After $25b on maintenance, FEC approves new $1.5b for PH refinery

2021-03-17
THE GUARDIAN Newspaper

• FG’s move to rehabilitate refinery, one of APC’s empty promises, says Wike
• Stakeholders kick, insist refinery may remain drainpipe
• Three refineries processed zero crude but cost nation N10b in June 2020
• Reps to probe alleged neglect, diversion of crude oil at Warri refinery

The Federal Executive Council (FEC), presided over by President Muhammadu Buhari yesterday, approved the sum of $1.5 billion, about N575 billion, for immediate commencement of rehabilitation work on the largest refining company in the country, the 32-year-old Port Harcourt Refinery.

The Minister of State for Petroleum Resources, Timipre Sylva, disclosed this to newsmen after the council meeting at the Presidential Villa, Abuja. Sylva said the contract for the rehabilitation was awarded to an Italian firm, Tecnimont SPA, to maintain and is expected to be executed in three phases.

While the first phase is expected to be completed within a period of 28 months, the Minister said the second and third phases will be completed in 24 and 44 months respectively.

He added that the funding has three components from Nigerian National Petroleum Corporation (NNPC), Internally Generated Revenue (IGR), budgetary allocations provisions, and Afreximbank.

Sylva gave the assurance that the government would also facilitate the complete rehabilitation of the Warri and Kaduna refineries before the end of the lifespan of the current administration.

This is coming on the heels of the Federal Government’s proposal to sell or concession no fewer than 36 of its properties in the bid to raise funds to finance the 2021 budget. Top among these properties are the three refineries in Kaduna, Warri, and Port Harcourt, among others.

The Port Harcourt refinery, which began operation in 1989, remains the largest refining company in Nigeria, until the time the Dangote refinery in Lagos will be activated. At inception, it had a capacity to process 150,000 barrels of crude a day and was later upgraded to 210,000 barrels per day. The refinery has been repaired innumerable times, under various Turn Around Maintenance (TAM) contracts that had gulped huge amounts.

It would be recalled that Nigeria has spent about $25 billion in turnaround maintenance of refineries in the past 25 years, the prevailing development is coming after promises by the administration that the government would no longer spend on the facility. Previous rehabilitations notwithstanding, the Nigerian National Petroleum Corporation (NNPC) audit report had last year revealed that three of the nation’s four refineries recorded N1.64 trillion cumulative losses in their 2014 to 2018 details.

Despite processing no crude oil in June last year, the three refineries still cost the country N10.23 billion in expenses according to the report. The NNPC had said the three refineries processed no crude because of the rehabilitation works being carried out on them.

“There was no associated crude plus freight cost for the three refineries since there was no production but operational expenses amounted to ₦10.27 billion. This resulted in an operating deficit of ₦10.23 billion by the refineries.”

The report stated that the combined losses from the Port Harcourt Refinery and Kaduna Refinery were N208.6 billion in 2014; N252.8 billion in 2015; N290.6 billion in 2016; N412 billion in 2017 and N475 billion in 2018.

Currently operating at zero capacity, NNPC had shut down the facilities stating that it would adopt the Build, Operate and Transfer (BOT) model to run the refineries.

Reacting, Rivers State Governor, Nyesom Wike, has said the move by the Federal Government to rehabilitate the Port Harcourt Refinery is one of the empty promises of the All Progressives Congress (APC) government. He stated this yesterday while featuring on Channels Television’s ‘Politics Today’ programme.

Commenting on the announcement, Wike said the news was nothing to cheer about, adding that Nigerians should be ready for a deluge of similar promises from the APC government as the 2023 elections draw near. “We have heard these promises and nothing has happened,” he said, adding that “approval is not disbursement of the fund”.

He said: “If it (refinery) is going to work, it will improve a lot of economic activities, there will be employment for the people of the state. We will be happy but I am saying that we have had these promises and promises and nothing has happened. So, I don’t want to begin to say hallelujah. Let us wait and see what will happen based on the approval and the statement made by the minister of state, petroleum. We will hold him accountable for it.

“We know, even before the APC government came into being, they have promised a lot of things and later they come up to say because of these challenges and that, they are not able to fulfill them.”
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Many of the stakeholders who spoke with The Guardian yesterday, insisted that the move could be the worst decision that the Buhari-led administration would make given the history of the refineries. They added that it was better to build a new refinery than expend $1.5 billion into the Port Harcourt refinery.

They equally see the move as a drainpipe, which may never produce a meaningful result, particularly at a time the nation’s economy is in despair and burdened with huge borrowing.

In separate interviews, the stakeholders were not comfortable with the figure, as the Group Chairman/CEO, ‎International Energy Services Limited, Dr Diran Fawibe, noted that without a comprehensive rehabilitation and audit, the fund could be as good as a waste considering that the facility has failed to perform after years of maintenance.

Fawibe, a former management employee of NNPC, warned that without proper rehabilitation and auditing of the entire facility to ensure that the liability of the facility remains very minimal, the fund could end up along the same path as the previous attempts.

According to him, the contractor must be held by the throat for a guarantee of performance, as well as years of defect liability period with extra spare parts at no additional cost should the facility develop a problem after being rehabilitated.

An energy expert, Henry Adigun, does not see a sense in staking $1.5 billion in fixing the refinery, stating that it was unfortunate for government to resort to the option after promising to allow the private sector to run the facility on BOT.

“Where is the money going to come from? Turnaround for what? What is the context,” Adigun asked series of questions begging for answer as he decried the move by the government.

Director of the Centre for Democracy and Development (CDD), Idayat Hassan, said Nigeria must build new refineries instead of pumping money into dead facilities, stressing that rehabilitation with $1.5 billion was totally a misplaced priority. “If we do a cost analysis, we should be able to see how much more we need for a new refinery. It is becoming counterproductive to try to continue to rehabilitate what is failing,” Hassan said.

“That contract is too much. You don’t need that amount of money to turn around refinery anywhere in the world. I will prefer we build a new one,” energy expert, Madaki Ameh, also added his voice.

Ameh predicted that government would still continue to struggle with the facility even if the money is staked on the facility, stressing that the country could rather build as many modular refineries with the money and still have funds to push to other projects.

He pointed out that as soon as the refinery is repaired, it will become dysfunctional again, reinforcing Nigeria’s position as the greatest importer of refined products despite being an oil-producing country.
MEANWHILE, the House of Representatives yesterday mandated its Committee on Petroleum (Upstream) to investigate an alleged diversion of crude oil meant for refining at Warri refining and petrochemical company in Delta State. The Committee will also probe why the NNPC has allegedly failed, refused and or neglected to address the haulage challenges viz-a-viz inadequate storage tanks affecting the refining and petrochemical company to forestall the frequent shutting down of the refinery.

The resolution of the parliament was a sequel to a motion titled: “Urgent Need for the Re-Opening and Commencement of Operations of the Warri Refining and Petrochemical Company by addressing the Haulage Challenges and Lack of Functional or Operational Storage Tanks affecting the Refinery”, sponsored by Ben Igbakpa, representing Ethiope Federal Constituency of Delta State.

Moving the motion, Igbakpa recalled that the Warri Refining and Petrochemical Company was mandated to produce refined products from mainly local crude. According to him, the three main sections of the production department, namely: reforming, crude distillation, and catalytic cracking units have operated more than the others from the sister refineries for the past eight years due to the efforts of the permanent and support staff of Warri refinery.

The lawmakers urged the Group Managing Director (GMD) of NNPC, Mr Mele Kyari, to immediately commence operation of the plant. The lawmakers also urged the NNPC boss to furnish the Committee on Petroleum Resources Upstream with details and circumstances surrounding the storage lease, which are not disposing of the company.

Igbakpa, while moving the motion, claimed that the refinery has not operated optimally due to alleged top management decisions of the NNPC to ground the plant for personal benefit from marketers importing products that can be produced in the refinery.

The lawmaker argued that the commencement of local production would help to mitigate the incessant and upward price adjustment of petroleum products, which will ameliorate the hardship and inflation that comes with such exercise to Nigeria and Nigerians.

“This is cognizant that the Federal Government has officially confirmed the return of fuel subsidy, as the Petroleum Products Pricing Regulatory Agency (PPPRA) had on March 11, fixed the pump price of PMS, also known as petrol, at N212.61 per liter, for March, which the Minister of State for Petroleum Resources and NNPC has denied; yet petroleum marketers sell between N175 and N200 depending on the location.

“Also cognizant that the increase is due to the shutdown of local refineries and added cost elements of the commodity, which the PPPRA analyzed as comprising the addition to the ex-coastal price of average lightering expenses, Nigerian Maritime Administration (NIMASA) charges, jetty throughput charges, storage charge and average financing costs with the inclusion of retailers’ margin, bringing the pump price of the commodity to N212.61 per liter.”

On when the other refineries will be rehabilitated, the Minister said: “Discussions are ongoing. We want to take one at a time and I want to assure you that before the lifetime of this administration expires, work on all the refineries would have at least commenced.”

On why the government did not go back to the original builders of the refinery, Sylva said: “The first action was to go to the original refinery builders, but you all know, like I do, that if you have a Toyota car, and your Toyota car develops a problem, you don’t have to go to the builders of the Toyota to fix it. Usually there are people in the business of building Toyota cars, there are also people in the business of maintaining Toyota cars.

“So, we found out from the original refinery builders that they are not in the business of rehabilitating refineries, they are in the business of building refineries. So, they actually pointed us to a rehabilitation company that we’re dealing with now.”

 

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