The Federal Government’s plan to concession its refineries may not materialise soon. Reason: the Senate is investigating the proposed rehabilitation of the Port Harcourt Refinery and Petrochemical Company by a multinational oil firm. But, according to industry experts, an urgent resolution of the disagreement will be more beneficial to the country, reports Assistant Editor EMEKA UGWUANYI.
The executive has been pitted against the legislature over the planned repair, maintenance and concession of the Port Harcourt Refinery and Petrochemical Company.
Nigerian Agip Oil Company – the local subsidiary of Italian oil giant Eni, in partnership with Oando Plc, a Nigerian oil and gas conglomerate, were being considered for the job by the Federal Government before the National Assembly suspended the process.
The Ministry of Petroleum Resources, which is driving the process for the government, believes that giving the facility to a private sector operator would serve Nigeria’s interest better.
It was considering the technicalities and huge resources required to rehabilitate and manage a refinery but the Senate feels otherwise.
To the lawmakers, the ministry erred by taking what they called a unilateral and unlawful action without recourse to transparency and due process. They accused the ministry of hiring a contractor without a wide consultation or conducting an open bid.
According to them, the Minister of State for Petroleum Resources, Dr. Ibe Kachikwu, should have engaged stakeholders and members of the public on the planned rehabilitation and concession of the refinery.
They directed the executive to pull the brake on the rehabilitation plan pending the conclusion of investigation into the process that led to the award of the contract to Agip and Oando.
Analysts argue that the executive may have acted in good faith following decades of government’s fruitless efforts to fix the moribund refineries, singing billions of Naira to carry out routine Turnaround Maintenances (TAMs).
But the legislature said the executive, through the ministry and its Department of Petroleum Resources (DPR) agency, should not have been involved in an arrangement that lacked transparency in a country guided by rules.
The Head, Energy Research, Ecobank Group, Mr. Dolapo Oni, threw his weight behind the executive, describing the decision to engage private sector-driven firms to revamp the refineries as excellent. He said the refineries had suffered neglect for a long time.
Oni said: “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 the government, there were no funds to put them in their proper shape.”
He said Dr. 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 rationalised.
Reacting to the Senate’s directive that all processes leading to the rehabilitation and concession of the refinery should be put on hold, Oni said the lawmakers did no wrong for demanding transparent process.
Oni said: “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 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.
The Ecobank Group research head agreed that the ministry needed to conduct a proper concession process and that the Senate must urgently notify the public what they found in the ministry and lift the suspension so that work will continue on the refinery.
He urged the two arms of government to smoothen the rough edges because the refineries must work to end the huge foreign exchange that go into the importation of petroleum products.
Last week, the Senate 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 expressed concern 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.”
Senate President Bukola Saraki has named Senator Abubakar Kyari to head a seven-man ad hoc committee to investigate the transaction and the processes applied to select Agip/Oando for the deal.
The Senate also mandated the committee to probe the cost and timeframe of the concession.
The upper chamber, which suspended the transaction, stated 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 the usual practice in such transactions 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 Senate also said it was aware that the major stakeholders such as the Bureau of Public Enterprises (BPE), a body statutorily empowered by law to conduct such an exercise and labour unions, were not consulted on the deal that has been scheduled for signing next month.
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 had stated that the Senate was saddened that on assumption of office as the Group Managing Director (GMD) of the Nigeria National Petroleum Corporation (NNPC), Kachukwu assured that the refineries would be working at 90 per cent installed capacity by the end of 2015.
This, according to the minister, would drastically reduce fuel importation and subsidy payments. But Mohammed, stated that up till now, the refineries have yet to be fixed and cannot produce at 50 per cent capacity, let alone 90 per cent.
To the lawmaker, such concession would have been wonderful if it would end 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 must 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.
The Chief Strategy and Corporate Services Officer of Oando Plc, Ainoije ‘Alex’ Irune, explained his company’s involvement in the deal.
According to him, Oando bought into the project because of its belief in government’s aspiration to make Nigeria self-sufficient in fuel production.
Irune said: “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 that 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.
According to him, a final agreement will be due by end of July after ongoing active negotiations.
But, the outcome of the Senate’s probe panel will determine the agreement.
Kachikwu, at the 172nd Organisation of Petroleum Exporting Countries (OPEC) meeting stated in Vienna, Austria, that the refineries concession cannot be done in an open bidding process because “it’s a highly technical area.”
Also on May 9 after meeting with Acting President Yemi Osinbajo and Agip officials at the State House, , Kachikwu 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.
Speaking on the floor of the Nigeria Stock Exchange on May 11, Oando’s Chief Executive Officer Wale Tinubu said his company had received approval of the Federal Government to 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.
He 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 British Broadcasting Corporation (BBC), Kachikwu restated Nigeria’s target to attain self-sufficiency in terms of crude oil refining by 2019, adding that the country should be more concerned about processing crude oil rather than shipping it out for processing elsewhere and importing refined products.
Promises, woes of the refineries
The NNPC Group Managing Director, 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.”
Baru said the NNPC was mindful of the need to construct new refineries and hence, it will encourage 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.
Meanwhile, General Electric (GE) has pledged to assist the Federal Government in the revitalisation of the refineries. The President and Chief Executive Officer of GE’s Grid Solutions/Energy Connections, Africa, Dr. Lazarus Angbazo, told reporters that the company was waiting for the NNPC on the areas needing intervention.
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 the scarce foreign exchange and pressure on foreign exchange reserves.
Even now, the government spends substantial amount on fuel importation and subsidy, the apex bank said.
Between 2000 and 2017, the government 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.
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 private sector operators and not fronts of government officials.
