I started wondering whether as we repair this, somebody was going out there to destroy, so that contracting can be done”. Surprisingly, however, despite media reports of billions of dollars spent, the Minister noted that “over the last 10-15 years, we have not done a serious, conclusive Turn Around Maintenance of these refineries.”
In retrospect, Kachikwu had, infact, told reporters in Abuja on 15th December 2015, that “fuel price would no longer be fixed” and also noted that “the price of crude would continue to determine what petrol price will be.”
It is instructive to note that Kachikwu’s statement on fuel price ‘deregulation’, was made at a time when crude oil price, was expected to remain below $40/barrel going forward. Invariably, the December 2017 extremely volatile, fuel scarcity “season”, blew apart earlier permutations and assurances of a stable and sustainable fuel price.
Ironically, however, instead of celebrating more dollar income from much higher crude oil prices above $60/barrel (especially when budget 2017 benchmark is a modest $44.5/barrel), the reverse is actually the case, as higher crude prices have invariably, induced a landed cost (not pump selling price) of N171/litre, while N145/litre remains regulated selling price.
However, the Minister confirmed to the Joint Committee of the National Assembly, on 4th January 2018, that the acute fuel scarcity of December 2017 was primarily the result of major factors, such as “diversion of products, low speed of clearing of petrol imports from the ports and a lack of sufficient reserves.”
Kachikwu further revealed that the disparity between the present landing cost of N171/litre and the current regulated price of N145/litre, has resulted in a daily loss of N800-900m to the NNPC. Consequently, according to Kachikwu, the Executive arm of Government “is currently working on modalities to permanently resolve the petrol crisis, and prevent it from rearing its head any other time”.
Towards, this end, the minister confirmed that government has lately set up a committee “to find ways out of the pricing problem, until the refineries become functional in 18 months time”.
The first option, according to the minister is “for the CBN to allow all marketers access to forex at the rate of N204/$1, as against the official rate of N305, so that petrol pump price can remain unchanged at N145/litre.”
Instructively, however, a casual investigation will reveal that petrol pump price presently hovers around $1/litre in neighboring ECOWAS countries, and this large price disparity will obviously encourage mass cross border smuggling and provide additional subsidy to the economy of our ECOWAS neighbors, despite the burden of higher fiscal deficits for Nigeria.
The second option that Kachikwus’ committee’s would consider is “to give room for modulated regulation, where petrol would sell at N145/litre in all NNPC outlets nationwide, while Independent marketers could sell their imports at whatever price is profitable from their own outlets.”
Again, this option is also a no brainer; it is clearly a deliberate ploy for NNPC to gradually reduce its participation in fuel imports, so that, ultimately, private marketers can sell at much higher profitable prices without any subsidy; inevitably, however, much higher fuel prices will sustain higher inflation rates to deepen poverty nationwide. Again, this option is ultimately a camouflage, for full price deregulation and its will invariably pump up fuel price nearer $1/litre(or N305/litre). Ultimately, inflation will invariably spiral out of control if fuel price approached N300/litre or more.
Modular refineries to the rescue
The idea of modular refineries which had in the pipeline since the administration of former President Olusegun Obasanjo may have finally berthed after much procrastination.
Thankfully, Vice President Yemi Osinbajo last December confirmed that 10 modular refineries were at advanced stages of development in the Niger Delta.
According to his Special Assistant on Media and Publicity, Mr Laolu Akande, the 10 modular refineries were located in five out of the nine states in the Niger Delta region. They are located in Akwa Ibom, Cross River, Delta, Edo and Imo states.
Osinbajo said that two of the refineries, Amakpe Refinery (Akwa Ibom), and OPAC Refinery (Delta State), have their mini-refineries modules already fabricated, assembled and containerised overseas, ready for shipment to Nigeria for installation.
The total proposed refining capacities of the 10 licensed refineries stands at 300,000 barrels. “Advanced stage of development for the modular refineries means that the projects have passed the Licence to Establish (LTE) stage, while some have the Authority to Construct (ATC) licence or close to having it because they have met some critical requirements in the licensed stage.
“There are three stages in the process of refinery establishment; Licence to Establish (LTE), Authority to Construct (ATC) and Licence to Operate (LTO).’’
The Vice President believes the modular refinery initiative which featured prominently in recent talks between the Federal Government and the oil-producing areas, as represented by PANDEF, will also reposition the petroleum industry. They would ensure self-sufficiency of petroleum products while serving as a disincentive for illegal refineries and oil pollution.
According to him, the Buhari’s administration is committed to promoting the establishment of privately financed modular refineries so as to increase local refining capacity, create jobs, ensure peace and stability in the Niger Delta. He explained that end-of-the-year review meeting of the Niger Delta Inter-Ministerial Committee was hold at the Presidential Villa, Abuja.
Osinbajo noted that the Federal Government, in line with its Niger Delta New Vision, was targeting measurable objectives in its efforts towards implementing development projects in the region.
He added that the December 22 meeting received a report that 38 licensed privately financed greenfield and mini-modular refineries investors have so far indicated interests in the establishment of refineries in the region.
At least ten of the licensed refineries investors are at an advanced stage of development.
The Vice President directed the Federal Ministry of Petroleum Resources to keep providing the necessary support and creating the enabling environment for positive investments in modular refineries by engaging key government agencies.
The agencies include the Niger Delta Development Commission, NDDC, Nigerian Content Development & Monitoring Board, NCDMB, and financial institutions, including the International Finance Corporation, African Export-Import Bank (Afreximbank), Nigerian Sovereign Investment Authority, Bank of Industry, amongst others.
However, according to Oahimin-Akhimien, who once served as project engineer in Warri Refinery project, said matter-of-factly that the attention and focus on modular refineries is just to calm frayed nerves over the lingering fuel scarcity as such, Nigerian should manage their expectations about the idea.
Waiting for Dangote refinery
Interestingly, it is hoped that with the planned completion of Dangote’s 650,000 barrel/day Lekki refinery later this year, Nigerians would indeed heave a sigh of relief as far as availability and cost effectiveness of petrol pricing is concerned.
But time would tell whether this is a blessed assurance or mere wishful thinking.
