The rehabilitation and subsequent concessioning of the nation’s moribund refineries, starting with the Port Harcourt Refinery and Petrochemical Company, has pitched the executive arm of government against the legislative arm. While each of the parties to the controversy may have reasons for insisting on its position, industry experts and stakeholders say that urgent resolution of the disagreement will save Nigeria huge foreign exchange and jobs from importation of refined petroleum products. Assistant Editor EMEKA UGWUANYI reports.
The executive and legislative arms of government are at loggerheads over the repair, maintenance and concession of Port Harcourt Refinery and Petrochemical Company by Nigerian Agip Oil Company, the Nigerian subsidiary of Italian oil giant Eni, in partnership with Oando Plc, a Nigerian oil and gas conglomerate, the local vehicle.
While the executive, through the Ministry of Petroleum Resources (DPR), believe that the arrangement was in Nigeria’s interest considering the technicalities and huge financial resources required to rehabilitate and manage a refinery, the legislature thinks otherwise.
To the lawmakers, the DPR, under the arrangement, took a unilateral and unlawful action devoid of transparency and due process when it awarded the contract allegedly without wider consultation or open bid.
The lawmakers, who have been literarily up in arms in the past two weeks, argued that the Minister of State for Petroleum Resources, Dr. Ibe Kachikwu, should have consulted and engaged widely with stakeholders and the public on the plan to rehabilitate and concession the refinery.
Consequently, the aggrieved lawmakers have directed the Minister to put on hold the rehabilitation plan until they conclude investigation into the entire process of award of the contract to Agip and Oando.
While the executive may have acted in good faith, in view of decades of government’s fruitless efforts to fix the moribund refineries after billions of naira have been sunk in Turnaround Maintenances (TAMs), the legislature argue that as a country guided by rules, the executive through the Ministry and the DPR should not have been involved in an arrangement that allegedly stood transparency on its head.
The Head, Energy Research, Ecobank Group, Mr. Dolapo Oni, sought to justify the position of the executive when he said that the Minister’s involvement of private sector-driven firms was an excellent idea. According to him, the refineries had suffered negligence for a long time.
His words: “Private sector help is appreciated in revamping the refineries. The refineries have suffered poor maintenance and needed to be restored to their true state. There are parts of the plants that need to be changed over the years, but because the refineries are managed by government, there were no funds to put them in their proper shape.”
Oni said this was Kachikwu has been globe-trotting in search of investors with the requisite technical and financial muscle to bring the refineries back on track. “So, when the minister found Agip agreeing to his proposal to take over the Port Harcourt refinery, he quickly handed it over to the firm,” he said.
Oni while reacting to the Senate’s directive that all processes to the rehabilitation and concession of the refinery to Agip and Oando be stopped, however, said although he doesn’t have the details of the transactions to enable him make informed comments, he does not see anything wrong with the Senate insisting on making details of the award public.
Listen to Oni: “We don’t have the full details of the transaction. The Minister didn’t explain whether the Agip/Oando partnership will transfer ownership of the refinery to the government at some point or whether the partnership will seek repayment of the rehabilitation and management from the government. Making the details of the contract public is important.
“Don’t also forget that the same Agip promised to build a brand new refinery in the Niger Delta. Will Agip hands off its involvement in the Port Harcourt refinery on completion of construction of the new one or will it manage the two refineries? These knotty areas need to be explained so that Nigerians and other interested investors will know.”
Oni, however, said that the Senate should have invited Kachikwu for proper briefing before stopping the contract, noting that such unilateral decision by the Senate does not speak well of the country to investors. “The Senate should have called for proper briefing with the Minister before going public to stop the deal. The hallowed chamber’s action signals to the investors that we are not together as a people,” he said.
Ecobank Group research head stated that the Ministry needed to conduct a proper concession process, while the Senate, going forward, needs to urgently notify the public what they found in the Ministry and lift the suspension so that work will continue on the refinery.
This said this was necessary because Nigerians needed the refineries to work toi halt the huge roreign exchange and jobs that go into the importation of petroleum products.
The Senate had last week asked the Federal Government through Kachikwu to suspend all processes for the concession of the Port Harcourt refinery to Agip and Oando Plc. The suspension order was sequel to a motion moved by Senator Sabo Mohammed at the plenary.
In the motion entitled ‘Non-transparent transaction relating to the planned concession of the Port Harcourt Refinery to Agip and Oando by the Ministry,’ the Senate noted its worry on the “non-transparent transactions” of the planned concession.
In the motion, Mohammed said: “The Senate is aware that the Federal Government recently entered into an agreement with Nigerian Agip Oil Company, a subsidiary of Eni, an Italian oil giant, to construct a $15billion refinery in the Niger Delta region.
“It is a deal that also includes investment by Agip in a power plant, with the Italian company assisting Nigeria in the repairs of the Port Harcourt refinery.”
“The Senate notes that the Minister stated that the agreement was part of a broader Federal Government plan to increase capacity for local production and consumption of petroleum products, with the aim of ending fuel importation in Nigeria by 2019.
“It also notes that while the resolve by the Federal Government to increase local refining capacity is laudable and should be applauded by all Nigerians, the observance of corporate governance principles and the country’s extant laws must be followed to the letter.”
On this note, Senate President Bukola Saraki who presided over the plenary, set up a seven-man ad hoc committee led by Senator Abubakar Kyari to investigate the transaction and the processes applied to select Agip/Oando for the deal.
The Senate also mandated the ad hoc committee to probe the cost and timeframe of the concession. The hallowed chamber also stopped the entire transaction until the committee submits the outcome of its investigation.
Besides, the lawmaker stated that the Senate was concerned that the planned concession of the refinery “without recourse to due process is illegal and a clear attempt at ridiculing Nigerians, and will definitely create a big hole that will be hard to fill in the anti-corruption crusade of the present administration.”
The Senate said it was aware that in such transactions, the best practice was to select partners through open and competitive bids. Such steps, it added, will prepare the business for sale, market the business, select the buyers and close the transaction.
The upper chamber noted that any exclusive arrangement that does not follow the above procedure, hatched in the dark without the knowledge and participation of relevant stakeholders, tends to lead to sub-optimal outcomes for the seller; in this case, the Federal Government.
The Senate also said it was aware that the major stakeholders such as the Bureau of Public Enterprises (BPE) that was empowered by law to conduct such an exercise and labour unions were not aware of the deal that is supposed to be signed officially in July this year.
Besides, the Senate expressed concerns that since Agip has no technical record or history in the Port Harcourt refinery that was built by a Japanese firm, one would have expected the concerned authority to look at the Warri refinery that was built by Agip where they have technical record.
Mohammed also stated that the Senate was saddened that on assumption of office as the Group Managing Director of the Nigeria National Petroleum Corporation (NNPC), Kachukwu declared that by the end of 2015, the refineries in the country would be working at 90 per cent capacity.
This, according to the Minister, will drastically reduce fuel importation and subsidy payments. Mohammed, however, stated that up till now, 2017, the refineries have yet to be fixed and can’t produce at 50 per cent capacity let alone 90 per cent.
To the lawmaker, such concession would have been wonderful should it result to an end to importation of refined products by 2020. “Is it Agip or Oando Plc that is taking over the Port Harcourt refinery? Was there observance of the privatisation law as regards due diligence and selection from preferred bidders before ceding Port Harcourt refinery to Agip/Oando?” he asked, insisting that the Minister needs to explain some issues in the transaction.
Senator Dino Melaye also accused the executive of taking Nigerians for granted. Citing the concession of power supply to electricity generation and distribution companies and the concession of Ajaukuta and Delta steel companies, which have resulted to total decay of the industries, he said these may be replicated in the Port Harcourt refinery.
However, the Chief Strategy and Corporate Services Officer, Oando Plc, Ainoije ‘Alex’ Irune, noted that Oando chose to be part of the deal because it shares government’s aspiration to make Nigeria self-sufficient in fuel production.
“We wish to explicitly state that Oando shares the vision of the Nigerian Government to become a petroleum product self-sufficient country in the short to medium term and ultimately be a net exporter of such products.
“Accordingly, pursuant to the Memorandum of Understanding (MOU) reached with the Federal Government and NAOC/ENI. Oando will partner with NAOC/ ENI in the proposed rehabilitation of the Port Harcourt Refinery (PHRC).
“This will be based on a Repair, Operate and Maintain (ROM) agreement, which will see PHRC’s capacity grow from its current 30 per cent to 100 per cent, its name plate capacity of 210,000 barrels per day,” he said.
‘Alex’ Irune said in line with the concerted efforts of the Ministry and the NNPC to aggressively drive private sector led refineries rehabilitation and expansion programmes, Oando as local partners to NAOC/ENI will support the rehabilitation of PHRC’s on activities. He said active negotiations are ongoing and it is expected that a final agreement will be reached by end of July, 2017.
However, the outcome of the probe panel set up by the Senate to look into the rehabilitation and concession deal will determine how the partnership goes.
The Minister had stated in Vienna, Austria, during the 172nd Organisation of Petroleum Exporting Countries (OPEC) meeting that the refineries concession cannot be done in an open bidding process because it’s a highly technical area.
Also, Kachikwu had on May 9 after meeting with Acting President Prof Yemi Osinbajo and Agip officials at the State House, announced that the Nigerian Agip Oil Company had committed to repair the Port Harcourt refinery, as part of a $15 billion investment that includes building a 150,000 barrels per day refinery and a power plant in the country.
As a follow up, the Chief Executive Officer of Oando Plc, Wale Tinubu, also on May 11, on the floor of the Nigeria Stock Exchange, said his company had received approval of the Federal Government partner with Agip on the refinery deal.
Kachikwu said the entire refinery transaction was aimed at strengthening Nigeria’s drive to end fuel importation by 2019. In addition, last month, Kachikwu vowed to resign should Nigeria fail to achieve self-sufficiency in crude oil refining by 2019 with full implementation of government’s policies on the matter.
In an interview with the BBC, Kachikwu insisted that the target for Nigeria to attain self-sufficiency in terms of crude oil refining remains 2019, adding that Nigeria should be more concerned about processing crude oil rather than shipping it out for processing elsewhere and importing refined products.
But with the current disagreement with the lawmakers, there are fears that Kachikwu may renege on his pledge.
Promises, woes of the refineries
The Group Managing Director, (NNPC), Dr. Maikanti Baru, had last month stated that the Corporation was shopping for $16 billion to grow its upstream and refining operations and increase the nation’s oil refining from the current 445,000 barrels per day (bpd) to 700,000 bpd within the next few years.
He said: “With respect to our refineries, our plan is to rehabilitate, and revamp our existing four refineries. We invite you investors to participate in this process. On successful rehabilitation and revamp, our plan is to upgrade the combined nameplate capacity from 445,000 barrels per day to 700,000 barrels a day within the next few years. We would require investments of between $5billion and $6billion.”
He said NNPC was also mindful of the need to construct new refineries and hence it encourages investors in this area. According to him, the big picture is to transit from a net crude oil exporter to a net petroleum product exporter as more value and opportunities abound in the latter.
Whether this aspiration will be accomplished, time will tell.
Meanwhile, General Electric (GE) has pledged to assist the Federal Government in the revitalisation of the country’s refineries. The President and Chief Executive Officer of GE’s Grid Solutions/Energy Connections, Africa, Dr. Lazarus Angbazo, told reporters recently that the company still stands on its promise and was waiting for the NNPC on the areas to intervene in.
Angbazo confirmed that the resuscitation of the refineries would enable Nigeria become self-sufficient in petroleum production, adding that the company would not hesitate in helping the country to meet the 2019 target to halt importation of petroleum products.
According to the Central Bank of Nigeria (CBN’s) report, the Federal Government spent $6.09 billion on petroleum imports in the first six months of last year despite scarce foreign exchange and pressure on foreign exchange reserves. Even now, the government spends substantial amount on fuel importation and subsidy.
Also, between 2000 and 2017, the government has spent over N10 trillion on fuel subsidies. According to the Chairman, Senate Committee on Petroleum Resources (Downstream), Senator Marafa Kabir Garba, the NNPC alone collected over N5 trillion on subsidies from 2006 to 2015.
Reports also showed that the first Port Harcourt refinery was constructed by Shell-BP in 1965 at a cost of £12 million. It had a capacity of 38,000 barrels per day (bpd) and later upgraded to 60,000 bpd and was taken over by the Federal Government in 1971.
The Federal Government in 1974 engaged a Texas based petroleum consultancy firm for a feasibility study on how to increase supply. In November 1975, contract for the construction of Warri Refinery and Petrochemical Company was awarded to Snamprogetti SPA of Italy for 100,000 bpd at the cost of $478 million. It was for a 30-month period and was commissioned in September 1978.
Kaduna Refinery and Petrochemical Company contract was awarded to Chiyoda Engineering and Construction Company of Japan at a cost of $525 million in 1976 for 100,000bpd (refining in two streams of 50,000 for fuels and 50,000 bpd for lubes) with a completion period of 36 months and was commissioned in 1980.
The 1974 feasibility was updated to meet new products demand. Warri was upgraded from 100,000 to 125,000 bpd while Kaduna fuel plant was increased from 50,000 to 60,000 bpd in 1985. The second Port Harcourt refinery was also designed for 150,000 bpd and awarded to a consortium of JGC Corporation, Marubeni Corporation (both Japanese) and Spibatignolles of France in October 1985 at a cost of $850 million for 36 months completion and commissioned in 1989.
According to the report, between 1991 and 1992, the new Port Harcourt plant exported products and made $280 million for government. Exports, however, stopped later because Kaduna and Warri productions dropped.
Currently, Nigeria refineries with a combined capacity of 445,000 barrels per day cannot produce 20 per cent of its installed capacity as the preference is imported fuel. The nation’s consumption capacity is put at highest 40 million litres of petrol about 208,799.40 barrels of crude per day, which can comfortably be produced locally.
The oldest refinery in the world, the Digboi refinery, Assam in India constructed in 1901 is still refining crude. The oldest refinery in Jeddah, Saud Arabia was constructed in 1967. The newest complex refinery in the United States, the Marathon Petroleum Company in Garyville, Louisiana was constructed in 1977 and upgraded from a 200,000 bpd to 522,000 bpd capacity plant in 2014.
The consensus of experts and industry stakeholders is that the only sustainable way to make the refineries work is to completely hand them over to genuine private sector operators, not fronts of government officials that will not play the game according to the rules.
