The presidential mandate is for the refineries to work optimally by the end of this year. Dr. Emmanuel Ibe Kachikwu, Group Managing Director (GMD), Nigerian National Petroleum Corporation (NNPC), who has been tasked to revitalise the refineries, says any unprofitable refinery would be up for grabs next month. JOHN OFIKHENUA examines the issues at stake.
In another 60 days, the fate of local refineries would be decided. The downstream sub-sector of the petroleum industry is counting down to the December deadline for the refineries to justify why the Federal Government should continue to invest in their Turn Around Maintenance (TAM).
The government, through the Nigerian National Petroleum Corporation (NNPC), is sinking fortune into the reactivation of the refineries to boost domestic production of refineries before deciding what to do with fuel subsidy. The petroleum industry is mainstay of the nation’s economy. But as part of ways to develop other sources of income, the government is considering the development mining, agriculture and other sectors to diversify the economy.
Minister designate and the Group Managing Director (GMD) of the NNPC, Dr Emmanuel Ibe Kachikwu, told the Senate during his screening that any non-performing refinery would be shut down by December. Issues bothering on subsidy and the state of the refineries formed the planks of interaction between Kachikwu and the senate.
Should the NNPC exhaust all maintenance options on any of the refineries without attaining optimum refining capacity, the corporation will shut it down and offer such sale, he told the senators.
In his clarification on the durability of the refineries, he said that they have a life- span of 50 to 60 years with regular maintenance. But he told the Senate that the refineries have been denied necessary routine maintenance for 10 year, a negligence he blamed for their collapse.
Ironically, managers of the refineries hid under the Turn Around Maintenance (TAM) programme to secure approval and release of funds from successive administrations without having anything to show for the billions of naira they got for the maintenance of the facilities.
In the twilight of its tenure, the last administration kicked off the maintenance of the refineries. Not a few Nigerians dismissed the effort, saying the move was to score a political goal. Although the previous management gave the impression that the facilities attained 65 per cent operating capacities, Kachikwu told President Muhammadu Buhari that the refineries cannot perform above 27 per cent production capacity. The NNPC helmsman said the “refineries are operating today at about 25, 27 per cent capacity”, stressing that “I know that there had been this whole number bandied around to the fact that we are at 65 per cent performance level; that is not true and I have advised His Excellency as such.”
According to him, the global practice indicates that refineries have 90 per cent performing capacity. At that stage, Kachikwu told senators, the refineries are depicted as profitable. He said the four refineries – at Port Harcourt, Rivers State, Warri, Delta State and Kaduna, Kaduna State – operate below 60 per cent of their nameplate capacities.
His words: “If any refinery produces below 60 per cent, then it is not production. Because the performing capacities of refineries worldwide are in the 90 per cent and above categories and that is when you begin to make yields. That is when it can be said to be a profitable refinery.”
Having adopted a 90-day rehabilitation programme, which elapses in December, the corporation is sweating to turn around the refineries for optimum utilisation. Should the efforts failed by December, the government would be left with the privatisation option.
Kachikwu said: “Their (refineries) performance levels were between 25 and 28 per cent. When I joined, the first thing I did was to put a clarion call to all the managers of our refineries. I said the success of your job depended on these refineries and how they work. If we can’t run them then we need to make adequate arrangement and sell them out.”
He said the NNPC has a plan to raise production capacity of the Port Harcourt Refinery from 67 per cent to about 75 per cent by December, adding that the refinery has recorded significant level of progress in terms of performance.
The NNPC chief has also expressed the hope that the Warri Refinery would come on stream.
“I’ve given a 90-day programme which is working and I’m glad that over the last few weeks, Port Harcourt, for example, has come out of the albatross and is producing right now about 67 per cent capacity. Our target is to grow Port Harcourt to between 70 and 75 per cent capacity by the end of the year. Warri is beginning to signal that there is a likelihood that they will come on stream.”
In terms of capacity, the four refineries have a combined capacity of 445,000 barrel per stream day (bpsd). The Federal Government acquired the 60,000 (bpsd) name template in 1983 from Shell Petroleum Development Company (SPDC) which established it in 1965. In 1989, it commissioned 150,000 bpsd export refinery, bringing the total installed capacity of the Port Harcourt Refinery to 210,000 bpsd.
The Warri Refinery, the first government-owned refinery, was commissioned in 1978. It was built to process 100,000 barrels of crude oil per day but was later de-bottlenecked to process 125,000 barrels per day in 1987. The Kaduna refinery which was commissioned in 1980 has 110, 000 barrel per day installed capacity.
The lack of transparency in the administration of Petroleum Support Fund (PSF), known in the oil sector parlance as oil subsidy has heightened the debate on the fate of the fuel subsidy regime. This, in recent time, has triggered strict monitoring of the consumption of petroleum products in the country.
Through observation and monitoring, according to Kachikwu, the NNPC has discovered a flaw in the consumption claim. According to him, Nigeria’s daily consumption of petrol is between 25 to 30 million litres as against the 40 million-litre claims by the immediate past administration.
However, it is obvious that if all the refineries attain optimum performance, their output would still be a far-cry from the daily requirement of the country. So, Nigeria would still have to rely on importation to make up for the deficit. The total output of the four national refineries is about 19 million litres when they operate at installed capacity.
In a bid to curtail sharp practices in the management of the subsidy regime and reduce the foreign exchange differential, the corporation assumed the sole importer of refined products. It has adopted the Offshore Petroleum Agreement (OPA) in the interim. Under the new arrangement, the NNPC exchanges crude oil for refined products. Besides, it recently opened the bids from 101 oil firms that are competing to engage in the offshore processing of crude for Nigeria.
The government has scheduled the conclusion of the bidding process for next January, if the words of the Managing Director, Pipelines & Products Marketing Company (PPPMC) Limited, Mrs. Esther Nnamdi-Ogbue, are anything to go by.
According to her, it would be a temporary measure for fuel importation for twelve months during which the country would have boosted the domestic refining capacity through rehabilitation of existing facilities and adoption of other measures.
“When we look at what the refineries are doing currently, we have 210 going to OPAs. The intention is that our refineries would work better and are hoping that the 210 will currently be used in the OPA arrangements. We are hoping that this arrangement comes in place in January,” Mrs. Nnamdi-Ogbue said.
Why Buhari is opposed
to subsidy removal
To the President, removing fuel subsidy without first putting the palliative in place would amount to putting the cart before the horse.
“He is opposed to the removal of oil subsidy because of the pains it would inflict on the masses. He has therefore insisted on putting necessary palliatives in place before considering oil subsidy removal,” Kachikwu said of the President, adding that without the palliative measures, “you cannot just remove subsidy.”
“The NNPC is working to establish the actual volume of PMS the country consumes monthly and the actual amount the country spends on subsidy to determine the direction to go. If you don’t handle it with palliatives, you create problems,” he said.
The consensus is that the debate on the propriety of retaining or removing fuel subsidy may be needless when domestic refineries meet the nation’s demand. Already, the Nigerian Labour Congress (NLC) is applauding the plans for adequate provision of petroleum products locally.
Sharing the same view with the NLC are IPMAN and the Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN). They all lauded the Buhari-led administration on its management of the oil and gas sector, especially its arrangement on fuel supply.
PENGASSAN is insisting that the government should exit from fuel importation before removing subsidy. It said oil workers are not opposed to the deregulation of the downstream sector of the industry but that fuel supply must not be import-based.
Its spokesman Emmanuel Ojugbana said: “The NNPC is trying to ensure that it rehabilitates the four refineries in the country for optimal utilisation that would reduce importation of petroleum products. This was one of the conditions that the labour leaders asked the Federal Government to meet before the sale of refineries or removal of subsidy.”
Speaking in the same vein, NLC’s General Secretary, Dr. Peter Ozon-Esson, also described the plan and implementation of the fuel supply measures as positives steps that could boost income generation and create employment opportunities.
Commenting on the measures that NNPC has adopted on the supply of petroleum products, he described the measures as laudable as they would attract local operators to invest in domestic refineries. He said the country would become self-sufficient in fuel supply on the long run.
The general secretary described the current importation regime as a burden on the nation’s economy, noting that it has pushed up the demand for foreign currency, thus putting pressure on the naira.
According to him, the success of the NNPC on its plans for the refineries, will not only translate to job creation but accelerate economic growth.
Ozon-Esson said: “These are correct measures. If we get the domestic refineries to work, and we expand the capacity of domestic refining, by building new refineries and using incentives to make private investors to also build refineries.
“With time, we will become self-sufficient in petroleum products so that we do not need to continue to import. The current importation of petroleum products heavily weighs down the economy. On one hand, it’ll lead to a huge demand for foreign currency, which then acts as pressure on the value of the naira.
“But apart from that, if we refine domestically, we’ll create jobs. Because when we continue to import, we are exporting jobs-other people are doing the jobs. One, we have the raw materials that we can send abroad for other people to benefit from the process of refining.
“We can reap those benefits and they will assist our economy to do better- to become more stable and to become more resilient. So, these are laudable decisions of government on policy. Nigerians should rally round the government for support.”
Dankingari said IPMAN has no grouse with the removal of subsidy in as much as the local refineries function.
His words: “The removal of subsidy is a welcome idea but it has to be in phases. In phases in the sense that if you look now all our refineries are not functional. Even if they are functioning, the capacity at which they are functioning is too low. And we really rely on importation.
“So, if the Federal Government can try as much as possible within the shortest possible time and see that they put these four refineries in order, I think if it removes subsidy, it will not affect the entire citizens.”
Going by NNPC’s disposition to work, especially its determination to ensure self-sufficiency in domestic production of petroleum products, the hopes are high Kachikwu, expected to double Minister of State for Petroleum Resources, could attain optimum utilisation of the four nation’s refineries.
Time will also tell how far the private investors would go with plans to build modular refineries as ways to boosting domestic fuel supply.
But promoters of fuel subsidy withdrawal should at least for now, perish the idea as President Buhari appears not to be in haste to approve such measure without accomplishing surplus in local production of products.
